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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[ ] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
WOLOHAN LUMBER CO.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[ ] No fee required.
[ ] 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:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[ ] 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:
$2,139.92
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2) Form, Schedule or Registration Statement No.:
PREM14A
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3) Filing Party:
Wolohan Lumber
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4) Date Filed:
8/20/03
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
PRELIMINARY COPY
WOLOHAN LUMBER CO.
October __, 2003
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Wolohan Lumber Co. to be held at 11:00 a.m., local time, on November 5,
2003, at the offices of the Company, 1740 Midland Road, Saginaw, Michigan.
As described in the enclosed Proxy Statement, at the Special Meeting,
you will be asked to approve the Merger of Wolohan Acquisition Co. with and into
Wolohan Lumber Co. as the surviving corporation. In the Merger, shares of our
common stock issued and outstanding immediately prior to the Merger owned by
public shareholders will be converted into the right to receive $25.75 per
share, in cash, without interest. Shares beneficially owned by certain current
shareholders and members of management, including James L. Wolohan, the
Company's President and Chief Executive Officer, John A. Sieggreen, its
President and Chief Operating Officer, and Edward J. Dean, its Vice President
and Chief Financial Officer (the "Continuing Shareholders"), who own
approximately 51.3% of Wolohan common stock, will remain as outstanding shares
of the surviving corporation.
A Special Committee comprised of independent members of our Board of
Directors, consisting of Lee A. Shobe and Charles R. Weeks, was formed to
consider the proposal. The Special Committee unanimously recommended to our
Board of Directors that the Merger be approved.
In connection with its evaluation of the Merger, the Special Committee
engaged McDonald Investments Inc. to act as its financial advisor. McDonald
Investments has rendered its written opinion that, as of August 13, 2003, based
upon and subject to the assumptions, limitations and qualifications included in
its opinion, the consideration of $25.75 per share to be received in the Merger
is fair from a financial point of view to our, unaffiliated public shareholders
who are not Continuing Shareholders. McDonald Investments' written opinion dated
August 13, 2003, is attached as Appendix B to the accompanying Proxy Statement.
The Board of Directors believes that the terms of the Merger are
procedurally and substantively fair to, and in the best interests of, our
unaffiliated public shareholders and recommends that the shareholders approve
the Merger. Since John Sieggreen and I have a personal interest in recommending
the Merger to you, we abstained from voting at the Board meeting at which this
recommendation was made.
Details of the Merger and other important information are described in
the accompanying Notice of Special Meeting and Proxy Statement. You are urged to
read these important documents carefully before casting your vote.
Whether or not you plan to attend the Special Meeting, we urge you to
complete, sign, date and promptly return the enclosed proxy card.
We thank you for your prompt attention to this matter and appreciate
your support.
Very truly yours,
/s/ James L. Wolohan
President and Chief Executive Officer
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY,
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. PLEASE DO NOT SEND IN ANY
CERTIFICATES FOR YOUR COMMON STOCK AT THIS TIME. IF THE MERGER IS APPROVED,
SHAREHOLDERS WILL RECEIVE A LETTER OF TRANSMITTAL AND RELATED INSTRUCTIONS.
2
PRELIMINARY COPY
WOLOHAN LUMBER CO.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 5, 2003
To the Shareholders of
WOLOHAN LUMBER CO.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
WOLOHAN LUMBER CO. (the "Company") will be held on November 5, 2003 at 11:00
a.m., local time, at the offices of the Company, 1740 Midland Road, Saginaw,
Michigan, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of August 13, 2003 (the "Merger
Agreement"), pursuant to which Wolohan Acquisition Co., a Michigan corporation,
would be merged with and into the Company (the "Merger"). The Company would be
the surviving corporation in the Merger. As a result of the Merger, each
outstanding share of common stock of the Company, other than shares owned by
certain current shareholders and members of management, will be converted into
the right to receive $25.75 in cash, without interest, all as more fully
described in the accompanying Proxy Statement.
2. To transact such other business as may properly be brought before
the Special Meeting or any adjournments thereof.
Only shareholders of record as of the close of business on September
15, 2003 will be entitled to notice of the Special Meeting and to vote at the
Special Meeting and any adjournments of the meeting.
The Board of Directors acting upon the unanimous recommendation of the
Special Committee of the Board, has approved the Merger Agreement and the Merger
and recommends that you vote FOR approval of the Merger Agreement.
By Order of the Board of Directors,
/s/ George I. Gibson, Jr.
Secretary
October ___, 2003
EACH SHAREHOLDER IS URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IF A SHAREHOLDER DECIDES TO ATTEND THE SPECIAL MEETING, THE SHAREHOLDERS
MAY, IF SO DESIRED, REVOKE THE PROXY AND VOTE THE SHARES IN PERSON.
PRELIMINARY COPY
WOLOHAN LUMBER CO.
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 5, 2003
GENERAL
This Proxy Statement is being furnished to holders of Wolohan Lumber
Co. (the "Company") common stock in connection with the solicitation of proxies
by our Board of Directors for use at the Special Meeting of Shareholders, and at
any adjournments of the meeting, to be held at the offices of the Company, 1740
Midland Road, Saginaw, Michigan, on November 5, 2003 beginning at 11:00 a.m.,
local time. The Special Meeting has been called to consider and vote upon a
proposal to approve and adopt the Merger Agreement, dated as of August 13, 2003,
between the Company and Wolohan Acquisition Co. ("Wolohan Acquisition"),
pursuant to which Wolohan Acquisition will be merged with and into the Company.
A copy of the Merger Agreement is attached to this Proxy Statement as Appendix
A.
Only shareholders of record on September 15, 2003 are entitled to
receive notice of and vote at the meeting. On that record date, there were
2,042,688 shares of common stock of the Company outstanding.
Each share of our common stock will be entitled to one vote. The Merger
must be approved by a vote of a majority of the outstanding shares of common
stock. Of those shares, approximately 51.3% were beneficially owned by certain
current shareholders and members of management who will continue as shareholders
after the Merger, including James L. Wolohan, the Company's President and Chief
Executive Officer, John A. Sieggreen, its Executive Vice President and Chief
Operating Officer, and Edward J. Dean, its Vice President and Chief Financial
Officer who have indicated they will vote for the Merger, but are not obligated
to do so. If such shareholders vote as indicated, the Merger Agreement will be
approved and adopted. A quorum for the meeting requires that holders of a
majority of the outstanding shares of common stock must be present in person or
by proxy.
The Board of Directors recommends that you vote "FOR" approval of the
Merger Agreement and the Merger.
Proxies will be voted in the manner you specify in the proxy card. You
must sign your proxy. If you return your proxy but do not specify how it should
be voted, your shares will be voted for the Merger. If your stock is held by a
broker or other custodian in "street name", your shares will not be voted unless
you provide specific instructions to the broker or custodian. Proxies submitted
by brokers or custodians who have not received voting instructions will be
counted for the purposes of determining a quorum, but will not be voted for or
against the Merger. You are urged to complete and return your proxy or, if your
shares are held in street name, to provide voting instructions in accordance
with the materials you receive from your broker or other custodian.
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This Proxy Statement and the accompanying form of proxy are first being
mailed to shareholders on or about October __, 2003.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE A SOLICITATION OF A
PROXY IN ANY JURISDICTION FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE A PROXY
SOLICITATION IN SUCH JURISDICTION. THE INFORMATION IN THIS PROXY STATEMENT MAY
ONLY BE ACCURATE ON THE DATE OF THIS PROXY STATEMENT.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF THE TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains or incorporates by reference certain
forward-looking statements and information relating to us that are based on the
beliefs of management as well as assumptions made by and information currently
available to us. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance, and underlying
assumptions and other statements which are other than statements of historical
facts, including statements regarding the completion of the Merger. When used in
this document, the words "anticipate," "believe," "estimate," "expect," "plan,"
"intend," "project," "predict," "may", and "should" and similar expressions, are
intended to identify forward-looking statements. Such statements reflect our
current view with respect to future events, including the completion of the
Merger, and are subject to numerous risks, uncertainties and assumptions. Many
factors could cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements that
may be expressed or implied by the forward-looking statements including, among
others, fluctuations in customer demand and spending, expectations of future
volumes and prices for our products, prevailing economic conditions affecting
the retail lumber and building materials markets and seasonality of operating
results and other factors, including risk factors, referred to from time to time
in filings made with the Securities and Exchange Commission. The Company
undertakes no obligation to update or clarify forward-looking statements,
whether as a result of new information, future events or otherwise. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described in this Proxy Statement as anticipated, believed, estimated, expected,
planned or intended.
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TABLE OF CONTENTS
PAGE
GENERAL...........................................................................................................1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.........................................................2
QUESTIONS AND ANSWERS.............................................................................................5
SUMMARY..........................................................................................................10
THE SPECIAL MEETING
Time, Place and Date; Proxy Solicitation................................................................15
Matters to be Considered................................................................................15
Required Vote...........................................................................................15
Voting and Revocation of Proxies........................................................................16
Record Date; Stock Entitled to Vote; Quorum; Voting at the Special Meeting..............................16
Effective Time..........................................................................................17
Appraisal Rights........................................................................................17
SPECIAL FACTORS
Background of the Merger................................................................................17
Reasons for the Special Committee's Determination.......................................................25
Recommendations of the Special Committee and the Board of Directors.....................................29
Purposes of the Merger and Plans or Proposals...........................................................29
Opinion of McDonald Investments.........................................................................30
Management's Projections................................................................................40
THE MERGER AGREEMENT
The Merger..............................................................................................42
Conversion of Common Stock..............................................................................42
Stock Options and Performance Shares....................................................................43
Representations and Warranties..........................................................................43
Covenants...............................................................................................44
Directors' and Officers' Indemnification................................................................45
Conditions to the Merger................................................................................45
Termination.............................................................................................45
Effect of Termination...................................................................................46
Amendment...............................................................................................47
Fees and Expenses.......................................................................................47
Regulatory Approvals....................................................................................47
Merger Financing........................................................................................47
Appraisal Rights........................................................................................48
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER...........................................................48
GENERAL INFORMATION REGARDING WOLOHAN LUMBER CO.
AND WOLOHAN ACQUISITION CO.......................................................................................50
Subsequent Events; Shareholder Litigation...............................................................50
Price Range of Shares; Dividends and Stock Repurchases..................................................54
Interests of Certain Persons in the Merger..............................................................55
Stock Ownership.........................................................................................57
Executive Officers and Directors........................................................................58
Officer Agreements......................................................................................
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INDEPENDENT AUDITORS.............................................................................................60
SHAREHOLDER PROPOSALS............................................................................................60
WHERE YOU CAN FIND MORE INFORMATION..............................................................................60
AVAILABLE INFORMATION............................................................................................61
MISCELLANEOUS....................................................................................................62
Appendix A Agreement and Plan of Merger
Appendix B Opinion of McDonald Investments Inc.
Appendix C Names of Continuing Shareholders
Appendix D Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 2002
Appendix E Quarterly Report on Form 10-Q for the Period Ended
June 30, 2003
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QUESTIONS AND ANSWERS
The following questions and answers are intended to address briefly
some commonly asked questions regarding the Merger.
WHAT WILL HAPPEN IN THE MERGER?
If completed, the Merger will result in our shareholders, other than
the Continuing Shareholders:
- receiving $25.75 in cash per share for their stock, without
interest,
- no longer holding any equity interest in Wolohan Lumber, and
- no longer participating in any earnings or losses of Wolohan
Lumber.
For more information concerning the terms and provisions of the Merger
and the Merger Agreement, see "The Merger Agreement".
WHAT AM I BEING ASKED TO VOTE UPON?
Our Board of Directors is asking you to vote to adopt and approve a
Merger Agreement and Merger which provides that Wolohan Acquisition
will merge into us, and we will be the surviving corporation. Pursuant
to the Merger, each share of our common stock issued and outstanding
immediately prior to the Merger will be converted into the right to
receive $25.75 in cash, without interest, other than shares
beneficially owned by certain current shareholders and members of
management and whose shares of our common stock will continue to
represent shares of common stock in the surviving corporation (the
"Continuing Shareholders").
WHAT WILL I RECEIVE IN THE MERGER?
You will be entitled to receive $25.75 in cash, without interest, for
each share of common stock owned by you.
WHO ARE THE CONTINUING SHAREHOLDERS?
The names of the Continuing Shareholders are listed on Appendix C to
this Proxy Statement. They principally include the Wolohan Family Trust
and members of the Wolohan family.
WHY ARE THE CONTINUING SHAREHOLDERS ACQUIRING WOLOHAN LUMBER?
Those Continuing Shareholders who are executive officers of Wolohan
Lumber believe that Wolohan Lumber suffers from:
- lack of liquidity due to low trading volume in our common
stock,
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- lack of interest by the financial community in our common
stock,
- our relatively small size in relation to our principal
competitors,
- increased costs of remaining a public company.
See "Special Factors -- Background of the Merger."
HOW WAS THE AMOUNT OF THE MERGER CONSIDERATION DETERMINED?
The $25.75 per share merger consideration was determined as a result of
negotiations between the Special Committee and certain Continuing
Shareholders who are executive officers of Wolohan Lumber. For further
information concerning the negotiation of the merger consideration, see
"Special Factors -- Background of the Merger."
WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE MERGER?
In the opinion of the Board of Directors, based upon the unanimous
recommendation of the Special Committee of the Board, the terms and
provisions of the Merger Agreement and the Merger are fair to and in
the best interests of our unaffiliated public shareholders, who are all
shareholders other than the Continuing Shareholders. The Board has
approved the Merger Agreement and the Merger and declared it
procedurally and substantively fair to and in the best interests of our
unaffiliated public shareholders. At that Board meeting, James L.
Wolohan and John A. Sieggreen attended the board meeting for quorum
purposes only and abstained from voting with respect to the Merger and
the Merger Agreement.
The price of $25.75 is a 30.7% premium over the closing price for the
shares on May 15, 2003, the day before we publicly announced the merger
proposal, and a 9.6% premium over the closing price for the shares on
August 12, 2003, the day before we announced the execution of the
Merger Agreement.
See "Special Factors -- Recommendations of the Special Committee and
the Board of Directors."
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HOW WILL THE MERGER BE FINANCED?
The Company and Wolohan Acquisition intend to finance the merger from
funds borrowed from a bank under credit facilities and from available
cash.
See "The Merger Agreement -- Merger Financing."
WHAT STEPS DID THE BOARD OF DIRECTORS TAKE TO DETERMINE THAT THE PRICE PER SHARE
I WILL RECEIVE IN THE PROPOSED MERGER IS FAIR?
The Board of Directors formed a Special Committee consisting of two
directors who had no conflicts of interest with respect to the Merger
to evaluate and negotiate the terms of the Merger Agreement. The
Special Committee selected and retained legal and financial advisors to
assist it in the evaluation and negotiation of the Merger Agreement and
the Merger, and received a written fairness opinion from its financial
advisor. The Special Committee took into consideration the opinion of
its financial advisor, that as of the date of the Merger Agreement, and
based on and subject to the assumptions, limitations and qualifications
contained in that opinion, the merger consideration each unaffiliated
public shareholder will have the right to receive is fair, from a
financial point of view, to that shareholder.
See "Special Factors -- Background of the Merger."
WHAT ARE THE ADVANTAGES AND DISADVANTAGES TO ME OF THE MERGER?
You will receive an immediate cash payment for your shares of our
common stock that represents a premium over market prices in recent
periods. This payment will be taxable to you to the extent it exceeds
the tax basis of your shares. You will have the opportunity to reinvest
your net of tax merger proceeds in other investments.
You will not have the opportunity to participate in our future earnings
or growth. Conversely, you will not have to bear the risk of a possible
decrease in our stock value, whether as a result of operating or market
factors.
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WHAT VOTE IS REQUIRED TO APPROVE THE MERGER AGREEMENT?
The holders of a majority of all outstanding shares of our common stock
must vote to approve the Merger Agreement. The Continuing Shareholders
beneficially own approximately 51.3% of the common stock eligible to
vote at the Special Meeting and each of them have indicated that they
intend to vote their common stock in favor of the adoption of the
Merger Agreement although they are not obligated to do so. If the
Continuing Shareholders vote as each of them have indicated, the Merger
Agreement will be approved and adopted.
See "The Special Meeting -- Required Vote."
WHAT DO I NEED TO DO NOW?
Please mark your vote on, sign, date and mail your proxy card in the
enclosed return envelope as soon as possible, so that your shares may
be represented at the Special Meeting.
WHO CAN VOTE ON THE MERGER?
If you are a shareholder of record as of the close of business on
September 15, 2003, you will be entitled to notice of, and to vote at,
the Special Meeting to adopt and approve the Merger Agreement and the
Merger.
See "The Special Meeting -- Record Date; Stock Entitled to Vote;
Quorum; Voting at the Special Meeting."
WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
Your receipt of the merger consideration will be a taxable transaction
for federal income tax purposes. See "Federal Income Tax Consequences."
ARE THERE APPRAISAL RIGHTS?
No. Under Michigan law shareholders do not have the right to dissent
from the Merger and obtain appraisal rights.
See "The Merger Agreement -- Appraisal Rights."
SHOULD I SEND MY STOCK CERTIFICATES NOW?
No. If the Merger is completed, we will send you a transmittal form and
written instructions for exchanging your share certificates.
IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
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Your broker will vote your shares ONLY IF you instruct your broker on
how to vote. You should follow the directions provided by your broker
regarding how to vote your shares.
MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
Yes, your vote can be changed at any time before the proxy is voted at
the Special Meeting. This can be done in one of two ways. First, just
send in a written revocation or another signed proxy card with a later
date to George I. Gibson, Jr., Secretary of the Company, 1740 Midland
Road, Saginaw, Michigan 48603, before the Special Meeting. Or, second,
you may, as long as you, and not your broker, are a record holder of
our common stock, attend the Special Meeting and vote in person.
See "The Special Meeting -- Voting and Revocation of Proxies."
IF THE MERGER IS COMPLETED, WHEN CAN I EXPECT TO RECEIVE THE MERGER
CONSIDERATION FOR MY SHARES?
We will send payment of the merger consideration to you as promptly as
practicable following the completion of the Merger and our receipt of your stock
certificates and other required documents.
WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
We are working toward completing the Merger as quickly as possible. If
the Merger Agreement is approved by the shareholders and the other
conditions to the Merger are satisfied, we expect to complete the
Merger as soon as practicable after the Special Meeting.
See "The Special Meeting -- Effective Time."
WHAT HAPPENS TO THE RIGHTS OUTSTANDING WHICH ARE ATTACHED TO EACH SHARE OF
COMMON STOCK AND REPRESENT THE RIGHT TO PURCHASE ONE SHARE OF COMMON STOCK UPON
THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE RIGHTS AGREEMENT?
Prior to the completion of the Merger, the Board of Directors will
redeem the Rights at a redemption price of $.01 per Right.
WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
We do not expect that any other matters will be voted upon at the
Special Meeting.
See "Miscellaneous."
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SUMMARY
The following summary, together with the previous Question and Answer
section, provides an overview of all material information discussed in this
Proxy Statement and presented in the attached Appendixes. You are urged to
review this entire Proxy Statement carefully, including the Appendixes.
OVERVIEW
We are furnishing this Proxy Statement to allow our shareholders to
consider and vote on a proposal to approve and adopt the Merger Agreement and
Merger. The Merger Agreement provides that Wolohan Acquisition will be merged
with and into us and our public shareholders will receive $25.75 per share for
each share of our common stock that they own at the effective time of the
Merger.
During the time the Merger Agreement was negotiated and at the time the
Merger Agreement was executed, James L. Wolohan was the President and Chief
Executive Officer and a member of the Board of Directors of Wolohan Lumber and
John A. Sieggreen was our Executive Vice President, Chief Operating Officer and
a member of our Board of Directors. Mr. Sieggreen is also the sole shareholder
and director of Wolohan Acquisition.
Our Board of Directors formed the Special Committee composed of two
independent directors to consider the offer made by the Continuing Shareholders.
The Special Committee negotiated the terms of the Merger Agreement on behalf of
the Board and us. In connection with the execution of the Merger Agreement, both
the Board and the Special Committee determined that the Merger and the Merger
Agreement are procedurally and substantively fair to and in the best interests
of our unaffiliated public shareholders.
PARTIES TO THE MERGER
Wolohan Lumber Co.
1740 Midland Road
Saginaw, Michigan 48603
(989) 793-4532
Wolohan Lumber is a Michigan corporation engaged in the retail sale of
a full line of lumber and building materials and related products used primarily
for new home construction and large home-improvement projects. It operates a
chain of 25 building supply stores located in Illinois, Indiana, Kentucky,
Michigan and Ohio.
Wolohan Acquisition Co.
1740 Midland Road
Saginaw, Michigan 48603
(989) 793-4532
10
Wolohan Acquisition is a Michigan corporation organized specifically
for the Merger and has not carried on any activities to date other than those
incident to its formation and the negotiation and execution of the Merger
Agreement.
THE MERGER
EFFECT OF THE MERGER (SEE "SPECIAL FACTORS -- PURPOSES OF THE MERGER AND PLANS
AND PROPOSALS")
Pursuant to the Merger Agreement, Wolohan Acquisition will be merged
directly into us and we will be the surviving corporation. Each share of our
common stock, other than shares owned by the Continuing Shareholders, will be
automatically converted into the right to receive an amount in cash equal to
$25.75 per share.
COMPANY STOCK OPTIONS AND PERFORMANCE SHARES (SEE "THE MERGER AGREEMENT -- STOCK
OPTIONS AND PERFORMANCE SHARES")
At the effective time of the Merger, all stock options held by persons
other than the Continuing Shareholders, will automatically be converted into the
right to receive an amount in cash equal to the merger consideration, less the
applicable exercise price for each share of common stock subject to such stock
options. At the effective time of the Merger, all stock options held by the
Continuing Shareholders will be assumed by us as the surviving corporation and
will remain outstanding.
At the effective time of the Merger, all performance shares under the
Long-Term Incentive Plan held by persons other than the Continuing Shareholders
will be entitled to receive an amount in cash equal to the product of the number
of performance shares and the merger consideration. At the effective time of the
Merger, all performance shares held by Continuing Shareholders will be assumed
by us as the surviving corporation and remain outstanding.
CONDITIONS TO THE MERGER (SEE "THE MERGER AGREEMENT -- CONDITIONS TO THE
MERGER")
We and Wolohan Acquisition will not complete the Merger unless several
conditions are satisfied or waived by us and Wolohan Acquisition. These include:
The Merger Agreement and the Merger shall have been approved by the
requisite vote of the holders of our common stock.
No final restraining order or permanent injunction or other final order
issued by any court of competent legal jurisdiction or other legal prohibition
preventing the consummation of the Merger shall be in effect.
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All governmental and other consents and approvals necessary to
consummate the Merger shall have been obtained.
Our Board of Directors shall have taken all action required to redeem
the Rights outstanding under the Rights Agreement dated February 16, 2000.
The merger consideration shall have been delivered to the paying agent.
There shall not be pending any litigation pertaining to the Merger.
TERMINATION OF THE MERGER AGREEMENT (SEE "THE MERGER AGREEMENT -- TERMINATION")
The Merger Agreement may be terminated at any time prior to the
effective time of the Merger, whether before or after shareholder approval is
obtained:
by mutual written consent of Wolohan Acquisition and the Special
Committee; or
by Wolohan Acquisition or the Special Committee: (i) if the effective
time of the Merger shall not have occurred on or before December 31, 2003; or
(ii) if there shall be any law that makes consummation of the Merger illegal or
prohibited, or if any court of competent jurisdiction in the United States shall
have issued an order, judgment, decree or ruling, or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
judgment, decree, ruling, or other action shall have become final and
non-appealable; or
by the Special Committee: (i) if there is a superior proposal (as
defined under "The Merger Agreement - Covenants") and if with respect thereto
the Special Committee or our Board of Directors determines in good faith that
the failure to take such action to terminate the Merger Agreement would be
inconsistent with its fiduciary duties to our shareholders.
by Wolohan Acquisition: if the Board of Directors shall have withdrawn
or modified, in a manner that is materially adverse to Wolohan Acquisition, its
approval or recommendation of the Merger Agreement and the Merger or shall have
recommended another merger, consolidation or business combination involving, or
acquisition of, the Company or our assets or a tender offer for common stock, or
shall have resolved to do any of the foregoing.
OPINION OF FINANCIAL ADVISOR (SEE "SPECIAL FACTORS -- OPINION OF MCDONALD
INVESTMENTS")
The Special Committee retained McDonald Investments Inc. as its
financial advisor to render an opinion as to the fairness of the merger
consideration each unaffiliated public shareholder will have the right to
receive in the proposed Merger. McDonald Investments delivered its written
opinion to the Special Committee that, as of the date of
12
the opinion, and based on and subject to the assumptions, limitations, and
qualifications contained in that opinion, the merger consideration each of our
unaffiliated public shareholders will have the right to receive in the proposed
merger is fair.
A copy of McDonald Investments' written opinion is attached to this
Proxy Statement as Appendix B. We urge you to read McDonald Investments' opinion
in its entirety.
MERGER FINANCING (SEE "THE MERGER AGREEMENT -- MERGER FINANCING")
The total amount of cash required to consummate the transactions
contemplated by the Merger Agreement, including payment of related fees and
expenses, will be paid from funds borrowed from a bank under credit facilities
and from available cash.
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data is only a summary and should be
read with our financial statements and the notes to those statements included in
our Form 10-K for the year ended December 31, 2002 and Form 10-Q for the quarter
ended June 30, 2003, which are attached to this Proxy Statement as Appendixes D
and E, respectively. The statement of operations data for the years ended
December 31, 2001 and December 31, 2002 and the balance sheet data at December
31, 2001 and December 31, 2002 are derived from our financial statements which
have been audited by our independent auditors. The statement of operations data
for the six months ended June 30, 2002 and 2003 and the balance sheet data at
June 30, 2003 and 2002 are derived from our unaudited financial statements.
13
(000'S OMITTED)
SIX MONTHS ENDED TWELVE MONTHS ENDED
(UNAUDITED) (AUDITED)
----------------------------- -------------------------------
June 30, June 30, December 31, December 31,
2003 2002 2002 2001
--------- --------- --------- ---------
INCOME STATEMENT DATA
Net sales $ 81,638 $ 94,560 $ 197,638 $ 239,895
Gross profit 19,690 21,410 46,840 58,312
Other operating income 1,070 1,228 2,430 3,041
Selling, general and
administrative expenses 18,952 20,452 40,057 47,096
Depreciation and amortization 1,892 2,442 4,594 6,166
Store closing costs (67) (7) 511 3,440
Income from operations (17) (249) 4,108 4,651
Income before income tax 1,481 26 5,174 7,256
Net income 977 17 3,400 4,772
Net income per share, basic $ 0.47 $ 0.01 $ 1.63 $ 1.61
Net income per share, assuming
dilution $ 0.43 $ 0.01 $ 1.49 $ 1.53
Weighted average number of
shares outstanding 2,070 2,077 2,080 2,971
OTHER DATA:
Ratio of earnings to fixed charges 72 1 61 18
BALANCE SHEET DATA
Working capital $ 30,162 $ 23,039 $ 28,688 $ 20,526
Total assets 85,367 86,570 83,780 85,356
Long-term debt less current
installments 151 256 203 307
Shareholders' equity 65,088 62,357 65,098 61,697
Book value per share $ 31.86 $ 29.72 $ 31.40 $ 30.44
Tangible book value (shareholders'
equity -- intangible assets) 62,265 59,384 62,225 58,624
Tangible book value per share $ 30.48 $ 28.31 $ 30.02 $ 28.92
14
THE SPECIAL MEETING
TIME, PLACE AND DATE, PROXY SOLICITATION
The Special Meeting will be held on November 5, 2003 at 11:00 a.m.,
local time, at the offices of the Company, 1740 Midland Road, Saginaw, Michigan.
We will bear the cost of soliciting proxies from shareholders. In addition to
soliciting proxies by mail, our officers and directors and employees, without
receiving additional compensation, may solicit proxies by telephone, facsimile
or in person. In addition the Company has engaged MacKenzie Partners, Inc. at a
cost of $3,500 plus out of pocket expenses as proxy solicitor and advisor to
solicit proxies primarily from brokerage firms. Arrangements may also be made
with brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares held of record by such
persons, and we will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them.
MATTERS TO BE CONSIDERED
The purpose of the Special Meeting is to vote upon a proposal to
approve and adopt the Merger Agreement and the Merger. If the Merger Agreement
is approved by our shareholders and the other conditions to the Merger are
satisfied or waived, Wolohan Acquisition will merge with and into us and all
shares currently held by our unaffiliated public shareholders will be converted
into the right to receive $25.75 in cash, without interest. Shares of our common
stock held by the Continuing Shareholders will continue to represent shares in
the surviving corporation.
The Merger Agreement is attached to this Proxy Statement as Appendix A.
REQUIRED VOTE
The affirmative vote of at least a majority of the outstanding shares
entitled to vote thereon is required to approve and adopt the Merger Agreement
and the Merger.
The Continuing Shareholders are beneficial owners of approximately
51.3% of the outstanding shares of our common stock, all of which are eligible
to vote at the Special Meeting. The Continuing Shareholders have indicated that
they intend to vote their shares in favor of the adoption of the Merger
Agreement, although they are not obligated to do so. Accordingly, the Continuing
Shareholders have sufficient voting power to cause the approval and adoption of
the Merger Agreement and the Merger without the affirmative vote of any of the
unaffiliated public shareholders.
VOTING AND REVOCATION OF PROXIES
Shares that are entitled to vote and are represented by a proxy properly signed
and received at or prior to the Special Meeting, unless subsequently properly
revoked,
15
will be voted in accordance with the instructions indicated thereon. If a proxy
is signed and returned without indicating any voting instructions, shares
represented by the proxy will be voted for the proposal to approve and adopt the
Merger Agreement and the Merger. The Board is not currently aware of any
business to be acted upon at the Special Meeting other than as described in this
Proxy Statement.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before the shares represented by the proxy are
voted at the Special Meeting by:
attending and voting in person at the Special Meeting,
giving notice of revocation of the proxy at the Special Meeting, or
delivering to our corporate secretary George I. Gibson, Jr., at 1740
Midland Road, Saginaw, Michigan 48603, a written notice of revocation
or a duly executed proxy relating to the same shares and matters to be
considered at the Special Meeting, bearing a date later than the proxy
previously executed.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM; VOTING AT THE SPECIAL MEETING
Only holders of shares of common stock on the record date, September
15, 2003, will be entitled to receive notice of and to vote at the Special
Meeting. At the close of business on the record date, there were outstanding and
entitled to vote 2,042,688 shares of common stock. Each holder of record of
common stock on the record date will be entitled to one vote for each share held
on all matters to be voted upon at the Special Meeting. The presence, in person
or by proxy, at the Special Meeting of the holders of at least a majority of the
shares entitled to vote is necessary to constitute a quorum for the transaction
of business.
Abstentions will be counted as present for the purpose of determining
whether a quorum is present but will not be counted as votes cast in favor of
the Merger proposal. Abstentions, therefore, will have the same effect as a vote
against the Merger proposal.
Brokerage firms who hold shares in "street name" for customers will not
have the authority to vote those shares with respect to the Merger if such firms
have not received voting instructions from a beneficial owner. The failure of a
broker to vote shares in the absence of instructions (a "broker non-vote") will
be counted as present for the purpose of determining whether a quorum is present
but will not be counted as votes cast in favor of the Merger proposal. Broker
non-votes, therefore, will have the same effect as a vote against the Merger.
16
EFFECTIVE TIME
The Merger will be effective following shareholder approval of the
Merger Agreement when a certificate of merger is filed with the State of
Michigan. If the Merger is approved by the shareholders at the Special Meeting,
we expect to complete the Merger as soon as practicable after the Special
Meeting, subject to the satisfaction or waiver of the other terms and conditions
included in the Merger Agreement. See "The Merger -- Conditions."
APPRAISAL RIGHTS
Under the Michigan Business Corporation Act shareholders do not have
the right to dissent from the Merger and obtain appraisal rights.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
We have long been concerned about the lack of liquidity in our common
stock. A very thin trading market has prevailed for a considerable time. The
average trading volume per day for the period January 2, 2003 to August 13, 2003
was 926 shares. On days when the stock has traded, very often the daily volume
has been considerably below 1,000 shares per day. Indeed there have been many
days over the past several years when our common stock did not trade at all. It
is not uncommon for trades of merely 100 shares to move the price of the common
stock inordinately in either direction.
Contributing to this lack of liquidity has been the lack of interest by
the financial community in our common stock. No equity analysts follow the
Company and publish research reports thereon. There is no significant
sponsorship from the investment community. Consequently, trading prices for our
common stock are not reflective of a broad-based assessment of value by the
investment community. Further exacerbating the liquidity situation is the large
percentage ownership of the Company by members of the Wolohan family. Given the
lack of liquidity for our common stock, the public market has not been a source
of capital for the Company and the common stock has not been an attractive
security to use for acquisitions.
The lack of liquidity in our common stock has also been a concern to
our shareholders, some of whom, from time to time, have encouraged us to try to
improve our liquidity situation. To that end, we engaged in two self-tender
offers to purchase shares of our common stock, in December of 2000 and September
of 2001. Under those two offers, we acquired 1,189,113 shares under the 2000
offer at $12.00 per share and 1,258,295 shares under the 2001 offer at $15.00
per share. The self-tenders provided an opportunity for shareholders to sell
shares in amounts and at prices that
17
they would not likely have obtained were they to have relied on the public
trading market alone. Pursuant to those offers, institutional ownership of
shares of our common stock has declined from over 1.4 million shares prior to
the December 2000 tender offer to less than 150,000 shares as of August 13,
2003.
The absence of liquidity in our common stock has been of all the more
concern because of the cyclical nature of our business, the industry in which we
operate and the relatively small size of the Company in relation to its
principal competitors. Over the last several years, intense competitive
pressures in the industry have forced numerous of our competitors out of
business, several of them by declaring bankruptcy. These conditions were a major
factor in our decision to engage in a significant restructuring, downsizing and
a reduction in force.
Many uncertainties associated with current and future industry and
market conditions remain.
As a result of the above, it is apparent that we are unable to realize
the principal benefits of being a public company, and that the costs of
remaining a public company such as those associated with compliance with the
reporting requirements and public filing requirements are no longer merited.
Furthermore the increased costs of being a public company as a result of the
adoption of the Sarbanes-Oxley Act of 2002 have contributed to the decision to
go private at this time as opposed to any other time in the Company's public
operating history.
Certain members of the Wolohan family, along with certain members of
management (the "Continuing Shareholders", see attached Appendix C) who own in
the aggregate approximately 1,048,151 shares, or 51.3%, of the issued and
outstanding shares have determined that an offer to acquire the shares of common
stock in the hands of the unaffiliated public shareholders would be advisable
and beneficial.
The Continuing Shareholders would be able to acquire the entire
remaining equity interest in the Company which they do not now own. The Company
would avoid the time and expense of maintaining a public listing of the common
stock and the Continuing Shareholders may be able to deal more flexibly with the
Company's assets in responding to difficult and changing industry conditions.
On May 16, 2003, the Continuing Shareholders presented an offer to the
Board of Directors offering to acquire the remaining shares of our common stock
held by the unaffiliated public shareholders (approximately 994,537 shares) at a
price of $21.75 per share in cash.
Thereupon, the Board of Directors established a Special Committee of
independent non-employee directors, to review the offer, to appoint an
investment banking firm to assist the Special Committee in evaluating the
fairness of the offer, to engage legal counsel to the Special Committee, to
negotiate with the Continuing Shareholders and to make its recommendation to the
Board of Directors. The Board established the compensation of the Special
Committee members at $1,000 per meeting ($500 if a telephonic meeting) and
$1,500 per meeting for the Chairman ($750 if a telephonic meeting).
18
The Special Committee appointed on May 16, 2003 initially consisted of
Charles R. Weeks, Lee A. Shobe and Hugo E. Braun, Jr. The Committee met on May
16, immediately following the Board of Directors meeting at which it was
appointed. Mr. Weeks was appointed Chairman of the Committee and Mr. Braun was
appointed Secretary. At this meeting, the Committee discussed the offer from the
Continuing Shareholders and the role of the Committee, as well as the retention
of independent counsel and an independent financial advisor. The Committee
discussed possible candidates for these roles and agreed to hire counsel first
so as to have advice of counsel available in connection with the retention of a
financial advisor.
The Committee next met by conference telephone call on May 20, 2003.
Mr. Braun reported that he had interviewed Justin G. Klimko of the firm of
Butzel Long, Detroit, Michigan, regarding the possibility of Butzel Long serving
as counsel to the Committee and had discussed the details of engaging Butzel
Long. After discussion, the Committee determined to retain Butzel Long as the
Committee's counsel. Butzel Long had no previous affiliation with and had not
provided services to the Company, its management or any other member of the
Continuing Shareholder group. Mr. Klimko and Christopher M. Moore acted as the
principal legal advisors to the Committee on behalf of Butzel Long. At the May
20 meeting, the Committee also agreed to meet in person on June 3, 2003 to
interview four designated advisory firms as candidates to serve as the
Committee's financial advisor.
The Committee next met on June 3, 2003. Counsel attended the meeting.
At the beginning of the meeting, Mr. Braun raised the issue of his continued
participation on the Committee. Mr. Braun explained that he performed legal
services for certain Wolohan family members who were included in the Continuing
Shareholder group and not members of the Management Group. Although the services
he performed were unrelated to the offer made by the Continuing Shareholders or
the transaction proposed by them, Mr. Braun expressed a desire to avoid any
appearance of conflict. The Committee discussed the matter and agreed with Mr.
Braun that his recusal would be appropriate under the circumstances. Mr. Braun
then recused himself from membership on the Committee and did not participate
further in the Committee's activities.
The Committee then met with and separately interviewed representatives
from four financial advisory firms. Based on the interviews, the Committee
members expressed a preference to engage McDonald Investments Inc. ("McDonald
Investments") to act as independent financial advisor to the Committee. McDonald
Investments had not previously provided services to the Company, its management
or any other member of the Continuing Shareholder group.
The Committee's preference for McDonald Investments was based on the
following:
o McDonald Investments' expertise and experience in valuation
matters for public companies, including its experience in going
private transactions.
o McDonald Investments' understanding of issues related to the
proposed transaction as demonstrated in its interview with the
Committee. McDonald Investments expressed an understanding and
appreciation of the role of the Company's reduction in size in
recent years through store closings, and its liquidation of
related properties and assets, as an important element in
analyzing the business and value of the Company.
o The Committee members' level of comfort with the McDonald
Investments personnel who made the presentation (Charles F.
Clarke, Jr., Kevin J. Mayer and Mark Yasinsky), who indicated
that they would be the principal personnel assigned to perform
advisory services rendered to the Committee.
o The fact that McDonald Investments had not previously provided
services to the Company, its management or any other member of
the Continuing Shareholder group and was not otherwise affiliated
with the Company, its management or the Continuing Shareholders
or their affiliates.
These factors led the Committee to choose McDonald Investments over
the three other firms interviewed. Two of the other three firms interviewed had
relatively less experience than McDonald Investments with fairness opinions in
going private transactions. The third firm had comparable experience and
favorably impressed the Committee members, and was considered a strong
candidate. The Committee considered both that firm and McDonald Investments to
be highly qualified and selected McDonald Investments based on the second and
third factors listed above.
Thereafter the Committee engaged in negotiations through its counsel
with McDonald Investments over the terms of McDonald Investments' engagement.
The Committee met by conference telephone call on June 5, 2003 to discuss the
proposed terms of engagement. The Committee determined that if satisfactory
terms of engagement could be reached, it would engage McDonald Investments. The
meeting of June 5 was recessed to allow counsel to engage in further discussion
on behalf of the
19
Committee regarding the terms of engagement. After re-convening, the Committee
voted unanimously to engage McDonald Investments and directed counsel to
negotiate the language of an engagement letter. The engagement letter with
McDonald Investments was subsequently negotiated and dated June 9, 2003. It was
executed by Mr. Shobe on behalf of the Committee in Mr. Weeks' absence on June
11, 2003.
McDonald Investments was retained by the Committee as its separate
financial advisor to act solely on behalf of the unaffiliated public
shareholders of the Company. The McDonald Investments' engagement letter
provided that McDonald Investments would assist the Committee in evaluating the
fairness to the Company's unaffiliated public shareholders, from a financial
standpoint, of the consideration offered in the proposed transaction and would
assist the Committee in negotiating the financial aspects of the transaction,
assisting in the evaluation of any alternate transaction which might be
presented during the course of the Committee's activities and advising and
assisting the Committee in evaluating the various structures and forms of any
transaction. McDonald Investments also undertook to conduct a study to enable it
to render an opinion to the Committee and the Board of Directors of the Company
as to the fairness, from a financial point of view, of the consideration to be
received by the unaffiliated public shareholders in connection with any
transaction that the Board determined to consider.
Following its engagement, McDonald Investments engaged in an extensive
due diligence investigation of the Company. This included reviewing publicly
available information about the Company, its industry and its competitors;
meeting with members of management to discuss the Company's assets, business,
finances and operations; and reviewing nonpublic information regarding the
Company, including financial projections provided by management, a summary of
which is included elsewhere in this Proxy Statement.
On June 26, 2003, the Committee met with representatives of McDonald
Investments and Butzel Long in a meeting held by conference telephone call. At
that meeting, McDonald Investments discussed the status of its investigation to
date and informed the Committee that it had been provided with all information
it had sought from the Company's management except individual store information.
Although McDonald Investments engagement letter contained confidentiality
provisions, Company management had requested additional confidentiality
provisions prior to releasing store information, because of the sensitivity of
that information to the Company's competitive position. Mr. Klimko informed the
Committee that he had rejected certain additional confidentiality language
proposed by the Company's counsel, but had suggested alternate language that
would retain the Committee's discretion to disclose information. The Committee
agreed with the modified language. Following the June 26 meeting, the Company's
counsel also agreed to the language. Thereafter, Company management provided
McDonald Investments with the individual store information it had sought.
On July 14, 2003, the Committee met in person, together with
representatives of McDonald Investments and Butzel Long. At that meeting,
McDonald Investments made an oral presentation to the Committee members
regarding the results of its analysis of the Continuing Shareholders' offer of
$21.75 per share. McDonald Investments informed the Committee that in its
judgment the offer price was inadequate and it would not be able to deliver an
opinion that the offer price was fair to the minority shareholders from a
financial standpoint. McDonald Investments also distributed materials showing
certain results of its evaluation to date. McDonald Investments' representatives
cautioned the Committee members that its analysis had not been completed, and
that the materials were prepared solely as a presentation aide and to assist the
Committee in determining a negotiating strategy, and therefore tended to reflect
best-case scenarios. For this reason, McDonald Investments collected the
materials at the end of the meeting.
McDonald Investments' analysis discussed at the July 14 meeting
included a market value analysis, a liquidation analysis, a premium paid
analysis, a comparable company analysis, a precedent transaction analysis, a
discounted cash flow analysis and a leveraged buyout analysis. The composite
valuation range indicated by aggregating all methodologies suggested a range of
fairness for the Company of between $23.00 and $27.00 per share. McDonald
Investments indicated that some of these analyses were not particularly
instructive, particularly the market value analysis (because of the historically
thin trading market for the Company's shares and the
20
significant role of Company tender offers and market repurchases in recent
years) and the comparable companies analysis (because of the lack of comparable
companies for which financial information is publicly available and the
dominance of Lowe's and Home Depot in the Company's industry).
In response to this presentation, the Committee members requested that
McDonald Investments do additional work on its liquidation analysis and revise
certain of the assumptions contained in that analysis. Mr. Shobe stated his
belief that the historical performance of the Company in closing stores and
liquidating related assets had been better than the assumptions contained in the
liquidation analysis. He requested that the proceeds assumed for liquidating
real properties be compared to the state equalized value assigned to properties
for real estate taxation. McDonald Investments indicated that it would review
the history of the Company's property liquidations, compare the proceeds
received to the state equalized value amounts for the properties already
liquidated and then compare those results to the assumptions contained in the
liquidation analysis.
At the July 14 meeting counsel informed the Committee that it had
received and reviewed a draft of the Agreement and Plan of Merger from Verne C.
Hampton, II of Dickinson Wright, PLLC, counsel to the Company and the Continuing
Shareholders. Mr. Klimko informed the Committee that he had requested certain
changes to the form of Merger Agreement, most of which had been accepted, but
that two issues remained open: whether any transaction would require approval of
a majority of the minority shareholders, and whether the agreement would contain
a "no-shop" provision preventing the Company from seeking another transaction.
The Committee agreed that inclusion of majority of the minority approval was
relatively more important to it, and that it would accept a no-shop provision so
long as it included a "fiduciary out" allowing the directors to consider
unsolicited offers in connection with the discharge of their fiduciary duties.
At the July 14 meeting, the Committee also discussed with its advisors
the advisability of performing a market check. The Committee determined not to
conduct such a check at that time. The Committee believed that it should first
contact the Continuing Shareholders to inform them that it would not be in
position to recommend the offer price of $21.75 per share and to see if the
Continuing Shareholders would negotiate for an increased price. The Committee
believed that a market check would be of limited value because the Continuing
Shareholders controlled a majority of the Company's stock and had announced
their intention not to sell their shares to any other person if the proposed
transaction was not consummated. The Committee determined to consider a market
check only after it determined whether further negotiations with the Continuing
Shareholders could be fruitful. The Committee then instructed Mr. Klimko to
contact Mr. Hampton to inform him of the Committee's unwillingness to recommend
a transaction at the offer price of $21.75 per share and to inquire whether the
Continuing Shareholders would agree to negotiate a higher price. Mr. Klimko left
the room to call Mr. Hampton. When he returned he indicated that Mr. Hampton had
agreed to a meeting, which was then scheduled for July 21, 2003.
The Committee met with its advisors by conference telephone call on
July 18, 2003. During that meeting, McDonald Investments indicated that it had
performed the
21
additional analysis requested by the Committee regarding real property values
and their impact on its liquidation analyses. McDonald Investments indicated
that this additional analysis had yielded a higher potential liquidation value
of up to $28.00 per share. McDonald Investments also indicated that liquidation
analysis necessarily involves numerous assumptions and variables, many of which
could prove untrue, but that as a result of its additional work it now felt that
an appropriate range of fairness for negotiating purposes was between $24.00 and
$28.00 per share.
The Committee and its advisors met with representatives of the
Continuing Shareholders on July 21, 2003 as scheduled. In attendance on behalf
of the Continuing Shareholders were James L. Wolohan, President, Chief Executive
Officer and Director of the Company, John A. Sieggreen, Executive Vice
President, Chief Operating Officer and Director of the Company, Stephen V.
Murphy of S.V. Murphy & Co., Inc., the Continuing Shareholders' financial
advisor, and Mr. Hampton. At this meeting, the Committee indicated that it would
not recommend the offer price of $21.75 per share, and representatives of the
Continuing Shareholders agreed to discuss a higher price. Additional discussion
centered on the Committee's request that any transaction be conditioned on
approval of a majority of the shares not owned by the Continuing Shareholders
and their affiliates. The representatives of the Continuing Shareholders
stated they were not prepared to agree to such a provision but indicated they
would study the matter further and discuss at a subsequent meeting.
After further discussion, the representatives of the Continuing
Shareholders offered to increase the offer price to $24.50 per share, but with
no majority of the minority approval provision. In response, the Committee
indicated that under those conditions an offer price of $26.50 per share would
be acceptable to the Committee. The negotiation session ended without agreement
as to price, but the parties agreed to meet again on July 30 to continue
negotiations.
The parties met again to continue negotiations on July 30, 2003. The
participants in the meeting were the same as in the July 21 meeting. The
representatives of the Continuing Shareholders objected to making the
transaction contingent on approval of a majority of the minority shareholders
stating that, after analysis, due to the concentration of the Company's shares,
such a provision would put disproportionate voting power in the hands of a small
number of unaffiliated public shareholders and could potentially deprive the
remaining unaffiliated shareholders of the benefit of a transaction that the
Committee, after substantial consideration and extensive negotiation, had
determined to be fair. During this negotiating session, Mr. Thomas G. McNeill of
Dickinson Wright, PLLC, was connected by telephone. Mr. McNeill reported on the
status of the lawsuit brought by certain minority shareholders of the Company
(see "General Information Regarding Wolohan Lumber and Wolohan Acquisition --
Subsequent Events; Shareholder Litigation"), in which he was defending the
Committee and the Board of Directors. Mr. McNeill reported that substantial
progress had been made in settlement discussions and that, subject to
confirmatory discovery by plaintiffs' counsel and a review of the terms of any
transaction by plaintiffs' financial expert, he believed that there was a good
possibility that the action could be settled if a transaction was negotiated.
The Continuing Shareholders' representatives thereafter suggested that in light
of the advanced progress of settlement discussions, which indicated oversight by
outside
22
minority shareholders, the Committee should be more comfortable accepting a
transaction without a majority of the minority provision.
The negotiations returned to the subject of the offer price, and the
representatives of the Continuing Shareholders increased the price they would be
willing to offer to $25.00 per share, still without a majority of the minority
provision. The Committee responded by requesting a price above $26.00 per share
for any transaction that lacked a majority of the minority provision. The
Continuing Shareholders' representatives indicated that they believed that their
price of $25.00 was fair, and that they would not increase the price beyond
$25.00. The Committee indicated that it would not recommend a transaction at
that price. In light of the deadlock over the price, both sides agreed to
adjourn negotiations.
The full Board of Directors of the Company met in Saginaw, Michigan at
its regular quarterly meeting on July 31 and August 1, 2003. During this period,
Mr. Weeks had additional discussions with Mr. Wolohan. On July 31 Mr. Weeks
indicated to Mr. Wolohan that the Committee would not recommend a transaction at
a price of $25.00 per share and that the Continuing Shareholders should increase
their offer if they desired to complete a transaction. On August 1, Mr. Wolohan
contacted Mr. Weeks and indicated a willingness to increase the offer price to
$25.50 per share, provided that the transaction would not include a majority of
the minority provision. Mr. Weeks told Mr. Wolohan that he did not believe that
$25.50 was enough to convince the Committee to recommend the offer but that he
would convey the revised offer to the Committee. Mr. Weeks contacted Mr. Klimko
by telephone in the evening of August 1 to inform him of these events and to ask
him to contact Mr. Shobe (who was traveling) and McDonald Investments'
representatives to attempt to arrange a meeting of the Committee and its
advisors on August 4. Mr. Klimko spoke with McDonald Investments on August 1 and
with Mr. Shobe on August 3.
On August 4, 2003, the Committee and its advisors again met by
conference telephone call. Mr. Weeks reiterated his discussions with Mr.
Wolohan. Mr. Weeks and Mr. Shobe both expressed a preference for an offer price
above $26.00 per share, but Mr. Weeks indicated that while he believed that he
could get the offer price increased to $25.75 per share, he wasn't certain if he
could get the price increased to $26.00 per share. Mr. Shobe indicated that if
Mr. Weeks could negotiate the offer price to $25.75 per share, Mr. Shobe would
support acceptance of such a price. The Committee tentatively agreed that,
subject to receiving an opinion from McDonald Investments as to the fairness of
the price, it would support $25.75, but that Mr. Weeks should press for $26.00
per share. Mr. Weeks indicated that he would report back to the Committee after
he had spoken to Mr. Wolohan again.
Mr. Weeks subsequently contacted Mr. Wolohan by phone on August 4 and
told him that the Committee would not recommend an offer price of $25.50 per
share. He requested a price of $26.00 per share. Mr. Wolohan indicated that the
Continuing Shareholders would not agree to that price. He offered to increase
the price to $25.60 per share. After further discussions and negotiations, Mr.
Wolohan and Mr. Weeks agreed to a price of $25.75 per share.
23
Mr. Weeks contacted Mr. Klimko thereafter on August 4 to inform him of
the results of these discussions. Mr. Weeks stated that he felt that $25.75 per
share was the highest price that the Continuing Shareholders were willing to
pay. Mr. Klimko contacted McDonald Investments and Mr. Shobe to relay this
information. Mr. Shobe confirmed his support for a price of $25.75, subject to
McDonald Investments' opinion as to the fairness of the price to the minority
shareholders. A meeting was scheduled for August 13, 2003 at which McDonald
Investments would present its report and opinion as to the fairness to the
minority shareholders of the price from a financial standpoint.
On August 11 and 12, 2003, McDonald Investments delivered to the
Committee members and counsel its report regarding the fairness of the $25.75
offer price and a draft of its opinion regarding fairness.
The Special Committee and its advisors met by conference telephone
call on August 13, 2003. At this meeting, McDonald Investments made a
presentation on the fairness of the proposed offer price of $25.75 per share and
reviewed its draft opinion that such price is fair to the minority shareholders
from a financial standpoint. The basis for McDonald Investments' conclusions and
the methodologies employed by it are described elsewhere in this Proxy
Statement. See "Special Factors -- Opinion of McDonald Investments."
Also at the August 13 meeting, counsel reviewed with the Committee the
terms and conditions of the proposed Agreement and Plan of Merger by which the
proposed transaction would be effected and reviewed with the Committee the
Memorandum of Understanding and related documents that had been proposed in
connection with possible settlement of the pending litigation. Counsel informed
the Committee that McDonald Investments' presentation materials had been
delivered to plaintiffs' counsel and reviewed by plaintiffs' financial expert,
and that prior to submission of any settlement to the court, plaintiffs would
depose Mr. Wolohan, Mr. Weeks and Mr. Clarke of McDonald Investments.
After receiving McDonald Investments' presentation, reviewing the
Agreement and Plan of Merger and receiving counsel's report, and following
further questions and discussion, the Committee on August 13:
o Approved the offer price of $25.75 per share to be paid to shareholders
other than the Continuing Shareholders as fair to and in the best
interests of those shareholders;
o Approved the form of Agreement and Plan of Merger, subject to such
additional changes as counsel deemed advisable, upon consultation with
the Chairman of the Committee, as fair to and in the best interests of
the minority shareholders;
o Voted to recommend to the Board of Directors of the Company that it
approve the proposed transaction whereby the Continuing Shareholders
would acquire the Company's shares not owned by them for a price of
$25.75 per share in cash;
o Authorized the Committee's counsel to execute and deliver the
Memorandum of Understanding and related documents on behalf of the
members of the Committee, conditioned upon the execution and delivery
by counsel for plaintiffs and counsel for the Company of the Memorandum
of Understanding;
24
The Committee requested that McDonald Investments deliver an executed
copy of its opinion letter. McDonald Investments subsequently faxed an executed
copy of its opinion to the Committee's counsel on August 13, and Mr. Klimko
delivered a copy to Mr. Weeks. During the afternoon of August 13, Mr. Klimko and
Mr. Weeks negotiated the final changes to the Agreement and Plan of Merger with
representatives of the Continuing Shareholders and their counsel.
REASONS FOR THE SPECIAL COMMITTEE'S DETERMINATION
In concluding that the Merger is fair to the public shareholders and
recommending adoption of the Agreement and Plan of Merger to the Company's Board
of Directors, the Committee considered various factors, including the following:
o The following facts relating to the composition and activities of the
Committee:
- The Committee is composed solely of independent directors who
are not officers or employees of the Company and will not be
shareholders, directors, officers or employees of the Company
following the Merger. The Committee members have no financial
interest in the Merger that is different from the interests of
the unaffiliated public shareholders, other than the receipt
of Board and Committee fees;
- The Committee was given unlimited authority, among other
things, to evaluate, negotiate and recommend the terms of any
proposed transaction, and to refuse to recommend a transaction
that it did not believe to be fair;
- The Committee engaged its own separate independent legal
counsel and financial advisor in evaluating, negotiating and
recommending the terms of the Agreement and Plan of Merger.
The Committee's advisors had no previous affiliation or
involvement with the Company, its management or the Continuing
Shareholders and were under the exclusive direction of the
Committee;
- The Committee, together with its advisors, conducted multiple
active negotiating sessions and discussions with
representatives of the Continuing Shareholders. These led to
an increase in the price offered from $21.75 per share of
common stock to $25.75 per share;
o The Committee members' familiarity with the Company's business,
financial results and prospects and their knowledge of the Company's
industry, which they have developed through their years of service as
members of the Company's Board of Directors, and their general business
knowledge and experience;
o McDonald Investments' presentation at the August 13, 2003 Committee
meeting regarding the fairness of the price, and its opinion, subject
to the considerations and limitations set forth in the opinion, that
the price is fair, from a financial standpoint, to the unaffiliated
public shareholders. See "Special Factors -- Opinion of McDonald
Investments" and the copy of McDonald Investments' opinion attached as
Appendix B to this Proxy Statement;
25
o The relationship between the $25.75 price per share to be paid in the
Merger and the recent market prices of the Company's common stock. As
reported by McDonald Investments, the $25.75 per share to be paid in
the Merger represents (i) a 30.7% premium over the closing sale price
for the shares of common stock on the Nasdaq Stock Market on May 15,
2003, the last trading day before the Continuing Shareholders first
announced their proposal to acquire the outstanding shares not owned by
them, (ii) a 28.8% premium over the closing sale price per share for
the one week prior to the initial announcement and (iii) a 27.9%
premium over the closing price for the four weeks prior to the initial
announcement. These premiums compared to the median premiums in 42
going private transactions analyzed by McDonald Investments of 24.8%,
23.3% and 34.0%, respectively. In addition, the merger consideration of
$25.75 per share is higher than the reported closing sales price of the
shares at any time within the previous two years;
o The fact that the price to be paid in the Merger is within the range of
share prices implied by McDonald Investments' comparable company
analysis; is higher than the range of implied equity values per share
of the Company's shares resulting from McDonald Investments' discounted
cash flow analysis and within the range of implied equity values per
share resulting from McDonald Investments' sensitivity analysis
conducted as part of its discounted cash flow analysis; is within the
range of implied enterprise values per share resulting from McDonald
Investments' comparable merger and acquisition analysis; is higher than
the range of implied leverage acquisition prices per share resulting
from McDonald Investments' leveraged buyout analysis; and is within the
range of indicated equity values per share resulting from McDonald
Investments' liquidation analysis. See "Special Factors -- Opinion of
McDonald Investments";
o The fact that the Company is involved in a competitive industry in
which its major competitors, Lowe's and Home Depot, are much larger
than the Company and have substantially greater resources. The
Committee noted that the Company's revenues and number of locations
have contracted significantly in recent years as part of management's
strategic repositioning of the Company and considered it unlikely that
the Company would grow through new store locations or market share
gains vis-a-vis its major competitors. The Committee also noted that
Lowe's and Home Depot have entered into many of the Company's markets;
o The Committee's belief that management's projections, showing reversal
of the decline in sales revenues and slight growth in sales in future
years, would be difficult to achieve in the Company's competitive
position;
o The limited benefit to the Company's shareholders resulting from the
Company being publicly held. Holdings of the Company's shares are
concentrated in members of the Wolohan family. The common stock has
experienced very thin trading volume, particularly when the effects of
Company repurchases and self tenders are considered. On many days the
Company's shares do not trade and relatively small trades can have a
significant impact on the trading price. There is no significant
institutional sponsorship of the Company's shares and no
26
coverage by institutional research analysts. As a result, shareholders
do not enjoy meaningful liquidity in their holdings and are unable to
sell significant numbers of shares without a negative effect on the
trading price, and the Company's shares are not viable currency for
acquisitions. The Company also is not in a position to raise additional
financing through the public capital markets;
o The expenses to the Company of the reporting and compliance
requirements of a public company, and the increased costs likely to be
faced by the Company for reporting and compliance issues following
adoption of the Sarbanes-Oxley Act of 2002 and related rules and
regulations, which are likely to further negatively affect the trading
price of the Company's shares;
o The Committee's belief, following extensive negotiations with the
Continuing Shareholders, that $25.75 per share was the highest price
that the Continuing Shareholders would agree to pay. The Committee's
belief was based on the duration and tenor of negotiations, statements
made by the representatives of the Continuing Shareholders during the
negotiations and the general experience and judgment of the Committee
and its advisors;
o The Committee's belief that in the absence of a transaction, the
shareholders' ability to realize value in excess of $25.75 per share
would be doubtful and would be accompanied by significant risks. The
Committee's belief was based on the strength and resources of the
Company's competitors, the state of the economy, trends in the
Company's industry and the Company's relative size;
o The Committee's belief that it was unlikely that any other buyer would
be willing to pay a price for the Company equal to or greater than
$25.75 per share in cash. This belief was based on the Company's
competitive position and prospects; the stated intention of the
Continuing Shareholders, who control a majority of the outstanding
shares, not to sell their shares to any other party if the proposed
transaction was not consummated; and the fact that although the
proposed transaction was first announced three months prior to the
Committee's recommendation of the Merger, no other bidders had
expressed an interest in acquiring the Company;
o The fact that the merger consideration will be paid entirely in cash,
which eliminates any issues related to valuing the merger
consideration;
o The fact that the Company may consider unsolicited alternative
acquisition proposals that are superior to the merger, to the extent
required in connection with the directors' discharge of their fiduciary
duty. See "The Merger Agreement - Covenants";
o The absence of any break-up fee payable to the Continuing Shareholders
in the event the transaction is not consummated;
o The Committee's ability to remove or change through negotiations
certain provisions, conditions and contingencies in the Agreement and
Plan of Merger, including removal of a financing condition; revisions
to representations, warranties, covenants and closing conditions;
extension of the time during which the merger consideration will remain
27
the entire merger consideration be delivered to the Paying Agent as a
condition to closing. See "The Merger Agreement - Amendment."
Although the Committee negotiated for inclusion of a majority of the
minority provision, the Committee determined that, based on the foregoing
factors and the Continuing Shareholders' unwillingness to negotiate a
transaction including such a provision, it would recommend the transaction to
provide the minority shareholders the opportunity to receive the merger price of
$25.75 per share. The Committee determined, based on the foregoing factors, that
the Merger is procedurally fair to the unaffiliated public shareholders despite
the fact that the terms of the Agreement and Plan of Merger do not require the
approval of at least a majority of the unaffiliated shareholders.
The Committee also considered a variety of risks and other potential
detriments concerning the Merger, including the following:
o Following the Merger, shareholders (other than the Continuing
Shareholders) will cease to participate in any future earnings growth
of the Company or benefit from any increase in the value of the
Company;
o Michigan law does not provide appraisal rights to shareholders who vote
against the Merger, and shareholders therefore will not have the right
to dissent from the Merger and seek to obtain a different value as
determined under statutory procedures;
o Under the terms of the Agreement and Plan of Merger, the Company is
unable to solicit or encourage other acquisition proposals;
o A shareholder generally will be required to include in his or her
taxable income the amount by which $25.75 exceeds the shareholder's
basis in his or her shares of the Company's common stock. If the shares
are a capital asset in the hands of the shareholder, resulting gain may
be long-term or short-term capital gain, depending on the shareholder's
holding period for the shares. See "Material Federal Income Tax
Consequences of the Merger";
o The Continuing Shareholders control sufficient shares to approve the
Merger at the Special Meeting of Shareholders. As a result, the Merger
will not require the approval of any public shareholders if all of the
Continuing Shareholders vote in favor of the Merger;
o The Continuing Shareholders, who include the Company's President and
Chief Executive Officer and Executive Vice President and Chief
Operating Officer, have conflicts of interest because of their
continued employment and equity ownership in the Company following the
Merger;
o The Continuing Shareholders who are officers and directors of the
Company will not be subject to liability under the new and previously
existing Federal securities laws that govern the actions of officers
and directors of public companies;
o Disruption to the operations of the Company and the morale of its
employees might result following announcement of the Merger, with
adverse effects on the Company if, for any reason, the Merger was not
completed.
o The fact that the merger consideration of $25.75 per share is less than
the book value of the Company of $31.86 per share as of June 30, 2003.
The Committee understood that book value could only be realized by
selling the assets for prices at or above the recorded book value. The
Committee's belief that the merger consideration was fair to the
unaffiliated public shareholder, although less than the book value per
share, was based on the following:
- The opinion of McDonald Investments that the merger consideration
is fair to the unaffiliated public shareholders from a financial
point of view.
- The fact that attempting to sell the Company's assets for book
value would involve considerable market risk and uncertainty and
could result in prices below book value.
- The fact that if the assets were sold, the proceeds to the Company
would be reduced by (i) transaction costs and (ii) taxes payable
by the Company to the extent that assets were sold at prices in
excess of their adjusted tax basis.
- The fact that any sale of assets would have to be conducted over a
relatively long period to occur in an orderly fashion, which would
defer the receipt and disbursing of proceeds.
Based on these considerations, the Committee believed that the
prospects of achieving book value would not be a superior alternative to the
receipt by the unaffiliated public shareholders of the merger consideration.
The Committee concluded that the positive factors described above supporting the
fairness of the Merger to the public stockholders outweighed the negative
factors. In evaluating the various factors, the Committee generally felt that
the premiums paid analysis (due to the historically thin trading market for the
Company's shares) and the comparable Company analysis (due to the absence of
comparable companies) were of
28
relatively less importance than the other factors and analyses. However, because
of the number and variety of factors considered, the Committee members did not
find it practicable to quantify or otherwise assign specific relative weights to
each of the factors and analyses considered by them in reaching their
conclusion. The Committee's determination was made after considering all these
factors together.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS
On August 13, 2003, the Special Committee unanimously determined that
the Merger and the Merger Agreement are fair to and in the best interests of our
unaffiliated public shareholders and recommended that our Board and our
shareholders adopt and approve the Merger Agreement and the Merger.
On August 13, 2003, the Board of Directors on the unanimous
recommendation of the Special Committee, adopted the Special Committee's
conclusions and determined that the Merger and the Merger Agreement are
procedurally and substantively fair to and in the best interests of our
unaffiliated public shareholders and recommended that our shareholders adopt the
Merger Agreement and approve the Merger. James L. Wolohan and John A. Sieggreen
attended the Board meeting for quorum purposes, but abstained from voting with
respect to the Merger and the Merger Agreement. The Board of Directors did not
consider any other alternatives to the Merger.
The Board further believes that the transaction is procedurally fair to
the unaffiliated public shareholders despite not obtaining the approval of a
majority of the minority unaffiliated public shareholders to the Merger
Agreement. Due to the concentration of the Company's shares, such a voting
provision would put disproportionate voting power in the hands of a small number
of unaffiliated public shareholders and could potentially deprive the remaining
unaffiliated public shareholders of the benefit of the merger consideration.
PURPOSES OF THE MERGER AND PLANS AND PROPOSALS
If the Merger Agreement is approved by the holders of a majority of the
shares, and the other conditions to the closing of the Merger are satisfied or
waived, we and Wolohan Acquisition will complete the Merger at or as soon as
practical after the Special Meeting:
the unaffiliated public shareholders will cease to have any ownership
interest in us or rights as holders of our common stock;
the unaffiliated public shareholders will no longer benefit from any
increases in our earnings or the payment of dividends on shares of our
common stock, if any;
the unaffiliated public shareholders will no longer bear the risk of
any decreases in our value;
the Continuing Shareholders aggregate interests in our business and its
net earnings and net book value will increase from approximately 51.3%
to 100%;
the Continuing Shareholders will be the sole beneficiaries of any of
our future earnings and profits and will have the ability to benefit
from any strategic acquisitions, divestitures, or other corporate
opportunities that may be pursued by us in the future;
we will be privately held, there will be no public market for our
common stock;
there will not be another meeting of our unaffiliated public
shareholders;
29
the Continuing Shareholders will cause us to terminate the registration
of the common stock under the Securities Exchange Act of 1934 as soon
as the Merger is completed; and
we will no longer be required to file reports with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 once the
registration of the common stock has been terminated. Such reports
include quarterly reports on Form 10-Q, annual reports on Form 10-K;
and proxy statements. In addition officers and directors of the Company
will no longer be subject to the short swing trading provisions and
stock ownership reporting provisions of such Act as well as the
corporate governance provisions of the Sarbanes-Oxley Act of 2002. Our
officers will benefit by no longer having to spend the time complying
with the preparation of such reports and provisions.
we expect to save approximately $150,000 per year as a result of being
no longer subject to the federal securities laws and no longer publicly
traded or listed on the Nasdaq Stock Market.
Subsequent to the Merger, the Continuing Shareholders have stated to us
that they have no present intentions, plans or proposals with regard to any of
the following in regard to us:
extraordinary transactions, such as a merger, reorganization or
liquidation, involving us;
purchase, sale or transfer of a material amount of our assets;
material changes in our corporate structure or business;
acquisitions by any person of our securities or the disposition of our
securities; or
material changes in our capitalization.
Nevertheless, following completion of the Merger, the Continuing
Shareholders in the ordinary course of business will continually review the
Company and its assets, corporate structure, capitalization, operations,
properties and personnel and will determine what changes, if any, may be
desirable following the Merger to enhance the operations of the Company.
Under the terms of the Merger Agreement, we will maintain our existing
officers. The directors of the Company after the Merger will be James L. Wolohan
and John A. Sieggreen.
OPINION OF MCDONALD INVESTMENTS
30
On June 11, 2003, the Special Committee retained McDonald Investments
to act as its financial advisor in connection with the proposed merger and in
the event of a sale to deliver an opinion to the Company's Board of Directors as
to the fairness, from a financial point of view, to the unaffiliated public
shareholders of the consideration to be received in connection with a
transaction (as defined in the Merger Agreement).
The engagement letter between McDonald Investments and the Special
Committee provides that, for its services, McDonald Investments is entitled to
receive a fee of $275,000, of which $100,000 was payable upon its engagement and
$175,000 was payable upon delivery of McDonald Investments' oral opinion. In
addition, McDonald Investments is to be paid an incentive fee of $267,851 based
on the excess of the merger consideration over $23.50 times the number of shares
outstanding and the number of stock options and performance shares outstanding.
McDonald Investments will be reimbursed for certain of its out-of pocket
expenses, including legal fees, and be indemnified for certain losses, claims,
damages and liabilities relating to or arising out of services provided by
McDonald Investments.
The following paragraphs summarize the financial and comparative
analyses performed by McDonald Investments in connection with its opinion. The
summary does not represent a complete description of the analyses performed by
McDonald Investments.
McDonald Investments was retained by the Special Committee on the basis
of its experience, expertise and familiarity with a wide variety of retail and
consumer businesses and its service as a financial advisor in connection with
sale engagements involving a number of retailers. As part of its investment
banking business, McDonald Investments is customarily engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. On August 13, 2003, McDonald Investments delivered
to the Special Committee an oral opinion, confirmed by delivery of a written
opinion dated August 13, 2003, to the effect that, as of that date, and based
upon and subject to the assumptions, considerations and limitations set forth in
its opinion, the consideration to be received in the Merger was fair, from a
financial point of view, to the unaffiliated public shareholders.
MCDONALD INVESTMENTS' OPINION IS DIRECTED TO THE SPECIAL COMMITTEE OF
THE BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT
OF VIEW, TO THE UNAFFILIATED PUBLIC SHAREHOLDERS OF THE MERGER CONSIDERATION AND
DOES NOT ADDRESS THE COMPANY'S UNDERLYING BUSINESS DECISION TO ENTER INTO THE
MERGER OR ANY OTHER TERMS OF THE MERGER AGREEMENT. THE OPINION WAS PROVIDED FOR
THE INFORMATION AND ASSISTANCE OF THE SPECIAL COMMITTEE OF THE BOARD OF
DIRECTORS IN CONNECTION WITH ITS CONSIDERATION OF THE TRANSACTION
31
CONTEMPLATED BY THE AGREEMENT. THE OPINION DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY WOLOHAN SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT ANY MEETING
OF SHAREHOLDERS HELD IN CONNECTION WITH THE MERGER.
It should be noted that McDonald Investments' opinion is based on
economic and market conditions and other circumstances existing on, and
information made available as of, the date thereof and does not address any
matters subsequent to such date. In addition, the opinion is, in any event,
limited to the fairness, as of such date, from a financial point of view, of the
merger consideration to be received by the unaffiliated public shareholders
pursuant to the Merger Agreement and does not address the Company's underlying
business decision to effect the merger or any other terms of the Merger
Agreement. McDonald Investments was not engaged to solicit indications of
interest or to otherwise explore the viability of any alternative transaction to
the Merger. It should be noted that although subsequent developments may affect
McDonald Investments' opinion, it does not have any obligation to update, revise
or reaffirm it. Although McDonald Investments assisted the Special Committee in
negotiating the financial aspects of the proposed Merger, it did not determine
or recommend the amount of consideration to be paid pursuant to the Merger
Agreement.
The full text of McDonald Investments' written opinion which sets
forth, among other things, the assumptions made, matters considered and limits
on the review undertaken by McDonald Investments in connection with the opinion,
is attached as Appendix B to this Proxy Statement and is incorporated herein by
reference. Shareholders are urged to read the opinion in its entirety. The
summary of McDonald Investments' opinion set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of the opinion.
In connection with rendering its opinion, McDonald Investments
reviewed, among other things: (i) the Merger Agreement, including the exhibits
and schedules thereto; (ii) certain publicly available information concerning
the Company, including its Annual Reports on Form 10-K for each of the years in
the four year period ended December 31, 2002, its Quarterly Report on Form 10-Q
for the quarter ended March 31, 2003, its Proxy Statement for the fiscal year
2002 (Schedule 14A), and its Current Reports on Form 8-K dated April 17, 2003,
May 16, 2003 and July 18, 2003; (iii) certain other internal information,
primarily financial in nature, including projections and a liquidation analysis,
concerning the business and operations of the Company furnished to us by the
Company for purposes of our analysis; (iv) certain publicly available
information concerning the trading of, and the trading market for, the Company's
common stock; (v) certain publicly available information with respect to certain
other companies that we believe to be comparable to the Company and the trading
markets for certain of such other companies' securities; and (vi) certain
publicly available information concerning the nature and terms of certain other
transactions that we consider relevant to our inquiry.
In its review and analyses and in arriving at its opinion, McDonald
Investments assumed and relied upon, without assuming any responsibility for
independent verification, the accuracy and completeness of all financial and
other information and data publicly available or furnished to, discussed with or
otherwise reviewed by or for it. McDonald Investments further relied upon the
assurances of management of the Company
32
that they are not aware of any facts that would make any of such information
inaccurate or misleading. McDonald Investments did not make and was not provided
with an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company. With respect to financial forecasts,
McDonald Investments was advised by the management of the Company and assumed
that such forecasts and other information were reasonably prepared on a basis
reflecting the best currently available estimates and judgment of the management
as to the future financial performance of the Company. McDonald Investments
expressed no view with respect to such projections and other information or the
assumptions on which they are based.
McDonald Investments' opinion necessarily is based upon industry,
market, general business and economic, financial and other conditions disclosed
to it as they exist and can be evaluated on the date of the opinion, and
McDonald Investments assumed no responsibility to update or revise its opinion
based upon circumstances or events occurring after the date of the opinion.
In evaluating the merger consideration, McDonald Investments performed
a variety of financial and comparative analyses, including those described
below. The summary of these analyses is not a complete description of the
analyses performed by McDonald Investments. The preparation of a fairness
opinion and the related analyses are complex analytical processes 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, such an opinion and the related analyses are not
readily susceptible to summary description. Accordingly, McDonald Investments
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and certain factors, without considering all analyses
and all factors, could create a misleading or incomplete view of the processes
underlying its analyses and opinion. In addition, some of the summaries of the
financial analyses include information presented in tabular format. The tables
are not intended to stand alone, and in order to more fully understand the
financial analyses of McDonald Investments, the tables must be read together
with the full text of each summary.
In its analyses, McDonald Investments considered industry, market,
general business and economic, financial and other conditions and other matters
existing as of the date of its analyses and opinion, many of which are beyond
the control of McDonald Investments and the Company. No company, transaction or
business considered in those analyses as a comparison is identical to the
Company or the proposed Merger, and an evaluation of those analyses is not
entirely mathematical. Rather, the analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values of the
companies, business segments or transactions analyzed.
McDonald Investments' opinion was among many factors considered by the
Special Committee in its evaluation of the Merger and should not be viewed as
determinative of the views of the Special Committee with respect to the merger
consideration or the Merger.
33
Historical Stock Trading Analysis. McDonald Investments reviewed the
historical performance of the Company's common stock based on an historical
analysis of closing prices and trading volumes for the six-month, twelve-month,
and two-year periods prior to May 16, 2003, the date on which the proposed
transaction was first publicly announced. McDonald Investments noted that the
average closing price for the Company's common stock over these periods ranged
from $18.68 to $20.44, with the lowest average closing price being the average
for the two-year period and the highest average closing price being the average
for the one-year period.
The following chart summarizes these prices and volume of trading of
the Company's common stock.
WOLOHAN LUMBER CO.
SUMMARY OF PRICE AND VOLUME
AVERAGE DAILY CLOSE
AVERAGE DAILY -------------------
CLOSE VOLUME HIGH LOW
---------- -------- ------ ------
Last 6 Months $ 20.01 664 $21.40 $18.53
Last 12 Months $ 20.44 440 $25.10 $18.26
Last 2 Years $ 18.68 734 $25.10 $ 9.65
McDonald Investments also reviewed the distribution of the closing
prices of Wolohan common stock for the prior six-months, one-year and two-year
periods.
TRADING TRADING
VOLUME AT DAYS AT
OR BELOW $25.75 OR BELOW $25.75
PRIOR PERIOD: CONSIDERATION CONSIDERATION
--------------- ---------------
Last 6 Months 100.0% 100.0%
Last 12 Months 100.0% 100.0%
Last 2 Years 100.0% 100.0%
Premiums Paid Analysis. McDonald Investments conducted an analysis of
the premiums paid in forty-two going-private transactions that were similar to
the proposed transaction. Each of the transactions: (i) were announced and not
canceled between January 1, 2000 and August 8, 2003; (ii) involved a U.S. target
company; (iii) had an enterprise value between $25.0 and $100.0 million; and
(iv) had a publicly disclosed value.
For each of the target companies, McDonald Investments examined the
closing stock price one day, one week and four weeks prior to announcement of
the transaction in order to calculate the median premium paid over the target's
closing stock price at those points in time.
34
PERIOD PRIOR TO MEDIAN
ANNOUNCEMENT PREMIUM
- ------------------------------------------------
One Day 24.8%
One Week 23.3%
Four Weeks 34.0%
In addition, McDonald Investments calculated the premium that the
$25.75 per share consideration contemplated by the Merger Agreement represented
to the closing prices for Wolohan's common stock for the periods one day, one
week and four weeks prior to the announcement date of May 16, 2003.
PERIOD PRIOR TO IMPLIED
ANNOUNCEMENT PREMIUM
- ------------------------------------------------
One Day 30.7%
One Week 28.8%
Four Weeks 27.9%
McDonald Investments noted that the premium represented by the merger
consideration was lower than the median premium over the trading price for the
target companies included in its analysis for the four weeks prior to the
announcement, but was significantly higher than the premium implied by such
companies' trading prices for the one week and one day periods prior to
announcement.
Comparable Public Company Analysis. McDonald Investments reviewed and
compared the financial performance of the Company to the financial performance
of two publicly traded, U.S. based building materials and/or home improvement
companies. The comparable companies used by McDonald for purposes of this
analysis were Building Materials Holding Corporation ("BMHC") and Wickes, Inc.
("Wickes"). McDonald Investments deemed these companies to be comparable to
Wolohan because these companies have the same primary SIC code (5211 - lumber
and building materials retail), a similar focus on the professional builder
segment of the industry, and are of a similar relative size as the Company.
McDonald Investments calculated the ratio of each comparable company's
enterprise value to that company's sales, EBIT and EBITDA for its latest twelve
months and each comparable company's market value to that company's Net Income,
Net Book Value and Tangible Book Value. McDonald Investments then applied the
median of each of those ratios to the Company's sales, EBIT, EBITDA, Net Income,
Book Value and Tangible Book Value for the latest twelve months to calculate an
implied enterprise value or market value for the Company. McDonald Investments
discounted BMHC's multiples by 20% given the size (in terms of sales, number of
stores, employees, etc.), growth prospects, geographic location, and market
capitalization relative to the Company. McDonald Investments calculated a range
of equity values per share on a non-controlled fully distributed basis and then
applied a 30% control premium to this range. The control premium was based on
the median premiums paid in similar going private transactions. These
calculations resulted in the following implied equity value per share, as
compared to the merger consideration of $25.75.
35
IMPLIED SHARE PRICE
MULTIPLE RANGE WITH CONTROL PREMIUM [3]
-------------------------- -------------------------
LOW [1] HIGH [2] LOW [1] HIGH [2]
------- -------- ------- --------
Enterprise Value / Sales 0.21x 0.22x $33.22 $34.08
Enterprise Value / EBIT NM 6.68x NM 29.29
Enterprise Value / EBITDA NM 4.50x NM 33.43
Equity Value / Net Income NM 6.37x NM 15.18
Equity Value / Book Value 0.34x 0.65x 12.11 23.00
Equity Value / Tangible Book Value 0.38x 0.86x 12.88 29.43
NOTE:
- --------------------------------------------------------------------------------
All Data as of 8/8/2003
[1] Based on Wickes
[2] Based on BMHC and discounted 20%.
[3] Reflects control premium of 30%
McDonald Investments noted that the merger consideration of $25.75 per share was
above the mid-point of the $12.11 to $34.08 range of share prices implied by the
comparable company analysis.
No company utilized in the comparable public company analysis is
identical to the Company. McDonald Investments made judgments and assumptions
with regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
the Company.
Discounted Cash Flow Analysis. McDonald Investments analyzed various
financial projections prepared by the management of the Company for the years
2003 through 2008 and performed a discounted cash flow analysis of the Company
based on these projections. A discounted cash flow analysis is a methodology
used to derive a valuation of a corporate entity by discounting to the present
its future expected cash flows. The discounted cash flow analysis was conducted
by estimating the Company's weighted average cost of capital at 16.0%. McDonald
Investments estimated the Company's weighted average cost of capital by
performing analyses consistent with the Capital Asset Pricing Model. In its
analyses McDonald Investments applied the median unlevered beta of 1.22 for the
comparable group and a median target debt to capital ratio of 10.0%. The
comparable group consists of those companies specified in the Comparable Public
Company Analysis and also includes Home Depot, Inc. and Lowe's Companies, Inc.,
as these two company's common stocks provide a better reflection of the
volatility of the equity securities of industry participants given that their
respective common shares are more widely held and trade more frequently than
either BMHC or Wickes.
Using 16.0% as the estimated of cost of capital, McDonald Investments
calculated the present value of free cash flows for each of the years 2004
through 2008 and the
36
present value of the terminal value of the Company (the calculated value of the
Company at the end of the projection period). McDonald Investments calculated
the terminal value in year 2008 two ways: the first was determined by applying a
perpetuity growth rate of 1.0% to the projected 2008 net operating profit after
tax and the second was by using an exit EBITDA multiple of 5.0x. By adding
together the present values of free cash flows for each of 2004 through 2008 and
the present value of the terminal value of the Company using the perpetuity
growth rate of 1.0%. McDonald Investments calculated the equity value per share
of the Company to be $20.80. Moreover, by adding together the present values of
free cash flows for each of 2004 through 2008 and the present value of the
terminal value of the Company using an exit multiple of 5.0x EBITDA, McDonald
Investments calculated the equity value per share of the Company to be $24.92
In addition, McDonald Investments conducted a sensitivity analysis as
part of its Discounted Cash Flow Analysis. Using a range of estimated costs of
capital (15.0% -- 17.0%), a range of perpetuity growth rates (0.0% -- 3.0%), and
a range of EBITDA exit multiples (4.5x -- 5.5x), McDonald Investments determined
the implied equity value per share to be $20.16 to $26.37, as compared to the
merger consideration of $25.75.
Comparable Merger & Acquisition Analysis. Using publicly available
information, McDonald Investments reviewed transactions in the home improvement,
building materials and lumber industries. Specifically, each of the selected
transactions: (i) involved a U.S. public company; (ii) was announced since
January 1, 1998; and (iii) had a publicly disclosed value. These transactions
were chosen based on the Company's participation in the sale of lumber and
building materials, the comparable size of the transactions and the recent
period in which the transactions were completed.
TARGET ACQUIROR
Matco Ravary BMR, Inc.
Wickes, Inc. United Building Centers
National Home Centers, Inc. Dwain Neumann
Knipp Brothers (51%) Building Materials Holding Corp.
Anderson Lumber Wolseley PLC
Cameron Ashley Building Products Guardian Industries Corp.
American Building Co. Onex Corp.
Knipp Brothers (49%) Building Materials Holding Corp.
Morgan Products Ltd. Anderson Corp.
Adam Wholesalers Morgan Products Ltd.
Eagle Hardware & Garden Lowe's Cos. Inc.
Central Michigan Lumber Company Wolohan Lumber Co.
For each of the transactions that it reviewed, McDonald Investments
calculated the ratio of the enterprise value of the transaction to the target
company's latest twelve-month sales, EBIT and EBITDA as well as the ratio of
equity value to the target company's Book Value. McDonald Investments applied
the median of these transaction multiples to the Company's sales, EBIT, EBITDA,
and Book Value, to calculate an implied enterprise value for the Company. These
calculations resulted in the following implied equity
37
values, as compared to the merger consideration of $25.75.
IMPLIED EQUITY
MULTIPLE RANGE VALUE PER SHARE
-------------------- -------------------
Enterprise Value / Sales 0.15x 0.24x $20.89 $27.20
Enterprise Value / EBIT 6.40x 8.78x 21.95 26.81
Enterprise Value / EBITDA 5.00x 7.00x 27.59 35.08
Equity Value / Book Value 0.80x 0.95x 21.77 26.12
Leveraged Buyout Analysis. McDonald Investments performed a leveraged
acquisition analysis in order to ascertain the price at which an acquisition of
the Company would be attractive to a potential financial buyer. McDonald
Investments performed the leveraged acquisition analysis using the Company's
projections. McDonald Investments assumed the following in their analyses: (i) a
capital structure comprised of a $30 million credit facility, (ii) an equity
investment that would achieve a rate of return of approximately 25% to 35% and
(iii) a 4.5 x to 5.5x projected EBITDA exit multiple. Based on these
assumptions, the range of implied leveraged acquisition price per common share
of the Company was $22.50 to $24.75. McDonald Investments noted that the merger
consideration of $25.75 per share is higher than the range implied by this
analysis.
Liquidation Analysis. McDonald Investments also prepared a liquidation
analysis designed to arrive at a range of value that might be available to the
shareholders of the Company assuming: (1) a sale of the Company's assets on an
orderly basis, (2) the payment of outstanding liabilities and other claims that
have a priority position over the shareholders of the Company including expenses
associated with the liquidation, and (3) the distribution of net proceeds to the
shareholders of the Company.
McDonald Investments' liquidation analysis was based on the Company's
June 30, 2003 balance sheet, prepared by management. McDonald Investments then
adjusted the book value of certain assets to reflect estimated values realizable
in a liquidation proceeding and certain liabilities were eliminated to reflect
estimated payments to creditors by the Company in a liquidation scenario. In
making these adjustments, McDonald Investments primarily relied upon
management's estimates, without independent verification, using both a high- and
low-case scenario. Specifically, McDonald Investments adjusted the recovery
percentage on Accounts Receivable to 90% from the high end of management's
estimate of 78%. McDonald Investments made this adjustment based on the Special
Committee's estimate of the historical recovery rates that the management team
was able to realize for Accounts Receivable in previous store closings.
Additionally, McDonald Investments adjusted the recovery percentage on the
Company's real estate to better reflect the value of these assets. Specifically,
McDonald Investments valued the Company's Building and Properties as well as its
Properties Held for Sale using a multiple of Purchase Price/Tax Value of 1.1x.
Tax Value is defined as State Equalized Value (SEV) divided by the appropriate
state's SEV factor. This multiple was based on an analysis of real estate that
the Company had sold historically. Based on this methodology, McDonald
Investments valued Property and Buildings at $20.9 million, which compares to
managements valuation range of $12.7 million to $13.4 million and a book value
of $12.7 million. McDonald Investments valued Properties Held for Sale at $18.6
million, which compares to management's valuation range of $8.0 million to $14.2
million and a book value $11.4 million. Based on these assumptions, the
indicated equity value per share ranges from $16.74 to $26.77, as compared to
the merger consideration of $25.75.
The Company had a book value per share of $31.86 as of June 30, 2003,
which exceeds the range of liquidation values derived by McDonald Investments.
However, McDonald Investments believes that there are considerable risks and
timing considerations that would make it difficult to attain the recorded book
value per share in an orderly liquidation process. The risks include strained
supplier and customer relationships, and the costs associated with a potentially
lengthy liquidation process. Moreover, the length of time required to liquidate
the Company in an orderly fashion would result in deferred receipt and
disbursement of proceeds to shareholders, and thereby reduce the present value
of the recovery of these assets and further decrease the likelihood of attaining
the recorded book value for these assets.
Moreover, McDonald Investments' liquidation analysis was done on a
basis, which fully accounts for the dilutive value of in-the-money stock options
and performance shares. In addition, McDonald Investments' liquidation analysis
places zero value on intangible assets such as goodwill, which would be included
in the book value per share on the Company's June 30, 2003 balance sheet. As of
June 30, 2003, the Company had intangible assets of approximately $2.8 million.
Conclusion. The summary set forth above describes the principal
elements of the overview given by McDonald Investments to the Special Committee
on August 13, 2003. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, the opinion is not readily susceptible to summary description.
Each of the analyses conducted by McDonald Investments was carried out in order
to provide a different perspective on the Merger
38
and add to the total mix of information available. McDonald Investments did not
form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness from a
financial point of view. Rather, in reaching its conclusion, McDonald
Investments considered the results of the analyses in light of each other and
ultimately reached its opinion based upon the results of all analyses taken as a
whole. McDonald Investments did not place particular reliance or weight on any
individual analysis, but instead concluded that its analyses, taken as a whole,
support its determination. Accordingly, notwithstanding the separate factors
summarized above, McDonald Investments believes that its analyses must be
considered as a whole and that selecting portions of its analysis and the
factors considered by it, without considering all analyses and factors, could
create an incomplete or misleading view of the evaluation process underlying its
opinion. In performing its analyses, McDonald Investments made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters. The analyses performed by McDonald Investments are
not necessarily indicative of actual value or future results, which may be
significantly more or less favorable than suggested by the analyses.
Miscellaneous. In the ordinary course of business, McDonald Investments
may actively trade the securities of the Company for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in those securities.
MANAGEMENT'S PROJECTIONS
We do not as a matter of course make public projections as to future
sales, earnings or other financial information. We did, however, prepare various
projections that were provided to the Special Committee and McDonald Investments
in connection with their analysis and evaluation of our financial position. The
projections set forth below are included in this Proxy Statement because such
information was provided to McDonald Investments and the Special Committee. The
Company does not intend to update or otherwise revise the financial projections
to reflect circumstances existing after the date on which the projections were
prepared or to reflect the occurrence of unanticipated events.
The following projections represent a summary of the financial
projections we gave to the Special Committee and McDonald Investments for use in
evaluating the Merger. When compiling these projections, we estimated future
Company performance relative to several key operating variables which affect
retail lumber and building materials suppliers. Such variables include but are
not limited to sales growth, gross margin percentage, operating expense ratios,
inventory turnover, and the average time needed to collect accounts receivable.
In addition, we reviewed the prospects for sale or lease of the various real
estate properties held for sale and developed specific assumptions for each
property regarding the timing and value of any potential sale or lease
transaction. These projections, as well as the estimates and assumptions
underlying the projections, are subject to significant economic, industry, and
competitive uncertainties and contingencies. Many of these potential
uncertainties are beyond our control. Accordingly, there can be no assurance
that these projected results would be realized or that actual results would not
be significantly higher or lower than those projected.
39
In addition, the projections were prepared by us not with a view to
public disclosure or compliance with the published guidelines of the Securities
and Exchange Commission or the guidelines established by the American Institute
of Certified Public Accountants regarding projections and forecasts. The
projections are based upon a variety of assumptions relating to our business
which, although considered reasonable by us, may not be realized, and are not
subject to our control. Shareholders should not place undue reliance on these
projections. See "Cautionary Statement Regarding FORWARD-LOOKING STATEMENTS."
40
PROJECTED BALANCE SHEETS 2003-2008
PROJ. PROJ. PROJ. PROJ. PROJ. PROJ.
2003 2004 2005 2006 2007 2008
-------- -------- -------- -------- -------- --------
ASSETS:
Current Assets $ 54,236 $ 61,154 $ 67,203 $ 73,718 $ 78,382 $ 83,063
Net Property, Plant & Equipment 27,003 23,290 20,679 18,409 18,175 17,984
Goodwill 2,773 2,773 2,773 2,773 2,773 2,773
Other Assets 2,449 2,449 2,449 2,449 2,449 2,449
-------- -------- -------- -------- -------- --------
TOTAL ASSETS $ 86,461 $ 89,666 $ 93,104 $ 97,349 $101,779 $106,269
======== ======== ======== ======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY:
Current Liabilities $ 17,666 $ 17,175 $ 16,844 $ 16,706 $ 16,727 $ 16,761
Long Term Debt, net of current
portion - - - - - -
-------- -------- -------- -------- -------- --------
Total Liabilities 17,666 17,175 16,844 16,706 16,727 16,761
Total Shareowners' Equity 68,795 72,491 76,260 80,643 85,052 89,508
-------- -------- -------- -------- -------- --------
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $ 86,461 $ 89,666 $ 93,104 $ 97,349 $101,779 $106,269
======== ======== ======== ======== ======== ========
PROJECTED INCOME STATEMENTS 2003-2008
PROJ. PROJ. PROJ. PROJ. PROJ. PROJ.
2003 2004 2005 2006 2007 2008
-------- -------- -------- -------- -------- --------
Net Sales $183,138 $173,981 $170,501 $170,501 $173,912 $177,390
Gross Profit 42,671 40,886 40,238 40,238 41,217 42,041
Other Income 4,225 3,393 2,802 2,990 2,854 2,953
Operating Expenses:
Selling, General & Administrative Expense 37,677 35,793 35,087 34,575 35,257 35,953
Depreciation and Amortization 3,618 2,886 2,242 2,013 2,134 2,291
-------- -------- -------- -------- -------- --------
Total Operating Expenses 41,295 38,679 37,329 36,588 37,391 38,244
-------- -------- -------- -------- -------- --------
Income Before Tax 5,601 5,600 5,711 6,640 6,680 6,750
Income Taxes 1,905 1,904 1,942 2,258 2,271 2,295
-------- -------- -------- -------- -------- --------
Net Income $ 3,696 $ 3,696 $ 3,769 $ 4,382 $ 4,409 $ 4,455
======== ======== ======== ======== ======== ========
41
THE MERGER AGREEMENT
This section of the Proxy Statement describes material aspects of the
Merger, including material provisions of the Merger Agreement. A copy of the
Merger Agreement is attached to this Proxy Statement as Appendix A and which is
incorporated by reference. You are urged to read the entire Merger Agreement
carefully.
THE MERGER
The Merger Agreement provides that, upon the terms and subject to the
conditions in the Merger Agreement, and in accordance with Michigan law, Wolohan
Acquisition will be merged with and into Wolohan Lumber. As a result of the
Merger, Wolohan Acquisition's corporate existence will cease and we will
continue as the surviving corporation in accordance with Michigan law. The
Merger will become effective at the time a certificate of merger is filed with
the State of Michigan. The Merger is expected to occur as soon as practicable
after all conditions to the Merger have been satisfied or waived.
Our Board of Directors, based upon the recommendation of the Special
Committee (with Messrs. Wolohan and Sieggreen abstaining), has approved, and
deems it fair to and in the best interests of our public shareholders to
consummate the Merger of Wolohan Acquisition with and into us. Upon consummation
of the Merger, each issued and outstanding share of our common stock other than
shares beneficially owned by the Continuing Shareholders, will be cancelled and
converted automatically into the right to receive $25.75 per share.
The Merger Agreement provides that our officers immediately prior to
the effective time of the Merger will be the officers of the surviving
corporation. The directors of the surviving corporation will be James L. Wolohan
and John A. Sieggreen. Our articles of incorporation as in effect immediately
prior to the effective time of the Merger, will be the articles of incorporation
of the surviving corporation after the Merger. Our bylaws, as in effect
immediately prior to the effective time of the Merger, will be the bylaws of the
surviving corporation after the Merger.
CONVERSION OF COMMON STOCK
Once the Merger is completed, the following will occur to those shares
held by the public shareholders:
each share of our common stock, issued and outstanding immediately
prior to the effective time of the merger, will, automatically, be
converted into the right to receive an amount in cash equal to $25.75
per share payable to you without interest;
42
all shares of our common stock, when converted, will no longer be
outstanding and will automatically be cancelled and retired;
each share of Wolohan Acquisition common stock will be automatically
cancelled;
each holder of a certificate formally representing shares of our common
stock will cease to have any rights, except the right to receive the
merger consideration;
after the Merger is completed, we will send you a transmittal form and
written instructions for exchanging your share certificates for the
merger consideration. Do not send share certificates now;
our transfer agent acting as paying agent will pay the merger
consideration to our public shareholders.
STOCK OPTIONS AND PERFORMANCE SHARES
At the effective time of the Merger each outstanding stock option to
purchase shares under our stock option plans, whether vested or unvested, owned
by persons other than any of the Continuing Shareholders will automatically be
converted into the right to receive an amount (subject to applicable withholding
taxes) equal to the merger consideration in cash, less the applicable exercise
price, for each share of common stock subject to such options. At the effective
time of the Merger, each outstanding option to purchase shares under our stock
option plans whether vested or unvested, owned by any of the Continuing
Shareholders will be assumed by the surviving corporation. Each such option so
assumed shall continue to have, and be subject to, the same terms and conditions
set forth in our stock option plan and the applicable stock option agreement
immediately prior to the effective time of the Merger.
At the effective time of the Merger, each holder of performance shares
under our Long-Term Incentive Plan, whether vested or unvested, except
performance shares held by any of the Continuing Shareholders will be entitled
to receive a payment in cash (subject to any applicable withholding taxes) for
all shares of our common stock allocated to his or her account in an amount
equal to the product of (i) the number of performance shares, and (ii) the
merger consideration. Each performance share held by a Continuing Shareholder at
the effective time of the Merger, by virtue of the Merger and without any action
on our part or the holder thereof, shall continue to represent a performance
share in the surviving corporation and continue to have the same rights and
privileges as prior to the effective time of the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains our representations and warranties
relating to: existence, good standing, corporate authority, authorization,
validity and effect of
43
agreements, capitalization, proxy statement, brokers, state takeover statutes,
and required vote of our shareholders.
The Merger Agreement also contains Wolohan Acquisition's
representations and warranties relating to: existence, good standing and
corporate authority, capitalization, authorization, validity and effect of
agreements, no violation, interim operations, brokers, and solvency.
The representations and warranties of the parties in the Merger
Agreement will expire upon completion of the Merger.
COVENANTS
In the Merger Agreement, we agreed that until the effective time of the
Merger, we and our subsidiaries will carry on our respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use all reasonable
efforts to preserve intact our current business organization, keep available
the services of our current officers and employees and preserve our
relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with us, in each case consistent with past
practice, to the end that ongoing business relationships will be unimpaired to
the fullest extent possible at the effective time of the Merger.
We also agreed in the Merger Agreement that until the effective time of
the Merger, neither we nor any of our officers, directors, agents and
representatives will initiate, solicit or knowingly encourage, any inquiries or
the making or implementation of any proposal or offer to acquire us pursuant to
a merger, acquisition, consolidation or similar transaction, or any purchase of
all or in excess of 20% of our assets or equity securities or engage in any
negotiations concerning, or provide any confidential information or data to,
afford access to our properties, books or records or have any discussions with,
any person relating to the foregoing.
Provided, however, nothing shall prohibit us upon approval of
the Special Committee, from (i) prior to the effective time of the Merger,
furnishing information to, or entering into discussions or negotiations with,
any person that makes an unsolicited bona fide proposal, only if (i) such
proposal was not initially solicited, encouraged or knowingly facilitated by us;
(ii) prior to furnishing information to, or entering into discussions or
negotiations with, such person, we provide written notice thereof to Wolohan
Acquisition; and (iii) the Special Committee determines that such proposal is,
or is likely to lead to a proposal that is, more favorable from a financial
point of view to our shareholders as compared to the Merger (such proposal
meeting the requirements of (i), (ii) and (iii) being a "superior proposal").
44
DIRECTORS' AND OFFICERS' INDEMNIFICATION
In the Merger Agreement, we agreed that all rights to indemnification
existing in favor of our present or former directors and officers as provided
under Michigan law and in our articles of incorporation or bylaws as in
effect on the date of the Merger Agreement with respect to matters occurring up
to and including the effective time of the Merger shall survive the Merger. In
the event any person entitled to indemnification becomes involved in any claim,
action, proceeding or investigation after the Merger, we shall periodically
advance to such person his or her reasonable legal and other reasonably incurred
expenses, subject to such person providing an undertaking to reimburse all
amounts so advanced if it is determined that such person is not entitled to
indemnification.
CONDITIONS TO THE MERGER
Under the Merger Agreement, the respective obligation of each party to
effect the Merger is subject to the satisfaction or waiver, on or prior to the
effective time of the Merger, of the following conditions:
The Merger Agreement and the Merger shall have been approved by the
requisite vote of the holders of our common stock;
No final restraining order or permanent injunction or other final order
issued by any court of competent legal jurisdiction or other legal
prohibition preventing the consummation of the Merger shall be in
effect;
All governmental and other consents and approvals necessary to
consummate the Merger shall have been obtained;
Our Board of Directors shall have taken all action required to redeem
the Rights outstanding under the Rights Agreement dated February 16,
2000;
The merger consideration shall have been delivered to the paying agent;
There shall not be pending any litigation pertaining to the Merger.
The parties currently do not intend to waive any of the foregoing
conditions. A resolicitation of a shareholder vote would only occur if the
Merger Agreement was amended to decrease the merger consideration or an event
occurs which adversely affects the rights of, or the income tax consequences, to
the shareholders.
TERMINATION
The Merger Agreement may be terminated at any time prior to the
effective time of the Merger, whether before or after shareholder approval is
obtained:
by mutual written consent of Wolohan Acquisition and the Special
Committee; or
by Wolohan Acquisition or the Special Committee:
45
(i) if the effective time of the Merger shall not have
occurred on or before December 31, 2003; or
(ii) if there shall be any law that makes consummation of the
Merger illegal or prohibited, or if any court of competent jurisdiction
in the United States shall have issued an order, judgment, decree or
ruling, or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, judgment, decree, ruling, or
other action shall have become final and non-appealable; or
by the Special Committee:
(i) if there is a superior proposal (as defined) and if with
respect thereto the Special Committee or our Board of Directors
determines in good faith that the failure to take such action would be
inconsistent with its fiduciary duties to our shareholders; or
(ii) if Wolohan Acquisition shall have breached in any
material respect any of its representations, warranties or covenants
contained in the Merger Agreement; or
by Wolohan Acquisition:
(i) if the Board of Directors shall have withdrawn or
modified, in a manner that is materially adverse to Wolohan
Acquisition, its approval or recommendation of the Merger Agreement and
the Merger or shall have recommended another merger, consolidation or
business combination involving, or acquisition of, the Company or our
assets or a tender offer for common stock, or shall have resolved to do
any of the foregoing.
EFFECT OF TERMINATION
In the event of termination of the Merger Agreement and the abandonment
of the Merger, all obligations of the parties shall terminate, except our
obligations as to continued indemnification of our directors and officers, and
there shall be no liability on our part or Wolohan Acquisition or their officers
or directors, except for any breach of a party's obligations under the Merger
Agreement.
46
AMENDMENT
The Merger Agreement may be amended by action taken by the Board of
Directors of each of the parties thereto and with the approval of the Special
Committee at any time before or after adoption of the Merger Agreement by our
shareholders, provided, however, that after shareholder approval, no amendment
shall be made which decreases the merger consideration or which adversely
affects the rights of, or the income tax consequences to, our shareholders
without the approval of such shareholders.
FEES AND EXPENSES
The following is an estimate of expenses incurred or to be incurred in
connection with the Merger.
Printing and mailing Proxy Statement............................................ $ 17,153
Legal fees Special Committee.................................................... 76,000
Legal fees Company - General.................................................... 195,000
Filing fees..................................................................... 2,140
Financial Advisor fees.......................................................... 542,851
Special Committee fees and expenses............................................. 24,782
Financial Advisory Fees - Company............................................... 175,000
Litigation legal fees........................................................... 307,957
Proxy Solicitation Form fees.................................................... 3,500
Total....................................................................... $1,344,383
REGULATORY APPROVALS
We are not aware of any license or other regulatory permit that appears
to be material to our business that might be adversely affected by the Merger,
or of any approval or other action by any domestic (federal or state) or
administrative or regulatory authority or agency that would be required prior to
the Merger. Should any such approval or other action be required, it is our
present intention to seek such approval or action.
The Merger will not require a filing or approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
MERGER FINANCING
The total amount of cash required to consummate the Merger is estimated
to be approximately $27.8 million, which will be paid by us from our cash on
hand and borrowings from Citizens Bank of Flint, Michigan.
47
The borrowings will consist of two types of credit facilities, namely
an unsecured line of credit not to exceed $15 million and an unsecured term loan
not to exceed $7,500,000. The interest rate on the line of credit will be 90
basis points over the 30-day Libor rate at the time of borrowing and the
interest rate on the term loan will be 115 basis points over the 30, 60, 90, 180
or 1 year Libor rate at the time of funding. The Continuing Shareholders expect
to satisfy the repayment obligations of those borrowings with the surviving
corporation's cash flow from operations. The line of credit will have monthly
payments of interest with principal payable on demand while the term loan will
provide for semi-annual payments of $750,000 plus interest over five years.
The loan agreement evidencing the term loan contains various
requirements and covenants regarding the Company's financial condition including
maintaining a minimum tangible net worth, a maximum ratio of debt to tangible
net worth, a minimum debt service coverage, working capital provisions and
restrictions on capital expenditures.
APPRAISAL RIGHTS
Holders of common stock are not entitled to dissenters rights of
appraisal by reason of the Merger under the Michigan Business Corporation Act.
No other rights may be available to the shareholders.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of material federal income tax consequences
of the Merger to holders of common stock. The discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
current final and temporary regulations promulgated thereunder and
administrative and judicial interpretations thereof, all of which are subject to
change, possibly with retroactive effect. The discussion applies only to
shareholders who hold shares as capital assets within the meaning of Section
1221 of the Code, and may not apply to common stock received pursuant to
compensation arrangements, common stock held as part of a "straddle," "hedge,"
"conversion transaction," "synthetic security," or other integrated investment,
or to certain types of shareholders, such as financial institutions, insurance
companies, tax-exempt organizations and broker-dealers, who may be subject to
special rules. In addition, this discussion applies only to shareholders who
dispose of all of their shares of common stock for cash in the Merger and will
not reacquire or continue to own stock in the Company either directly or
constructively under the constructive ownership rules of Section 318 of the
Code. This summary also does not
48
address holders of performance shares, or shareholders who acquired their shares
pursuant to the exercise of an employee stock option or otherwise as
compensation. Finally, this discussion does not address the federal income tax
consequences to any shareholder who, for federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership or a
foreign estate or trust (as defined in the Code), nor does it consider the
effect of any foreign, state, local or other tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF COMMON
STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE TAX
EFFECTS TO SUCH SHAREHOLDER OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT
OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
The receipt of cash for shares pursuant to the Merger will be a taxable
sale or exchange transaction for federal income tax purposes, and may also be a
taxable transaction under applicable foreign, state, local or other tax laws.
For federal income tax purposes, the Merger will be treated as a redemption by
us of the shares held by shareholders in exchange for cash, entitled to sale or
exchange treatment pursuant to Section 302 of the Code. In general, for federal
income tax purposes, a shareholder receiving cash consideration as a result of
the Merger, will recognize capital gain or loss equal to the difference between
the shareholder's adjusted tax basis in common stock and the amount of cash
received therefor. The Continuing Shareholders who are not required to and do
not otherwise surrender their shares in the Merger should not recognize any
taxable event as a result of the Merger because their equity investment in the
Company will continue after the Merger.
Capital gain in excess of capital loss recognized by an individual
investor upon a disposition of common stock that has been held for more than 12
months will generally be subject to a maximum tax rate of 15%. Capital gain, in
the case of common stock that has been held for 12 months or less, will be
subject to tax at ordinary income tax rates. There are also limitations on a
shareholder's deductibility of capital losses.
Payments in connection with the Merger may be subject to backup
withholding, at a rate of 28%. Backup withholding does not apply if a
shareholder is a corporation or comes within certain exempt categories and, when
required, demonstrates this fact. Backup withholding also does not apply if the
shareholder provides a correct taxpayer identification number or social security
number to the paying agent, and otherwise complies with applicable requirements
of the backup withholding rules of the Code. Our paying agent is Registrar and
Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016-3572, telephone
number (800) 368-5948. A shareholder who does not provide a correct taxpayer
identification number may be subject to penalties imposed by the Internal
Revenue Service ("IRS"). Any amount paid as backup withholding does not
constitute an additional tax and will be creditable against the shareholder's
federal income tax liability, provided that the required information is
furnished to the IRS. Each shareholder should consult with such shareholder's
own tax advisor as to qualification or exemption from backup withholding and the
procedure for obtaining an exemption. Shareholders may
49
prevent backup withholding by completing a Substitute Form W-9 provided by the
paying agent and submitting it to the paying agent.
GENERAL INFORMATION REGARDING
WOLOHAN LUMBER AND WOLOHAN ACQUISITION
Wolohan Lumber is engaged in the retail sale of a full-line of lumber
and building materials and related products, used primarily for new home
construction and large home improvement projects. Wolohan Lumber operates a
chain of 25 building supply stores located in Illinois, Indiana, Kentucky,
Michigan and Ohio. Wolohan Lumber was organized as a Michigan corporation in
1964. Its principal executive offices are located at 1740 Midland Road, Saginaw,
Michigan 48603 and its telephone number is (989) 793-4532.
Wolohan Acquisition is a Michigan corporation organized on June 5, 2003
specifically for the Merger and has not carried on any activities to date other
than those incident to its formation, the negotiation and execution of the
Merger Agreement and the transactions contemplated by the Merger Agreement. John
A. Sieggreen, our Executive Vice President and Chief Operating Officer, who is
also on our board of directors, is the sole shareholder and director of Wolohan
Acquisition. The office address and telephone number of Wolohan Acquisition is
the same as that for Wolohan Lumber.
SUBSEQUENT EVENTS; SHAREHOLDER LITIGATION
After the May 16, 2003 announcement that the Continuing Shareholders
had presented an offer to acquire the remaining shares of common stock held by
the public at a price of $21.75 in cash, on May 21, 2003, an action (the
"Shareholder Litigation") entitled William C. Fraser IRA Account and Samuel
Pill v. Wolohan Lumber Co., et al., (the "Plaintiffs") was commenced in the
Saginaw, Michigan Circuit Court ("Court") against the Company, the five
directors of the Company and two other executive officers of the Company (the
"Defendants") seeking certification as a class action. The Plaintiffs, who are
shareholders of the Company allege that the proposed transaction would result in
unfair dealing and the merger consideration to be paid to the public
shareholders is unfair and grossly inadequate. In addition, Plaintiffs alleged
that Defendants were in possession of non-public, material information
concerning the financial condition and prospects of the Company, especially the
true value and expected increased future value of the Company and its assets,
which they had not adequately disclosed to the public stockholders, and that
they had breached their fiduciary duties by failing to disclose such information
to the members of the purported class. The Company's management (principal
members of which are the Defendants) believes that the actions of the Board in
undertaking its evaluation process has resulted in significant enhancement of
value for the benefit of all Company shareholders during which time the Company
and its directors have only acted in good faith in accordance with all of their
fiduciary duties and the exercise of their business judgment to the Company
shareholders and accordingly, that the action is without merit.
The complaint demands judgment as follows:
(a) certifying the action as a class action and certifying plaintiffs
as the representatives of the class;
50
(b) ordering defendants to carry out their fiduciary duties to
plaintiffs and the other members of the class, including those duties of care,
loyalty, candor and fair dealing;
(c) granting preliminary and permanent injunctive relief against the
consummation of the Merger;
(d) in the event the Merger is consummated, rescinding the Merger
and/or awarding recissory damages to the class;
(e) ordering defendants, jointly and severally, to account to
plaintiffs and other members of the class for all damages suffered and to be
suffered by them as the result of the acts and transactions alleged;
(f) awarding plaintiffs the costs and disbursements of the action
including allowances for plaintiffs' reasonable attorneys' and experts' fees;
and
(g) granting such other and further relief as the Court may deem just
and proper.
On June 10, 2003, the Defendants filed a motion to dismiss the
Shareholder Litigation on the grounds that: (a) the claims were legally
premature because the Special Committee of the Board of Directors had not had an
opportunity to review, evaluate, analyze and respond to the Continuing
Shareholders' offer of $21.75 per share and had not had an opportunity to
negotiate with the Continuing Shareholders and that there was no agreed upon
Merger for the Court to consider or enjoin; and (b) the Plaintiffs' purported
claims, although denied by the Defendants, could be asserted only by the
Company, and not any shareholder, and that the Plaintiffs had failed to comply
with the legal prerequisites established by the Michigan Business Corporation
Act for bringing a "derivative" action on behalf of the Company against its
officers and directors.
On August 13, 2003, the attorneys for the Plaintiffs and the attorneys
for the Defendants reached an agreement in principle, embodied in a signed
Memorandum of Understanding, to resolve the Shareholder Litigation (the
"Settlement"). The Settlement was made expressly subject to additional
procedures, including Court approval, to confirm the fairness of the Settlement
to the Company and to the public shareholders (excluding the Continuing
Shareholders).
The following are the principal terms of the Settlement, all of which
are conditioned upon Court approval:
51
(a) The Merger will be consummated by purchasing all common stock held
by all shareholders other than the Continuing Shareholders for $25.75 cash per
share;
(b) The Plaintiffs and the Defendants jointly will submit to the Court
a proposed order providing for conditional certification of a class of
Plaintiffs comprised of all public shareholders of the Company as of May 15,
2003 and all times thereafter through consummation of the Merger but excluding
the Continuing Shareholders and any person, firm, trust, corporation or any
entity affiliated with any of them (the "Plaintiff Class");
(c) The Plaintiff Class will release all state and federal claims
(including under the United States Securities laws), known and unknown,
presently asserted or which could be asserted in the future, against any or all
Defendants and any other person or entity in connection with the Merger, this
Proxy Statement and any matters that were or could have been asserted in the
Shareholder Litigation.
(d) The Plaintiffs and the Defendants will present the Settlement to
the Court for a two-step approval process (i) a hearing for preliminary approval
of the Settlement, after which the Court would issue an order conditionally
certifying the class, directing notice to the class of the terms of the
Settlement which also explains the right of class members to voluntarily
withdraw or be excluded from the Settlement and scheduling a hearing for
consideration of final approval of the Settlement; and (ii) a second hearing for
consideration of final approval of the Settlement during which an opportunity
will be provided for objections to be made to the Settlement and after which, if
it issues final approval of the Settlement, the Court would enter an order and
final judgment dismissing with prejudice the Shareholder Litigation;
(e) The Plaintiffs have reserved the right to withdraw from the
Settlement if continuing investigation and discovery reveals facts that are
inconsistent with the fairness of the Settlement to the class and the Company;
(f) The Defendants have reserved the right to withdraw from the
Settlement in the event that a certain number of shares owned by shareholders
other than the Continuing Shareholders timely deliver valid requests to withdraw
or be excluded from the class;
(g) In connection with the Settlement, the attorneys for the Plaintiffs
will apply to the Court for an award of attorneys' fees and expenses not to
exceed in the aggregate $210,000, to be paid by the Company or its successor;
and Defendants have agreed not to oppose this application; and
(h) If the Settlement is not approved by the Court, or if the
Plaintiffs or the Defendants exercise their right to withdraw from the
Settlement (as described in subsections (e) and (f) above), or if the Merger is
not consummated for any reason, the proposed Settlement, including the
conditional certification of the class, shall be deemed null and void and the
proposed Settlement, and/or termination thereof, shall not
52
be deemed to prejudice the parties' respective rights and positions in the then
continuing Shareholder Litigation.
On September 19, 2003, in furtherance of the Settlement, attorneys for
the Plaintiffs and the Defendants filed a motion and supporting papers, which
referenced testimony from the depositions of the Chairman of the Special
Committee, the Special Committee's financial advisor and the President and Chief
Executive Officer of the Company and excerpts from a fairness opinion prepared
by the Special Committee's financial advisor, requesting the Court to: (a)
preliminarily approve the fairness of the Settlement; (b) conditionally certify
the class solely for the purpose of effecting the Settlement; (c) approve the
form of the notice to be sent to members of the class explaining the Settlement
and the actions to be taken by shareholders with respect to the Settlement,
including the right of any shareholder to timely withdraw or be excluded from
the Settlement, and (d) set a hearing for consideration of final approval of the
Settlement, at which time objections to the Settlement could be presented. The
Court granted the motion and scheduled a hearing for final approval of the
settlement to take place on October 27, 2003.
53
PRICE RANGE OF SHARES; DIVIDENDS; AND STOCK REPURCHASES
Our common stock is traded on The Nasdaq Stock Market under the symbol
"WLHN". The following table sets forth, for the fiscal quarters indicated, the
high and low sales prices per share on The Nasdaq Stock Market. Such quotations
reflect inter-dealer prices, without retail mark-ups, markdowns or commissions,
and may not necessarily represent actual transactions.
2001 2002 2003
---------------------------------- ----------------------------------- ------------------------------
MARKET RANGE CASH DIVIDENDS MARKET RANGE CASH DIVIDENDS MARKET RANGE CASH DIVIDENDS
HIGH LOW DECLARED HIGH LOW DECLARED HIGH LOW DECLARED
---- --- -------- ---- --- -------- ---- --- --------
First Quarter $12.00 $6.75 $.07 $25.00 $18.68 $.07 $20.92 18.41 $.07
Second Quarter 10.75 7.62 .07 25.65 19.85 .07 24.00 19.64 .07
Third Quarter 15.25 9.90 .07 22.22 18.75 .07 24.45* 22.76* .07
Fourth Quarter 23.15 12.95 .07 21.48 18.25 .07
---- ---- ----
Year 23.15 6.75 $.28 25.65 18.25 $.28 (*through August 13) $.21
==== ==== ====
Since January 1, 2000 we have repurchased the following number of
shares in the fiscal quarters indicated and at the average purchase prices shown
below:
Range of Purchase Average Purchase
Number of Shares Price Paid Price Per Share
---------------- ---------- ---------------
2000
First Quarter.................... 102,663 $11.13 -- $13.00 $12.31
Second Quarter................... 221,008 9.75 -- 11.00 10.64
Third Quarter.................... 102,452 10.06 -- 11.00 10.60
Fourth Quarter................... 1,227,588 10.00 -- 12.00 11.94
2001
First Quarter.................... 47,111 10.00 -- 11.56 10.32
Second Quarter................... 48,994 9.72 -- 11.38 9.73
Third Quarter.................... 1,258,295 15.00 15.00
Fourth Quarter................... 37,587 13.90 -- 19.25 14.02
2002
First Quarter.................... 8,600 19.75 19.75
Second Quarter................... ---- ---- ----
Third Quarter.................... 25,000 19.75 19.75
Fourth Quarter................... 2,766 19.75 -- 20.63 20.07
2003
First Quarter.................... 5 19.00 19.00
Second Quarter................... 50,000 20.14 20.14
Third Quarter (through August 13) ---- ---- ----
On November 9, 2000, we commenced a tender offer to purchase up to
1,500,000 shares of our common stock at a purchase price not greater than $12.00
nor less than $10.00 a share. At the termination of the tender offer on December
15, 2000, we purchased 1,189,113 shares at a price of $12.00 per share.
On August 7, 2001, we commenced a tender offer to purchase up to
1,500,000 shares of our common stock at a purchase price of $15.00 a share. At
the termination of the tender offer on September 21, 2001, we purchased
1,258,295 shares.
54
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the Merger and the fairness of the consideration to be
received in the Merger, you should be aware that certain of our officers
including James L. Wolohan, President, Chief Executive Officer and Director,
John A. Sieggreen, Executive Vice President, Chief Operating Officer and
Director, Daniel P. Rogers, Senior Vice President - General Merchandise Manager
and Edward J. Dean, Vice President and Chief Financial Officer have interests in
the Merger, which are described below and which may present them with certain
actual or potential conflicts of interest.
As of August 13, 2003, the directors and executive officers as a group
beneficially owned 1,379,960 shares of our common stock on a fully diluted
basis, or 58% of such shares, which includes 276,500 shares issuable upon
exercise of outstanding stock options and 32,677 outstanding performance shares.
The Continuing Shareholders own approximately 51.3% of the outstanding shares of
common stock and, if acting together, will be able to control all matters
requiring approval of our shareholders, including the approval of the Merger.
Our Board was aware of these actual and potential conflicts of interest and
considered them along with the other matters described under "Special Factors --
Recommendations of the Special Committee and Board of Directors."
After the Merger, the Continuing Shareholders will beneficially own
100% of the outstanding shares of our common stock.
The members of the Special Committee have been and will be paid a fee
for each meeting of the Committee. As of August 13, 2003, Mr. Shobe earned
$8,500 and Mr. Weeks as Chairman of the Special Committee earned $12,750.
Pursuant to the Merger Agreement, if the Merger is completed, our directors,
(other than Messrs. Wolohan and Sieggreen) including members of the Special
Committee, who hold stock options under the Stock Option Plan for Non-Employee
Directors will receive the merger consideration less the exercise price for each
share of common stock subject to such directors' stock options.
Based on our records and on information provided to us by our directors
and executive officers, neither the Company and, to the best of our knowledge,
any of our directors or executive officers, have effected any transactions
involving shares of our common stock during the 60 business days prior to the
date of the Proxy Statement. Except as otherwise described herein, neither the
Company nor, to the best of our knowledge, any of our directors or executive
officers are a party to any contract, arrangement, understanding or relationship
with any other person relating, directly or indirectly, to the Merger with
respect to any of our securities, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any such securities, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss or the giving or withholding
of proxies, consents or authorizations.
55
The stock options and performance shares held by those officers named
below will survive the Merger and become obligations of the surviving
corporation with the same terms and conditions as currently in existence.
Options Held by Executive Officers
NUMBER OF AVERAGE PER SHARE
SHARES OPTION PRICE
NAME UNDER OPTION ------------
---- ------------
James L. Wolohan 65,000 $ 10.77
John A. Sieggreen 105,000 11.47
Daniel P. Rogers 75,000 10.875
Edward J. Dean 7,500 12.67
Performance Shares Held by Executive Officers
NUMBER OF
NAME SHARES
---- ---------
James L. Wolohan 17,380
John A. Sieggreen 7,500
Daniel P. Rogers 4,500
Edward J. Dean 3,297
Options Exercised
James L. Wolohan exercised the following stock options during the past
two years:
DATE OF EXERCISE NUMBER OF SHARES OPTION PRICE
---------------- ---------------- ------------
2/22/02 20,000 $14.38
2/22/02 25,000 13.125
3/15/02 20,000 13.125
1/15/03 15,000 13.125
56
STOCK OWNERSHIP
The following table sets forth certain information, as of August 13,
2003, regarding the ownership of shares by each person known by us to be the
beneficial owner of more than 5% of our common stock.
Number of Percent
Name Shares (1) of Class
- ---- ---------- --------
Michael J. Wolohan and James L. Wolohan as Co-Trustees
Wolohan Family Trust............................................................ 749,609(2)(3) 36.7
James L. Wolohan................................................................ 166,866(3) 8.2
1740 Midland Road
Saginaw, Michigan 48603
Wolohan Family Foundation (4)................................................... 131,900 6.5
1705 Crosby Road
Wayzata, Minnesota 55391
Timothy W. and Georgine Wolohan................................................. 113,320 5.5
6 Pinehurst Lane
Cincinnati, Ohio 45208
(1) Beneficial ownership of shares, as determined in accordance with
applicable Securities and Exchange Commission rules, includes shares as
to which a person has or shares voting power and/or investment power.
(2) In addition, 7,260 shares are held by Michael J. Wolohan's spouse as
Trustee and 1,931 shares are held by Michael J. Wolohan as Trustee.
(3) In addition, James L. Wolohan owns 166,866 shares and holds stock
options to purchase 65,000 shares; and James L. Wolohan's spouse holds
242 shares in her own name and 5,263 shares as Trustee of two trusts.
(4) James L. Wolohan and Michael J. Wolohan are officers and directors of
this Foundation.
The following table sets forth, as of August 13, 2003, the number of
shares of our common stock beneficially owned by each director, each executive
officer and all directors and executive officers as a group.
Number of Percent
Name of Individual or Group Shares (1) of Class
- --------------------------- -------------- --------
Hugo E. Braun, Jr...................................................... 16,470(2) *
Edward J. Dean......................................................... 16,918(3) *
Daniel P. Rogers....................................................... 75,000(3) 3.2
Lee A. Shobe........................................................... 10,500(2) *
John A. Sieggreen...................................................... 106,020(3)(4) 4.5
Charles R. Weeks....................................................... 9,000(2) *
James L. Wolohan....................................................... 1,113,375(5) 47.7
---------
All Directors and Executive Officers as a Group (7 persons)............ 1,347,283 57.7
- --------------
* Less than one percent
(1) The number of shares shown in the table does not include 5,505 shares
owned by spouses and children where beneficial ownership is disclaimed
and does not include any performance shares held in the Long-Term
Incentive Plan.
57
(2) The number of shares shown in the table includes shares which the
following directors have the right to acquire upon the exercise of
stock options granted under the Stock Option Plan for Non-Employee
Directors: Hugo E. Braun, Jr., Lee A. Shobe and Charles R. Weeks, 8,000
shares each.
(3) The number of shares shown in the table includes shares issuable upon
the exercise of stock options for the following executive officers:
Daniel P. Rogers -- 75,000 shares, John A. Sieggreen -- 105,000 shares
and Edward J. Dean -- 7,500 shares.
(4) The number of shares shown includes 1,000 shares which Mr. Sieggreen
holds as custodian for his son.
(5) The number of shares shown in the table as beneficially owned by James
L. Wolohan includes 166,866 shares which he owns in his own name,
65,000 shares issuable upon the exercise of stock options, 749,609
shares which he holds with Michael J. Wolohan as Co-Trustee of the
Wolohan Family Trust and 131,900 shares owned by the Wolohan Family
Foundation of which he is an officer and a director.
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers of Wolohan are as follows:
HAS SERVED IN
NAME AND AGE POSITION POSITION SINCE
------------ -------- --------------
James L. Wolohan, 51 Chairman of the Board, 1994
President and 1986
Chief Executive Officer 1987
John A. Sieggreen, 40 Executive Vice President 1999
and Chief Operating
Officer
Daniel P. Rogers, 53 Senior Vice President, 1999
General Merchandise Manager
Edward J. Dean, 53 Vice President and 2003
Chief Financial Officer
George I. Gibson, Jr., 55 Corporate Secretary 2001
All of the officers of the Company named above have held various positions with
the Company for more than five years.
58
The directors of Wolohan are as follows:
NAME AND AGE POSITION HAS SERVED AS
------------ -------- DIRECTOR SINCE
--------------
Hugo E. Braun, Jr., 71 Consulting Partner, Braun Kendrick 1984
Finkbeiner, P.L.C., Attorneys-at-law
James L. Wolohan, 51 Chairman of the Board, President and 1986
Chief Executive Officer of the
Company
Charles R. Weeks, 69 Formerly Chairman and Chief 1996
Executive Officer, Citizens Banking
Corporation
Lee A. Shobe, 64 Formerly President and Chief 1996
Executive Officer of Dow Brands, Inc.
John A. Sieggreen, 40 Executive Vice President and Chief 1999
Operating Officer of the Company
- -------------------
(1) Each of the directors had the same principal occupation during the past
five years, except as follows: Prior to April 20, 1999 Mr. Weeks was
Chairman of Citizens Banking Corporation; and from 1997 to 1999 Mr.
Sieggreen served as Vice President of Operations of the Company.
The business address of each executive officer and director is in care
of the Company at 1740 Midland Road, Saginaw, Michigan 48603.
OFFICER AGREEMENTS.
The Company has entered into agreements with James L. Wolohan, John A.
Sieggreen and Daniel P. Rogers which provide that in the event of a change in
control of the Company (as defined in the agreements), these persons would have
specific rights and receive certain benefits if, within five years after the
change in control, either employment was terminated by the Company without
"cause" (as defined in the agreements) or the person was to terminate employment
for "good reason" (as defined in the agreements). In these circumstances, the
person would be entitled to receive (a) full base salary through the date of
termination, including vacation, plus a severance payment in an amount equal to
three times the person's base annual salary in effect at the date of
termination, payable at the option of the person either in a lump sum or in
installments, (b) a pro-rata payment of any bonus award earned by the person
during the year of termination under the Company's Incentive Plan, (c) all legal
fees and expenses incurred by the person to enforce the person's rights under
the agreement, and (d) continuation of medical and life insurance coverage for a
period of time. If any amounts which the person is entitled to receive are
deemed "parachute payments" under the Internal Revenue Code, the person will be
entitled to receive certain additional payments from the Company.
59
The agreements provide that there shall be excluded from the definition
of change in control any transaction in which the management of the Company by
themselves or with other persons acquires a controlling portion of the Company's
stock. Thus if the Merger is consummated, it shall not be deemed a change in
control under the agreements.
INDEPENDENT AUDITORS
The firm of Rehmann Robson serves as our independent auditors. The
consolidated financial statements and the related financial statement schedules
as of December 31, 2001 and 2002 and for each of the two fiscal years in the
period ended December 31, 2002 included in this Proxy Statement have been
audited by Rehmann Robson, as stated in their reports, which are included and
incorporated by reference in this Proxy Statement. It is not expected that
representatives of Rehmann Robson will be present at the Special Meeting.
SHAREHOLDER PROPOSALS
If the Merger is consummated, we will no longer have public
shareholders or public participation in any future meetings of our shareholders.
However, if the Merger is not consummated, our public unaffiliated shareholders
will continue to be entitled to attend and participate in our shareholders'
meetings. Pursuant to Rule 14a-B under the Exchange Act promulgated by the SEC,
any shareholder who wishes to present a proposal at the next Annual Meeting of
Shareholders, in the event the Merger is not consummated, and who wishes to have
the proposal included in our proxy statement for that meeting, must have
delivered a copy of the proposal to us at 1740 Midland Road, Saginaw, Michigan
48603, Attention: Corporate Secretary, on or before November 28, 2003.
Alternatively, if a shareholder does not wish to include a proposal for the 2004
Annual Meeting of Shareholders in the proxy statement, the shareholder may
submit a proposal by February 1, 2004.
WHERE YOU CAN FIND MORE INFORMATION
INCORPORATION BY REFERENCE
The SEC allows us to incorporate, by reference, information into this
Proxy Statement, which means that we can disclose important information by
referring you to another document filed separately with the SEC. The following
documents previously filed by us with the SEC are incorporated by reference in
this Proxy Statement and are deemed to be a part hereof:
Annual Report on Form 10-K for the fiscal year ended December 31, 2002;
Quarterly Report on Form 10-Q for the period ended March 31, 2003;
60
Quarterly Report on Form 10-Q for the period ended June 30, 2003;
Current Reports on Form 8-K dated April 17, 2003, May 16, 2003, July
18, 2003 and August 13, 2003.
Specifically, the information set forth in the following sections of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2002 is
incorporated by reference in this Proxy Statement and deemed to be a part
hereof:
Item 1: Description of Business;
Item 2: Description of Properties;
Item 6: Management's Discussions and Analysis of Financial Condition
and Results of Operations; and
Item 7: Financial Statements.
Our Annual Report on Form 10-K for the fiscal year ended December 31,
2002 and Quarterly Report on Form 10-Q for the period ended June 30, 2003 are
enclosed with this Proxy Statement. See Appendix D and Appendix E hereto. Any
statement contained in a document incorporated by reference in this Proxy
Statement shall be deemed to be modified or superseded for all purposes to the
extent that a statement contained in this Proxy Statement modifies or replaces
the statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Proxy Statement.
We undertake to provide by first class mail, without charge to any
person to whom a copy of this Proxy Statement has been delivered, a copy of any
or all of the documents referred to above which have been incorporated by
reference in this Proxy Statement, other than exhibits to the documents, unless
the exhibits are specifically incorporated by reference therein. Requests for
copies should be directed to George I. Gibson, Jr., Corporate Secretary, Wolohan
Lumber Co., 1740 Midland Road, Saginaw, Michigan 48603.
AVAILABLE INFORMATION
ADDITIONAL INFORMATION
We are subject to the informational filing requirements of the Exchange
Act and, in accordance therewith, are required to file periodic reports, proxy
statements and other information with the SEC relating to our business,
financial condition and other matters. Information as of particular dates
concerning our directors and officers, their remuneration, stock options granted
to them, the principal holders of our securities and any material interest of
such persons in transactions with us is required to be
61
disclosed in proxy statements distributed to our shareholders and filed with the
Commission. Such reports, proxy statements and other information should be
available for inspection at the public reference facilities maintained by the
SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and also
should be available for inspection at the SEC's regional office located at the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may also be obtained by mail, upon payment of the SEC's
customary fees, by writing to its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549. These materials filed by us with the Commission are also
available at the website of the SEC at www.sec.gov.
Because the Merger is a "going private" transaction, the Company and
Wolohan Acquisition have filed with the SEC a Rule 13E-3 Transaction Statement
on Schedule 13E-3 under the Exchange Act with respect to the Merger. This Proxy
Statement does not contain all of the information set forth in the Schedule
13E-3 and the exhibits thereto. Copies of the Schedule 13E-3 and the exhibits
thereto are available for inspection and copying at our principal executive
offices during regular business hours by any of our interested shareholders, or
a representative who has been so designated in writing, and may be inspected and
copied, or obtained by mail, by written request directed to the Company.
Our common stock is listed on the Nasdaq Stock Market (ticker symbol:
WLHN), and materials may also be inspected at:
The National Association of Securities Dealers, Inc.
1735 K Street, N.W.
Washington, D.C. 20006
If the Merger is consummated, we will seek to cause the shares of
common stock to be de-listed from trading on the Nasdaq Stock Market and to
terminate the registration of our common stock under the Exchange Act, which
will relieve us of any obligation to file reports and forms, such as an Annual
Report on Form 10-K, with the SEC under the Exchange Act.
MISCELLANEOUS
It is not expected that any other matters are likely to be brought
before the Special Meeting. However, if any other matters are presented, it is
the intention of the person named in the proxy to vote the proxy in accordance
with their best judgment.
By Order of the Board of Directors,
GEORGE I. GIBSON, JR.,
Secretary
62
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
WOLOHAN ACQUISITION CO.
AND
WOLOHAN LUMBER CO.
DATED AS OF AUGUST 13, 2003
INDEX
PAGE NO.
ARTICLE I - THE MERGER
1.1 THE MERGER........................................................................ 2
1.2 THE CLOSING....................................................................... 2
1.3 EFFECTIVE TIME.................................................................... 2
1.4 ARTICLES OF INCORPORATION, BY-LAWS, DIRECTORS AND OFFICERS OF
THE SURVIVING CORPORATION......................................................... 2
ARTICLE II -- EFFECT OF THE MERGER ON SECURITIES OF PURCHASER AND THE COMPANY
2.1 PURCHASER COMMON STOCK............................................................ 3
2.2 COMPANY COMMON STOCK.............................................................. 3
2.3 EXCHANGE OF CERTIFICATES REPRESENTING COMPANY COMMON
STOCK............................................................................. 4
2.4 ADJUSTMENT OF MERGER CONSIDERATION................................................ 6
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY..................................... 6
3.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS.................................. 6
3.3 CAPITALIZATION, ETC.............................................................. 7
3.4 NO VIOLATION...................................................................... 7
3.5 COMPANY PROXY STATEMENT........................................................... 8
3.6 BROKERS........................................................................... 8
3.7 OPINION OF FINANCIAL ADVISOR...................................................... 8
3.8 REQUIRED VOTE OF COMPANY STOCKHOLDERS............................................. 9
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY..................................... 9
4.2 CAPITALIZATION.................................................................... 9
4.3 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS.................................. 9
4.4 NO VIOLATION...................................................................... 9
4.5 INTERIM OPERATIONS OF PURCHASER................................................... 10
4.6 BROKERS........................................................................... 10
4.7 SOLVENCY.......................................................................... 10
ARTICLE V -- COVENANTS
5.1 ALTERNATIVE PROPOSALS............................................................. 10
5.2 INTERIM OPERATIONS................................................................ 11
5.3 COMPANY SHAREHOLDER APPROVAL; PROXY STATEMENT..................................... 11
5.4 OTHER ACTION...................................................................... 12
5.5 PUBLICITY......................................................................... 12
5.6 FURTHER ACTION.................................................................... 12
5.7 INDEMNIFICATION................................................................... 12
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ARTICLE VI -- CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER........................ 13
ARTICLE VII -- TERMINATION
7.1 TERMINATION....................................................................... 14
7.2 EFFECT OF TERMINATION AND ABANDONMENT............................................. 14
7.3 AMENDMENT......................................................................... 15
7.4 EXTENSION WAIVER.................................................................. 15
ARTICLE VIII -- ADDITIONAL AGREEMENTS; GENERAL PROVISIONS
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES..................................... 15
8.2 NOTICES........................................................................... 15
8.3 ASSIGNMENT; BINDING EFFECT........................................................ 16
8.4 ENTIRE AGREEMENT.................................................................. 16
8.5 GOVERNING LAW..................................................................... 17
8.6 FEES AND EXPENSES................................................................. 17
8.7 CERTAIN DEFINITIONS............................................................... 17
8.8 HEADINGS.......................................................................... 17
8.9 INTERPRETATION.................................................................... 17
8.10 WAIVERS........................................................................... 17
8.11 SEVERABILITY...................................................................... 17
8.12 ENFORCEMENT OF AGREEMENT.......................................................... 17
8.13 COUNTERPARTS...................................................................... 18
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of August 13,
2003, between Wolohan Acquisition Co., a Michigan corporation ("PURCHASER"), and
Wolohan Lumber Co., a Michigan corporation (the "COMPANY").
RECITALS
WHEREAS, certain members of the Wolohan Family along with certain
members of management of the Company (the "CONTINUING SHAREHOLDERS") who are
listed on Appendix A hereto and who own beneficially an aggregate of 1,048,151
shares of Common Stock of the Company ("COMPANY COMMON STOCK") constituting
approximately 51.3% of the total outstanding shares of Company Common Stock,
have proposed to the Company that Purchaser acquire all of the remaining issued
and outstanding shares of Company Common Stock in the hands of the shareholders
who are not included among the Continuing Shareholders (the "PUBLIC
SHAREHOLDERS");
WHEREAS, the Special Committee of independent directors of the board of
directors of the Company (the "COMPANY BOARD") established to consider
Purchaser's proposal (the "SPECIAL COMMITTEE") has unanimously determined that
the Merger (as defined below) and other transactions contemplated herein are
fair and in the best interests of the Public Shareholders and has unanimously
approved this Agreement and unanimously recommended the adoption of this
Agreement by the Company Board, and unanimously recommends approval of this
Agreement by the shareholders of the Company; and
WHEREAS, the Company Board (with James L. Wolohan and John A. Sieggreen
abstaining), based in part on the recommendation of the Special Committee and
the written opinion of McDonald Investments Inc., the financial advisor to the
Special Committee ("FINANCIAL ADVISOR"), has determined that the Merger is fair
and in the best interests of the Public Shareholders, has adopted this
Agreement, and recommends the approval of this Agreement by the shareholders of
the Company; and
WHEREAS, at the Effective Time (as defined below), Purchaser shall
merge with and into the Company (the "MERGER"), with the Company as the
surviving corporation; and
WHEREAS, the shareholder of the Purchaser has approved this Agreement
and has authorized the execution and delivery of such other agreements and
documents as are necessary to consummate the Merger; and
WHEREAS, the shareholders of the Company shall consider and act upon
resolutions to approve and adopt this Agreement and to authorize the execution
and delivery of such other agreements and other documents as are necessary to
consummate the Merger; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
1. THE MERGER.
1.1 THE MERGER. At the Effective Time (as defined below), subject to
the terms and conditions of this Agreement and the applicable provisions of the
Michigan Business Corporation Act, as amended (the "MICHIGAN ACT"), Purchaser
shall be merged with and into the Company and the separate corporate existence
of Purchaser shall thereupon cease. The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "SURVIVING
CORPORATION"). The Merger shall have the effects specified in the Michigan Act.
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "CLOSING") shall take place at the offices of
Dickinson Wright PLLC, 500 Woodward Avenue, Suite 4000, Detroit, Michigan 48226,
at 10:00 a.m., local time, as soon as practicable following the satisfaction (or
waiver if permissible) of the conditions set forth in ARTICLE VI. The date on
which the Closing occurs is hereinafter referred to as the "CLOSING DATE."
1.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
ARTICLE VI shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in ARTICLE VII, the parties
hereto shall cause a certificate of merger meeting the requirements of the
Michigan Act ("CERTIFICATE OF MERGER") to be properly executed and filed with
the Department of Consumer and Industry Services of the State of Michigan on the
Closing Date. The Merger shall become effective at the time of filing and
endorsement of the Certificate of Merger with the State of Michigan or at such
later time which the parties hereto shall have agreed upon and designated in
such filing as the effective time of the Merger (the "EFFECTIVE TIME").
1.4 ARTICLES OF INCORPORATION, BY-LAWS, DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION. Unless otherwise agreed by the Company and Purchaser
prior to the Closing, at the Effective Time:
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(a) The articles of incorporation of the Company as in effect
immediately prior to the Effective Time shall be the articles of incorporation
of the Surviving Corporation, until duly amended in accordance with applicable
law and the terms thereof;
(b) 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 duly
amended in accordance with applicable law and the terms thereof;
(c) The officers of the Company immediately prior to the Effective Time
shall continue to serve in their respective offices of the Surviving Corporation
from and after the Effective Time, until their successors are duly appointed or
elected in accordance with applicable law and the Surviving Corporation's
articles of incorporation and by-laws; and
(d) The directors of the Surviving Corporation shall be James L.
Wolohan and John A. Sieggreen who shall serve until their successors are duly
appointed or elected in accordance with applicable law, and the Surviving
Corporation's articles of incorporation and by-laws.
ARTICLE II
2. EFFECT OF THE MERGER ON SECURITIES OF PURCHASER AND THE COMPANY.
2.1 PURCHASER COMMON STOCK. At the Effective Time, each share of
Purchaser Common Stock that is outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of
Purchaser, the Company or the holder thereof, cease to be outstanding and shall
be canceled and retired without payment of any consideration therefor.
2.2 COMPANY COMMON STOCK.
(a) At the Effective Time, each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time and held by the Public
Shareholders shall, by virtue of the Merger and without any action on the part
of Purchaser, the Company or the holder thereof, be converted into the right to
receive $25.75 per share without interest (the "MERGER CONSIDERATION") in
accordance with SECTION 2.3 upon the surrender of a certificate or certificates
(a "CERTIFICATE") representing such shares of Company Common Stock. Shares of
Company Common Stock owned by the Continuing Shareholders shall not be converted
into the right to receive the Merger Consideration at the Effective Time.
(b) Each share of Company Common Stock held by each of the Continuing
Shareholders at the Effective Time shall, by virtue of the Merger and without
any action on the part of the Purchaser, the Company or the holder thereof,
continue to represent one share of Common Stock of the Surviving Corporation.
-3-
(c) COMPANY STOCK OPTIONS. At the Effective Time, each outstanding
employee and director stock option to purchase Company Common Stock (the
"OPTIONS") heretofore granted under any stock option plan of the Company
(collectively, the "STOCK PLANS"), except for any Options held by any of the
Continuing Shareholders, shall no longer be exercisable for the purchase of
shares of Company Common Stock but each such Option shall entitle each holder
thereof, in cancellation, settlement and exchange therefor, to receive a payment
in cash (subject to any applicable withholding taxes) (the "CASH PAYMENT"),
equal to the product of (x) the number of shares of Company Common Stock covered
by the Option immediately prior to the Effective Time, and (y) the excess, if
any, of the Merger Consideration over the exercise price per share of Company
Common Stock subject to such Option. Any Cash Payment required to be paid shall
be paid to each holder of an outstanding Option on the date occurring on or
after the Effective Time on which such holder executes a document canceling such
Option. Each Option held by a Continuing Shareholder at the Effective Time, by
virtue of the Merger and without any action on the part of the Company or the
holder thereof, shall continue to represent an Option to acquire common stock in
the Surviving Corporation and continue to have the same rights and privileges as
prior to the Effective Date.
(d) COMPANY PERFORMANCE SHARES. At the Effective Time, each holder of
Performance Shares under the Company's Long-Term Incentive Plan ("Performance
Shares"), except Performance Shares held by any of the Continuing Shareholders,
will be cancelled and the holders thereof will be entitled to receive a prompt
payment in cash (subject to any applicable withholding taxes) for all shares of
Company Common Stock allocated to his account in an amount equal to the product
of (i) the number of Performance Shares, and (ii) the Merger Consideration. Each
Performance Share held by a Continuing Shareholder at the Effective Time, by
virtue of the Merger and without any action on the part of the Company or the
holder thereof, shall continue to represent a Performance Share in the Surviving
Corporation and continue to have the same rights and privileges as prior to the
Effective Date.
2.3 EXCHANGE OF CERTIFICATES REPRESENTING COMPANY COMMON STOCK.
(a) Prior to the Effective Time, Purchaser shall appoint a commercial
bank or trust company, subject to the reasonable satisfaction of the Company, to
act as paying agent hereunder for payment of the Merger Consideration upon
surrender of Certificates (the "PAYING AGENT"). Purchaser shall take all steps
necessary to cause the Surviving Corporation to provide the Paying Agent with
cash in amounts necessary to pay for all the shares of Company Common Stock
pursuant to SECTION 2.2(a) at the Effective Time. Such amounts shall hereinafter
be referred to as the "EXCHANGE FUND." The Surviving Corporation shall be
responsible for payment of all sums to be paid pursuant to SECTION 2.2(c) and
SECTION 2.2(d).
(b) As soon as practicable after the Effective Time, the Surviving
Corporation shall cause the Paying Agent to mail to each holder of record of
shares of Company Common Stock (i) a letter of transmittal which shall specify
that delivery shall be
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effected, and risk of loss and title to such Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and which letter shall be in
such form and have such other provisions as are customary for letters of this
nature and (ii) instructions for effecting the surrender of such Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate to the
Paying Agent together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, and such other documents
as may be reasonably required by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the amount of cash
into which shares of Company Common Stock theretofore represented by such
Certificate shall have been converted pursuant to SECTION 2.2, and the shares
represented by the Certificate so surrendered shall forthwith be canceled. No
interest will be paid or will accrue on the cash payable upon surrender of any
Certificate. Until surrendered as contemplated by this SECTION 2.3, each
Certificate shall be deemed, at any time after the Effective Time, to represent
only the right to receive on such surrender the amount, without any interest
thereon, of cash into which shares of Common Stock theretofore represented by
such Certificate shall have been converted pursuant to SECTION 2.2.
(c) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock that
were outstanding immediately prior to the Effective Time. From and after the
Effective Time, the holders of Certificates evidencing ownership of shares of
Company Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares except as otherwise
provided herein or by applicable law. If, after the Effective Time, Certificates
are presented to the Surviving Corporation, they shall be canceled and exchanged
as provided in this ARTICLE II.
(d) Any portion of the Exchange Fund (including the proceeds of any
interest and other income received by the Paying Agent in respect of all such
funds) that remains unclaimed by the former shareholders of the Company twelve
months after the Effective Time shall be delivered to the Surviving Corporation.
Any former shareholders of the Company who have not theretofore complied with
this ARTICLE II may thereafter look only to the Surviving Corporation for
payment of any Merger Consideration, without any interest thereon, that may be
payable in respect of each share of Company Common Stock such shareholder holds
as determined pursuant to this Agreement.
(e) None of Purchaser, the Company, the Surviving Corporation, the
Paying Agent or any other Person shall be liable to any former holder of shares
of Company Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
which may be made against it with respect to such Certificate, the Paying Agent
will issue in exchange for such lost, stolen or destroyed
-5-
Certificate the Merger Consideration payable in respect thereof pursuant to this
Agreement.
(g) The Surviving Corporation and the Paying Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to the
Merger to a holder of shares of Company Common Stock, a holder of an Option or a
holder of Performance Shares such amounts as the Surviving Corporation and the
Paying Agent are required to deduct and withhold with respect to the making of
such payment under the Internal Revenue Code of 1986, as amended (the "CODE"),
or any provision of state or local law. To the extent amounts are so withheld by
the Surviving Corporation or the Paying Agent, the withheld amounts (i) shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares in respect of which the deduction and withholding was made, and (ii)
shall be promptly paid over to the applicable taxing authority.
2.4 ADJUSTMENT OF MERGER CONSIDERATION. In the event that, subsequent
to the date of this Agreement but prior to the Effective Time, the outstanding
shares of Company Common Stock shall have been changed into a different number
of shares or a different class as a result of a stock split, reverse stock
split, stock dividend, subdivision, reclassification, split, combination,
exchange, recapitalization or other similar transaction, the Merger
Consideration shall be appropriately adjusted to eliminate the effects of that
event.
ARTICLE III
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to Purchaser as of the date of this Agreement as follows:
3.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. The Company and each
of its subsidiaries is duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all requisite power
and authority to own or lease and operate its properties and carry on its
business as now conducted, except where the failure to be so organized, existing
or in good standing or to have such power and authority would not result,
individually or in the aggregate, in a Material Adverse Effect (as hereinafter
defined). For purposes of this Agreement, a "MATERIAL ADVERSE EFFECT" means a
change or effect that is materially adverse to the business, operations, assets,
or financial condition of the Company and its subsidiaries, taken as a whole.
For purposes of this Agreement, a "subsidiary" means, any Person in which the
Company owns, directly or indirectly, more than 50% of the stock or other equity
interest that are entitled to vote for the election of the board of directors or
other governing body of such Person.
3.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby. The execution and delivery by the Company of
this Agreement
-6-
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action (including
without limitation the approval of the Company Board), and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby (other than the approval
of this Agreement by the holders of the shares of Company Common Stock and other
than, in the case of this Agreement, the filing of the Certificate of Merger as
required by the Michigan Act). This Agreement has been duly and validly executed
and delivered by the Company, and (assuming this Agreement constitutes a valid
and binding obligation of Purchaser and subject to approval by the Company's
shareholders) constitutes and will constitute valid and binding obligations of
the Company, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
3.3 CAPITALIZATION, ETC. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock. As of the close of business on
August 1, 2003, (a) 2,042,688 shares of Company Common Stock were outstanding
and attached to each outstanding share is a right to acquire Company Common
Stock pursuant to the terms and provisions of the Rights Agreement dated as of
February 16, 2000 between the Company and Registrar and Transfer Company as
Rights Agent, (b) 291,200 shares of Company Common Stock were reserved for
issuance for outstanding Options and (c) 47,012 shares of Company Common Stock
were reserved for issuance under outstanding Performance Shares under the
Company's Long-Term Incentive Plan. All issued and outstanding shares of Company
Common Stock are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. Except for Options issued pursuant to the Company
Stock Option Plans and Performance Shares issued under the Long-Term Incentive
Plan, there are no options, warrants, calls, subscriptions, convertible
securities, stock appreciation rights or other rights (including rights of first
refusal), agreements or commitments which obligate the Company or any of its
subsidiaries to issue, transfer or sell any shares of capital stock of, or
equity interests in, or any material assets of, the Company or any of its
subsidiaries. There are no outstanding obligations of the Company or any
subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company. There are no voting trusts or other agreements or
understandings to which the Company or any of its subsidiaries is a party with
respect to the voting of capital stock of the Company or any of its
subsidiaries.
3.4 NO VIOLATION.
Assuming that all consents, approvals, authorizations and other actions
described in this Section have been obtained and all filings and obligations
described in this Section have been made, neither the execution and delivery by
the Company of this Agreement, nor (assuming requisite shareholder approval is
obtained) the consummation by the Company of the transactions contemplated
hereby, will: (i) violate, conflict with or result in a breach of any provision
of the articles of incorporation or by-laws of the Company or any subsidiary;
(ii) other than (A) the filing of a premerger notification and report form by
the Company under the Hart-Scott-Rodino Antitrust
-7-
Improvements Act of 1976, as amended (the "HSR ACT"), if required, (B) the
filing with the Securities and Exchange Commission (the "SEC") of a proxy
statement relating to obtaining the approval of shareholders of the Company to
this Agreement and the Merger (such proxy statement as amended or supplemented
from time to time, the "PROXY STATEMENT"), a Schedule 13E-3 under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE Act"), and such other reports
and filings as may be required in connection with this Agreement and the
transactions contemplated hereby, (C) the filing of a Certificate of Merger as
required by the Michigan Act; and (D) any applicable requirements, if any, of
Blue Sky Laws or the Nasdaq National Market, Inc., which require any consent,
approval or authorization of, or declaration, filing or registration with, any
federal, state or local judicial, legislative, executive, administrative or
regulatory body or authority or any court, arbitration board or tribunal
("GOVERNMENTAL ENTITY"), the lack of which, individually or in the aggregate,
would have a Material Adverse Effect on the Company or, by law, prevent or
materially delay the consummation of the transactions contemplated hereby; or
(iii) violate any ordinance, rule, regulation, federal, state or local law,
statute, order, judgment or decree ("LAWS"), applicable to the Company, any of
its subsidiaries or any of their respective assets other than any violations
which do not have a Material Adverse Effect on the Company.
3.5 COMPANY PROXY STATEMENT. None of the information in the Proxy
Statement at the time such document is filed with the SEC or first published,
sent or given to the Company's shareholders, will contain any untrue statement
of a material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading.
3.6 BROKERS. Except for McDonald Investments Inc. (the "FINANCIAL
ADVISOR"), the arrangements of which have been disclosed to Purchaser in
writing, and except for S. V. Murphy & Co., Inc., a financial consultant to the
Company, no broker, finder or financial advisor is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement that is based upon any arrangement made by or on
behalf of the Company.
3.7 OPINION OF FINANCIAL ADVISOR. The Special Committee has received
the written opinion of the Financial Advisor to the effect that, as of the date
of this Agreement, the Merger Consideration to be received in the Merger by the
Public Shareholders pursuant to the Merger is fair, from a financial point of
view (the "OPINION"). The Company hereby represents and warrants that it has
been authorized by the Financial Advisor to permit the inclusion, to the extent
required by applicable law, of the Opinion and references thereto and the
Financial Advisor's presentation to the Special Committee, subject to prior
review and consent by the Financial Advisor (such consent not to be unreasonably
withheld), in the Proxy Statement. The Company has no obligation to the
Financial Advisor other than for the fees, expenses and indemnification
provisions provided under the engagement letter between the Special Committee
and the Financial Advisor.
-8-
3.8 REQUIRED VOTE OF COMPANY STOCKHOLDERS. The only vote of the
shareholders of the Company required to adopt this Agreement and to approve the
Merger and the transactions contemplated hereby, is the affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock.
ARTICLE IV
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents and
warrants to the Company as of the date of this Agreement as follows:
4.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to own, operate and lease its properties and carry on its business
as now conducted, except where the failure to have such power and authority,
individually or in the aggregate, would not materially adversely affect the
ability of Purchaser to consummate the transactions contemplated hereby.
4.2 CAPITALIZATION. The authorized capital stock of the Purchaser
consists of 60,000 shares of Common Stock. At the close of business on August 1,
2003, 100 shares were outstanding and the sole shareholder of Purchaser is John
A. Sieggreen.
4.3 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Purchaser has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder, and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation by Purchaser of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action and no other corporate
proceedings on the part of Purchaser are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby other than, in the case of
this Agreement, the filing of the Certificate of Merger as required by the
Michigan Act. This Agreement has been duly and validly executed and delivered by
Purchaser, and (assuming this Agreement constitutes a valid and binding
obligation of the Company) constitutes and will constitute the valid and binding
obligations of Purchaser, enforceable in accordance with its respective terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
4.4 NO VIOLATION. Assuming that all consents, approvals, authorizations
and other actions described in this Section and in Section 3.4 have been
obtained and all filings and obligations described in this Section and in
Section 3.4 have been made, neither the execution and delivery of this Agreement
by Purchaser, nor the consummation by it of the transactions contemplated hereby
or thereby, will (i) violate, conflict with or result in any breach of any
provision of the articles of incorporation or by-laws of Purchaser; (ii) other
than the filings required under the Exchange Act, require
-9-
any consent, approval or authorization of, or declaration, filing or
registration with, any Governmental Entity, the lack of which, individually or
in the aggregate, would have a Material Adverse Effect on the ability of
Purchaser to consummate the transactions contemplated hereby or prevent or
materially delay the consummation of the transactions contemplated hereby, or
(iii) violate any Laws applicable to Purchaser or any of its assets.
4.5 INTERIM OPERATIONS OF PURCHASER. Purchaser was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations as contemplated
hereby.
4.6 BROKERS. No broker, finder or financial advisor is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement that is based upon any arrangement
made by or on behalf of the Purchaser.
4.7 SOLVENCY. After giving effect to the Merger, the Surviving
Corporation will not (i) be insolvent, (ii) have unreasonably small capital with
which to engage in its business, (iii) have total liabilities in excess of its
total assets, or (iv) be unable to pay its debts as the debts become due in the
usual course of its business and, further, the capital of the Surviving
Corporation will not become impaired thereby.
ARTICLE V
5. COVENANTS.
5.1 ALTERNATIVE PROPOSALS. The Company agrees (a) that, between the
date hereof and the earlier of the Effective Time or the termination of this
Agreement in accordance with its terms, neither it nor any of its subsidiaries
shall, and it shall direct its officers, directors, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or the Special Committee) not to, initiate, solicit or knowingly
encourage, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its shareholders)
to acquire the Company pursuant to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of all or in excess of 20% of the
assets or equity securities of, the Company or any of its subsidiaries (any such
proposal or offer being hereinafter referred to as an "ALTERNATIVE PROPOSAL") or
engage in any negotiations concerning, or provide any confidential information
or data to, afford access to the properties, books or records of the Company or
any of its subsidiaries to, or have any discussions with, any Person relating to
an Alternative Proposal; and (b) that it will notify Purchaser promptly of the
terms of such Person's or entity's inquiry or proposal if any such inquiries or
proposals are received by the Company; PROVIDED, HOWEVER, that nothing contained
in this SECTION 5.1 shall prohibit the Company or its subsidiaries, upon
approval of the Special Committee, from (i) prior to the Effective Time,
furnishing information to, or entering into discussions or negotiations with,
any Person or entity that makes an unsolicited bona fide Alternative Proposal,
only if (A) such proposal was not initially solicited, encouraged or knowingly
facilitated by the
-10-
Company, its subsidiaries or their agents in violation of this SECTION 5.1, (B)
prior to furnishing information to, or entering into discussions or negotiations
with, such person or entity, the Company provides written notice to Purchaser to
the effect that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity, and (C) the Special Committee
determines that such proposal is, or is likely to lead to a proposal that is,
more favorable from a financial point of view to the shareholders of the Company
as compared to the Merger (such proposal meeting the requirements of clauses
(A), (B) and (C) being a "SUPERIOR PROPOSAL"). The Company shall keep Purchaser
informed of the status of any such discussions or negotiations and the terms of
any proposal. Nothing in this SECTION 5.1 shall (x) permit the Company to
terminate this Agreement (except as specifically provided in ARTICLE VII
hereof), (y) permit the Company to enter into any agreement with respect to an
Alternative Proposal during the term of this Agreement, or (z) affect any other
obligation of the Company under this Agreement
5.2 INTERIM OPERATIONS.
During the period from the date of this Agreement to the Effective Time
(except as otherwise specifically contemplated by the terms of this Agreement),
the Company will and will cause its subsidiaries to carry on their respective
businesses in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and, to the extent consistent therewith, use all
reasonable 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,
distributors and others having business dealings with them, in each case
consistent with past practice, to the end that their goodwill and ongoing
businesses will be unimpaired to the fullest extent possible at the Effective
Time.
5.3 COMPANY SHAREHOLDER APPROVAL; PROXY STATEMENT.
(a) The Company, acting through the Company Board, shall (i) call a
meeting of its shareholders (the "SHAREHOLDERS MEETING") for the purpose of
voting upon this Agreement and the transactions contemplated hereby, (ii) hold
the Shareholders Meeting as soon as practicable following the date of this
Agreement, and (iii) unless taking such action would be inconsistent with the
fiduciary duties of the directors of the Company or of the Company's directors
constituting the Special Committee to shareholders of the Company imposed by
Law, as determined by such directors in good faith, and after consultation with
independent legal counsel, recommend to the shareholders the approval of this
Agreement and the transactions contemplated hereby; PROVIDED, HOWEVER, that the
Company Board shall not be obligated to recommend this Agreement and the
transactions contemplated hereby if, at or prior to the Shareholders Meeting, a
Superior Proposal has been received and if with respect thereto the Special
Committee or the Board of Directors determines in good faith (after consultation
with its legal counsel) that taking such action would be inconsistent with its
fiduciary duties to the shareholders of the Company. In the event a Shareholders
Meeting is called, the Company shall use its reasonable best efforts to solicit
from the shareholders of the Company proxies in favor of the approval and
adoption of this
-11-
Agreement, and the transactions contemplated hereby and to secure the vote of
shareholders required by the condition specified in ARTICLE VI to approve and
adopt this Agreement, unless otherwise required by the applicable fiduciary
duties of the directors of the Company or of the Company's directors
constituting the Special Committee, as determined by such directors in good
faith, and after consultation with independent legal counsel.
(b) The Company and Purchaser will, as soon as practicable following
the date of this Agreement, prepare and file a preliminary Proxy Statement with
the SEC with respect to the Shareholders Meeting, a Schedule 13E-3 under the
Exchange Act and such other reports and filings as may be required under
applicable securities laws. The Company and Purchaser will use their best
efforts to respond to any comments of the SEC or its staff and to cause the
Proxy Statement to be cleared by, the SEC. As promptly as practicable after the
Proxy Statement has been declared effective by the SEC, the Company shall mail
the Proxy Statement to the shareholders of the Company. If at any time prior to
the approval of this Agreement by the Company's shareholders there shall occur
any event which should be set forth in an amendment or supplement to the Proxy
Statement the Company will prepare and mail to its shareholders such an
amendment or supplement.
(c) Purchaser agrees to cause all shares of Company Common Stock owned
by the Continuing Shareholders to be voted in favor of the approval of the
Merger.
5.4 OTHER ACTION. The Company and the Purchaser shall use their
reasonable best efforts to take, or cause to be taken, all other action and do,
or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and
directors of Purchaser and the Surviving Corporation shall take all such
necessary action.
5.5 PUBLICITY. The Company and Purchaser shall obtain the prior consent
of each other before issuing any press release or otherwise making any public
announcement with respect to the transactions contemplated hereby, except as may
be required by Law.
5.6 FURTHER ACTION. Each party hereto shall, subject to the fulfillment
at or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the transactions contemplated
hereby, including the Merger.
5.7 INDEMNIFICATION.
(a) Each of Purchaser and the Company agrees that all rights to
indemnification existing in favor of the present or former directors, officers,
employees,
-12-
fiduciaries and agents of the Company or any of its subsidiaries as provided
under the Michigan Act and in the Company's articles of incorporation or bylaws
or the charter and bylaws of the Company's subsidiaries as in effect on the date
hereof with respect to matters occurring up to and including the Effective Time
shall survive the consummation of the Merger and continue after the Effective
Time. Without limiting the generality of the foregoing, in the event any person
entitled to indemnification under this Section 5.7(a) becomes involved in any
claim, action, proceeding or investigation after the Effective Time, the Company
shall periodically advance to such person his or her reasonable legal and other
reasonably incurred expenses (including the cost of any investigation and
preparation incurred in connection therewith), subject to such person providing
an undertaking to reimburse all amounts so advanced if it is determined that
such person is not entitled to indemnification.
(b) The provisions of this SECTION 5.7 are intended to be for the
benefit of, and shall be enforceable by, each of the Company's current directors
and officers and their heirs and personal representatives.
ARTICLE VI
6. CONDITIONS.
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction or waiver, where permissible, prior to the Effective Time, of the
following conditions:
(a) This Agreement and the Merger shall have been approved by the
requisite vote of the holders of the Company Common Stock.
(b) No final restraining order or permanent injunction or other final
order issued by any court of competent jurisdiction or other legal prohibition
preventing the consummation of the Merger shall be in effect.
(c) All necessary approvals, authorizations and consents of any
Governmental Entity required to consummate the Merger shall have been obtained
and remain in full force and effect, and all waiting periods relating to such
approvals, authorizations and consents shall have expired or been terminated.
(d) The Company Board shall have taken all action required to redeem
the Rights outstanding under the Rights Agreement dated February 16, 2000.
(e) The Merger Consideration shall have been delivered to the Paying
Agent.
(f) There shall not be pending any litigation pertaining to the Merger.
-13-
ARTICLE VII
7. TERMINATION.
7.1 TERMINATION. This Agreement, notwithstanding approval thereof by
the shareholders of the Company, may be terminated at any time prior to the
Effective Time:
(a) by mutual written consent of Purchaser and the Special Committee;
or
(b) by the Purchaser or the Special Committee:
(i) if the Effective Time shall not have occurred on or before
December 31, 2003 (provided that, the right to terminate this Agreement
pursuant to this clause (i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Effective Time to occur on
or before December 31, 2003; or
(ii) if there shall be any Law that makes consummation of the
Merger illegal or prohibited, or if any court of competent jurisdiction
in the United States shall have issued an order, judgment, decree or
ruling, or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, judgment, decree, ruling, or
other action shall have become final and non-appealable; or
(c) by the Special Committee:
(i) if there is a Superior Proposal and if with respect
thereto the Special Committee or the Company Board determines in good
faith (after consultation with its legal counsel) that the failure to
take such action would be inconsistent with its fiduciary duties to the
shareholders of the Company; or
(ii) if Purchaser shall have breached in any material respect
any of its representations, warranties or covenants contained in this
Agreement; or
(d) by Purchaser:
(i) if the Special Committee shall have withdrawn or modified,
in a manner that is materially adverse to Purchaser, its approval or
recommendation of this Agreement and the Merger or shall have
recommended another merger, consolidation or business combination
involving, or acquisition of, the Company or its assets or a tender
offer for Common Stock, or shall have resolved to do any of the
foregoing.
7.2 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this ARTICLE
VII, all obligations of the parties hereto shall terminate, except the
obligations of the parties pursuant to this SECTION 7.2 and SECTIONS 5.7 and
8.6, and there
-14-
shall be no liability on the part of the Company, Purchaser or their respective
officers or directors, except for any breach of a party's obligations under such
provisions.
7.3 AMENDMENT. To the extent permitted by applicable law, this
Agreement may be amended by action taken by or on behalf of the board of
directors of each of the parties hereto and, in the case of the Company, with
the approval of the Special Committee at any time before or after adoption of
this Agreement by the shareholders of the Company; PROVIDED, HOWEVER, that after
any such shareholder approval, no amendment shall be made which decreases the
Merger Consideration or which adversely affects the rights of, or the income tax
consequences to, the Company's shareholders hereunder without the approval of
such shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of all of the parties.
7.4 EXTENSION; WAIVER. At any time prior to the Effective Time, any
party hereto, by action taken by its board of directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties made to such party contained herein or in
any document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein;
PROVIDED, HOWEVER, that, if the Company seeks to make such extension or waiver
as provided in (a), (b) or (c) above, it must first obtain the approval of the
Special Committee. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE VIII
8. ADDITIONAL AGREEMENTS; GENERAL PROVISIONS.
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement, or in any instrument delivered
pursuant to this Agreement, shall survive the Effective Time.
8.2 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), or
sent by overnight courier or sent by facsimile, to the applicable party at the
following addresses or facsimile numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
If to Purchaser: Wolohan Acquisition Co.
1740 Midland Road
Saginaw, Michigan 48603
Facsimile: (989) 793-5066
Attention: John A. Sieggreen, President
-15-
With a copy to: Verne C. Hampton II
Dickinson Wright PLLC
500 Woodward Avenue, Suite 4000
Detroit, MI 48226
Facsimile: (313) 223-3598
If to the Company: Wolohan Lumber Co.
1740 Midland Road
Saginaw, MI 48603
Facsimile: (989) 793-5066
Attention: James L. Wolohan, President
With a copy to: Verne C. Hampton II
Dickinson Wright PLLC
500 Woodward Avenue, Suite 4000
Detroit, MI 48226
Facsimile: (313) 223-3598
If to the Special Charles R. Weeks, Chairman
Committee: 817 Boutell Drive
Grand Blanc, MI 48439
Facsimile:
With a copy to: Justin G. Klimko
Butzel Long PC
150 W. Jefferson, Suite 900
Detroit, Michigan 48226
Facsimile: (313) 225-7037
8.3 ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties and the Special Committee. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Notwithstanding anything contained in
this Agreement to the contrary, except for (i) the provisions of SECTION 5.7,
which may be enforced directly by the beneficiaries thereof, and (ii) the right
of each Public Shareholder and each holder of Options or Performance Shares to
receive payment under the terms of this Agreement after the Effective Time,
nothing in this Agreement, expressed or implied, is intended to confer on any
Person other than the parties hereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
8.4 ENTIRE AGREEMENT. This Agreement, and the Appendixes, and any other
documents delivered by the parties in connection herewith constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto.
-16-
8.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan without regard to its rules of
conflict of laws.
8.6 FEES AND EXPENSES. All fees, costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the Company. Provided, however, if this Agreement is terminated pursuant
to Article VII, the party incurring such fees, costs and expenses shall be
responsible for the payment thereof.
8.7 CERTAIN DEFINITIONS. For purposes of this Agreement, the following
term shall have the following meaning:
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization,
entity or group (as defined in the Exchange Act).
8.8 HEADINGS. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever. The table of contents contained in this
Agreement is for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.9 INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural Persons shall include corporations and partnerships and vice
versa. Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be understood to be followed by the words, "without
limitation".
8.10 WAIVERS. No action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision hereunder
shall not operate or be construed as a waiver of any prior or subsequent breach
of the same or any other provision hereunder.
8.11 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
8.12 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
-17-
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Michigan Court, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.13 COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which, when so executed and delivered, shall
be an original. All such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
WOLOHAN LUMBER CO.
By: /s/ James L. Wolohan
------------------------------------------
Name: James L. Wolohan
Title: President and Chief Executive Officer
WOLOHAN ACQUISITION CO.
By: /s/ John A. Sieggreen
------------------------------------------
Name: John A. Sieggreen
Title: President and Chief Executive Officer
-18-
APPENDIX B
August 13, 2003
PERSONAL AND CONFIDENTIAL
Special Committee of the Board of Directors
Wolohan Lumber Co.
1740 Midland Road
PO Box 3235
Saginaw, Michigan 84605
Members of the Special Committee:
You have requested our opinion as to the fairness, from a financial point of
view, to the Public Shareholders (as hereinafter defined), of Wolohan Lumber Co.
(the "Company"), of the Consideration (as hereinafter defined) to be received
pursuant to the Agreement and Plan of Merger, which is anticipated to be signed
by August 14, 2003 (the "Merger Agreement") between Wolohan Acquisition Co. (the
"Purchaser") and the Company.
Upon the terms and subject to the conditions set forth in the Merger Agreement,
at the effective time, the Purchaser will be merged with and into the Company,
and each share of the Company's common stock, $1.00 par value (the "Common
Stock"), issued and outstanding and held by those shareholders who are not
identified on Appendix A to the Merger Agreement (the "Public Shareholders")
will be converted into the right to receive $25.75 per share (the
"Consideration"). Each share of Common Stock held by certain members of the
Wolohan family identified on Appendix A to the Merger Agreement (the "Continuing
Shareholders") will continue to represent one share of Common Stock.
McDonald Investments Inc., as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
In connection with rendering this opinion, we have reviewed and analyzed, among
other things, the following: (i) the Merger Agreement, including the exhibits
and schedules thereto; (ii) certain publicly available information concerning
the Company, including its Annual Reports on Form 10-K for each of the years in
the four year period ended December 31, 2002, its Quarterly Report on Form 10-Q
for the quarter ended March 31, 2003, its Proxy Statement for the fiscal year
2002 (Schedule 14A), and its Current Reports on Form 8-K filed May 16, 2003 and
July 24, 2003; (iii) certain other internal information, primarily financial in
nature, including projections and a liquidation analysis, concerning the
business and operations of the Company furnished to us by the Company for
purposes of our analysis; (iv) certain publicly available information concerning
the trading of, and the trading market for, the Company's Common Stock; (v)
certain publicly available information with respect to certain other companies
that we believe to be comparable to the Company and the trading markets for
certain of such other companies' securities; and (vi) certain publicly
Special Committee of the Board of Directors
Wolohan Lumber
August 13, 2003
Page 2
available information concerning the nature and terms of certain other
transactions that we consider relevant to our inquiry. We have also met with
certain officers and employees of the Company to discuss the business and
prospects of the Company, as well as other matters we believe relevant to our
inquiry.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available. We have not been engaged to,
and have not independently attempted to, verify any of such information. We have
not been engaged to assess the reasonableness or achievability of management's
projections or the assumptions on which they were based and express no view as
to such projections or assumptions. In addition, we have not conducted a
physical inspection or appraisal of any of the assets, properties or facilities
of either the Company nor have we been furnished with any such evaluation or
appraisal. We have also assumed that the Merger would be consummated on a timely
basis in the manner contemplated by the Merger Agreement.
It should be noted that this opinion is based on economic and market conditions
and other circumstances existing on, and information made available as of, the
date hereof and does not address any matters subsequent to such date. In
addition, our opinion is, in any event, limited to the fairness, as of the date
hereof, from a financial point of view, of the Consideration to be received by
the Public Shareholders pursuant to the Merger Agreement and does not address
the Company's underlying business decision to effect the merger or any other
terms of the Merger Agreement. We have not been engaged to solicit indications
of interest or to otherwise explore the viability of any alternative transaction
to the merger. It should be noted that although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or reaffirm
our opinion.
We have acted as financial advisor to the Special Committee of the Board of
Directors in connection with the Merger and will receive from the Company a fee
for our services, a portion of which is contingent upon closing, a fee for
rendering this opinion and the Company's agreement to indemnify us under certain
circumstances. In the ordinary course of our business, we may actively trade
securities of the Company for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
This opinion is directed to the Special Committee of Board of Directors of the
Company and does not constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote on any matters relating to the
Merger.
Based upon and subject to the foregoing and such other matters as we consider
relevant, it is our opinion that, as of the date hereof, the Consideration to be
received in the Merger is fair from a financial point of view, to the Public
Shareholders.
Very truly yours,
McDONALD INVESTMENTS INC.
APPENDIX C
CONTINUING SHAREHOLDERS
NAME SHARES
- ------------------------------------------------------------ ----------------
Wolohan Family Trust 749,609
James L. Wolohan 166,866
Mary K. Ness 71,308
Patricia A. Kremin 24,639
Edward J. Dean 9,418
Richard P. Wolohan 7,951
Laura K. Wolohan 2,783
Christopher R. Wolohan 2,783
Therese R. Wolohan C/F Andrew James Wolohan U/MI/UGMA 2,783
Marsha L. Wolohan 2,562
Therese R. Wolohan C/F Conor J. Wolohan U/MI/UGMA 2,480
Christine M. Wolohan 1,776
Michael J. Wolohan Revocable Trust 1,931
John Sieggreen Cust Henry Gerald Sieggreen UGMA/MI 1,000
Therese R. Wolohan 242
Cathy J. Sieggreen 20
----------
1,048,151
==========
APPENDIX D
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2002.
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________.
Commission file number 0-6169
-------------------
WOLOHAN LUMBER CO.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1746752
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1740 Midland Road, Saginaw, Michigan 48603
(Address of principal executive offices)
(989) 793-4532
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
The aggregate market value of the common equity held by non-affiliates of the
registrant computed by reference to the average bid and asked price of such
common equity, as of the last business day of the registrant's most recently
completed second quarter, was approximately $22,265,000.
As of March 3, 2003 2,092,688 shares of Common Stock of the registrant were
outstanding
Documents Incorporated by Reference
Portions of the definitive Proxy Statement of the registrant, dated April 2,
2003, filed pursuant to Regulation 14A are incorporated by reference into Part
III.
PART I
Item 1. Business.
Wolohan Lumber Co. (the "registrant") is engaged in the retail sale of
a full-line of lumber and building materials and related products, used
primarily for new-home construction and home-improvement projects. At
March 17, 2003, the registrant operated a chain of 25 building supply
stores located in Michigan, Ohio, Indiana, Kentucky and Illinois.
The registrant organizes its stores into two primary operating
divisions -- Wolohan and CML. Most Wolohan stores in operation today
are of the traditional "lineyard" format, well suited for the
professional customer and often providing value-added manufacturing or
installation services. The CML Division, named for Central Michigan
Lumber, acquired by the registrant in June 1998, operates with a
specialized focus on serving the project-oriented consumer through an
innovative marketing approach to sales of large-ticket projects such as
pole buildings, decks, sheds, garages, kitchens and homes. The
professional builder is also a primary customer of the CML division.
Each store provides a strong offering of quality materials, competitive
prices and expert and personal service. Each location includes a retail
sales area (with most stores having significant square footage devoted
to displays of kitchens, doors and windows and other building
materials), under-roof storage areas and an outside lumberyard area
with displays of pole barns, garages, decks and storage buildings. In
addition, the registrant has one truss plant, a specialty millwork
operation, two wall-panel facilities and several stores with
door-assembly capabilities.
The registrant sells to professional contractors and to large
project-oriented consumers. The Company estimates that at least
two-thirds of its sales were to professional contractors in 2002.
The registrant offers a wide range of services including house design,
delivery, installation, various financing options and job-site
contractor sales representatives with experienced store support
coordination.
The registrant sells more than 8,000 different products which are
purchased from approximately 270 suppliers. No supplier accounts for
more than 5% of total purchases. The registrant purchases forest
products primarily from lumber, OSB and plywood mills and the majority
of all other merchandise from original producers or manufacturers.
The business of the registrant is not dependent upon a single customer
or a few customers for any significant portion of sales.
The registrant believes that backlogs are not significant to its
business.
The registrant is engaged in only one line of business - retail sales
of lumber and building materials and related items. The classes of
products include dimension lumber; OSB; sheathing plywood; building
materials; building hardware; doors and windows; kitchen cabinets;
trusses and components; storage barns; and other forest products, such
as fencing and treated lumber.
The business of the registrant is highly competitive, and it encounters
competition from both national and regional chains and from local
independent merchants. Because of the variety of competition faced by
the registrant and the wide range of products it sells, it is virtually
impossible to determine the registrant's competitive position in the
markets it serves.
The registrant holds no material patents, trademarks, licenses,
franchises or concessions.
1
The registrant's business, like the overall retail lumber business,
generally is subject to seasonal influences. The second and third
quarters are generally the periods of highest sales volumes while the
first quarter is usually the period of lowest sales volume.
During 2002 the registrant closed five stores which it had identified
in 2001 as not meeting the financial objectives identified in the
registrant's strategic profit model and accrued closing costs with
respect thereto in 2001.
The registrant had approximately 654 full-time employees at December
31, 2002.
To the best of the registrant's knowledge, it is in compliance with all
federal, state and local environmental protection provisions.
The registrant maintains an internet website at www.wolohan.com. The
registrant makes available on or through its website, free of charge,
its annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practical after the registrant
electronically files such material with, or furnishes it to, the
Securities and Exchange Commission.
Item 2. Properties.
Administrative offices are maintained in St. Johns, Michigan to support
all operating units. The offices consist of a 4,400-square-foot
one-story building and another 2,600 square feet of office space
located above the registrant's retail store in St. Johns, Michigan. The
registrant also owns and occupies, with minimal staffing, a
28,000-square-foot, two-story brick face building situated on three
acres of land in Saginaw, Michigan.
As of March 3, 2003, the registrant operated 25 building supply stores
in the states of Michigan, Ohio, Indiana, Kentucky and Illinois. The
showroom selling space in the stores averages 18,000 square feet. In
addition, total warehouse and storage space (under roof) ranges in size
from 14,000 square feet to 66,000 square feet (average of 30,000 square
feet).
All of the building supply stores are owned in fee by the registrant.
The registrant believes that all of its building supply stores and the
display, warehouse and storage facilities and equipment located thereon
are well maintained and adequate for the purpose for which they are
used. A fleet of approximately 192 trucks is owned by the registrant
for the delivery of its retail merchandise.
Item 3. Legal Proceedings.
Various lawsuits arising during the normal course of business are
pending against the Company. In the opinion of management, the ultimate
liability, if any, resulting from these matters will have no
significant effect on the Company's results of operations, liquidity or
financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
2
Executive Officers of the Registrant
The executive officers of the registrant are as follows:
Has Served
In Position
Name Position Since Age
- -------------------------------- -------------------------------------------- ------------ -------
James L. Wolohan Chairman of the Board, 1994 51
President and 1986
Chief Executive Officer 1987
John A. Sieggreen Executive Vice President and 1999 40
Chief Operating Officer
Daniel P. Rogers Senior Vice President, 1999 52
General Merchandise
Manager
Edward J. Dean Corporate Controller 1984 52
George I. Gibson, Jr. Corporate Secretary 2001 54
Officers of the registrant are elected each year by the Board of Directors to
serve for the ensuing year and until their successors are elected and qualified.
All of the officers of the registrant named above have held various positions
with the registrant for more than five years, with the exception of Daniel P.
Rogers. Mr. Rogers served as Vice President--Merchandising of Central Michigan
Lumber Company prior to its acquisition by the registrant in June 1998.
Thereafter he served as President of CML until elected to his current position
in 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters.
COMMON STOCK DATA
The Company's common stock trades on The Nasdaq Stock Market(TM) under the
symbol WLHN. The approximate number of record holders of the Company's stock at
December 31, 2002 was 861. The following table sets forth, for the fiscal
quarters indicated, the high and low sales prices per share as reported on The
Nasdaq Stock Market(TM) and the cash dividends declared per share in each fiscal
quarter.
2001 2002
------------------------------------------ -----------------------------------------
MARKET RANGE CASH DIVIDENDS MARKET RANGE CASH DIVIDENDS
HIGH LOW DECLARED HIGH LOW DECLARED
------ ------- -------- ------ ----- --------------
First Quarter $12.00 $ 6.75 $.07 $25.00 $18.68 $.07
Second Quarter 10.75 7.62 .07 25.65 19.85 .07
Third Quarter 15.25 9.90 .07 22.22 18.75 .07
Fourth Quarter 23.15 12.95 .07 21.48 18.25 .07
---- ----
Year 23.15 6.75 $.28 25.65 18.25 $.28
---- ----
3
Item 6. Selected Financial Data.
Five year selected financial data which is set forth on page F-2 of
this Annual Report, is incorporated here by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's Discussion and Analysis of Financial Condition and Results
of Operations beginning on page F-4 of this Annual Report is
incorporated here by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements beginning on page F-11 of this
Annual Report are incorporated here by reference. The Quarterly
Summaries on page F-3 of this Annual Report are incorporated here by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information set forth under the captions "Information About
Nominees As Directors" on pages 4 and 5 of the definitive Proxy
Statement of the registrant, dated April 2, 2003, filed with the
Securities and Exchange Commission pursuant to Regulation 14A is
incorporated herein by reference.
Reference is made to Part I of this Report for information as to
executive officers of the registrant.
Item 11. Executive Compensation.
The information set forth under the captions "Compensation Committee
Report" on pages 6 and 7 and "Executive Compensation" on pages 8 and 9
of the definitive Proxy Statement of the registrant, dated April 2,
2003, filed with the Securities and Exchange Commission pursuant to
Regulation 14A is incorporated herein by reference.
Item 12. Security ownership of Certain Beneficial Owners and Management.
The information set forth under the caption "Stock Ownership" on pages
3 and 4 of the definitive Proxy Statement of the registrant, dated
April 2, 2003, filed with the Securities and Exchange Commission
pursuant to Regulation 14A is incorporated herein by reference.
4
Equity Plan Compensation Information
The following table summarizes information, as of December 31, 2002,
relating to the registrant's compensations plans under which its equity
securities are authorized for issuance.
PLAN CATEGORY NUMBER OF SECURITIES WEIGHTED AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE
EXERCISE OF OUTSTANDING OUTSTANDING OPTIONS, FOR FUTURE ISSUANCE
OPTIONS, WARRANTS AND WARRANTS AND RIGHTS UNDER EQUITY
RIGHTS COMPENSATION PLANS
(EXCLUDING SECURITIES
REFLECTED IN COLUMN (a))
(a) (b) (c)
Equity compensation
Plans approved by
security holders (1) 359,160 $11.47 212,000
Equity compensation -0- -0- -0-
Plans not approved by
security holders
Total
(1) These plans are the Long-Term Incentive Plans and Stock Option Plan for
Non-Employee Directors
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Controls and Procedures
As of December 31, 2002, an evaluation was performed under the
supervision of and with the participation of the registrant's
management, including the President and Chief Executive Officer and the
Corporate Controller, of the effectiveness of the design and operation
of the registrant's disclosure controls and procedures. Based on that
evaluation, the registrant's management, including the President and
Chief Executive Officer and the Corporate Controller, concluded that
the registrant's disclosure controls and procedures were effective as
of December 31, 2002. There have been no significant changes in the
registrant's internal controls or in other factors that could
significantly affect internal controls subsequent to December 31, 2002.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) and (2) -- The following consolidated financial statements
are included herein:
Consolidated Balance Sheets -- December 31, 2002 and
2001.
Consolidated Statements of Income -- Years ended
December 31, 2002, 2001 and 2000.
Consolidated Statements of Shareowners' Equity --
Years ended December 31, 2002, 2001 and 2000.
Consolidated Statements of Cash Flows -- Years ended
December 31, 2002, 2001 and 2000.
5
Notes to consolidated financial statements as of and
for the three years in the period ended December 31,
2002.
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
(3) Listing of Exhibits -- The exhibit marked by one asterisk
below was filed as an exhibit to Form 10-K of the registrant
for the year ended December 31, 1980; the exhibits marked with
three asterisks below were filed as exhibits to Form 10-Q of
the registrant for the quarter ended June 30, 1987; the
exhibit marked with four asterisks below was filed as an
exhibit to Form 10-K of the registrant for the year ended
December 31, 1988; the exhibit marked with five asterisks
below was filed as an exhibit to Form 10-Q of the registrant
for the quarter ended June 30, 1990; the exhibit marked with
six asterisks below was filed as an exhibit to Form 10-Q of
the registrant for the quarter ended June 30, 1991; the
exhibit marked with eight asterisks below was filed as an
exhibit to Form 10-K of the registrant for the year ended
December 31, 1994; and the exhibit marked with nine asterisks
below was filed as an exhibit to Form 8-K of the registrant
dated February 4, 2000 (file number 0-6169), and are
incorporated herein by reference, the exhibit number in
parenthesis being those in such Form 10-K, 10-Q or 8-K
reports.
Exhibit (3) (a) *Articles of Incorporation (1)
Exhibit (3) (b) ***Amendment to Articles of Incorporation
(3) (a)
Exhibit (3) (c) *****Amendment to Articles of Incorporation
(6) (a) (1)
Exhibit (3) (d) ****By-laws (3) (c)
Exhibit (10) (a) ******1991 Long-Term Incentive Plan of
Wolohan Lumber Co. (6) (a) (1) (X)
Exhibit (10) (b) ********Stock Option Plan for Non-Employee
Directors (10) (b) (X)
Exhibit (21) Subsidiaries of the registrant
Exhibit (23) Consent of Independent Auditors
Exhibit (99) *********Rights Agreement dated
as of February 16, 2000 between
registrant and Registrar and
Transfer Company as Rights Agent (4)
Exhibit (99.1) CEO Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Exhibit (99.2) CFO Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(X) A compensatory plan required to be filed as an exhibit.
6
(b) Reports on Form 8-K.
The Company has not filed any reports on Form 8-K during the
last quarter of the period covered by this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 26, 2003.
WOLOHAN LUMBER CO.
/s/ James L. Wolohan
------------------------------------------------
By: James L. Wolohan
Chairman of the Board, President and Chief
Executive Officer (Principal Executive Officer)
/s/ Edward J. Dean
------------------------------------------------
By: Edward J. Dean
Corporate Controller (Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 26, 2003.
Signature Title Signature Title
- --------- ----- --------- -----
/s/ Hugo E. Braun, Jr. Director /s/ John A. Sieggreen Director
- ------------------------------ -------------------------------
Hugo E. Braun, Jr. John A. Sieggreen
/s/ Lee A. Shobe Director /s/ Charles R. Weeks Director
- ------------------------------ -------------------------------
Lee A. Shobe Charles R. Weeks
/s/ James L. Wolohan Director
-------------------------------
James L. Wolohan
7
CERTIFICATION
I, James L. Wolohan, President and Chief Executive Officer of Wolohan Lumber
Co., certify that:
1. I have reviewed this annual report on Form 10-K of Wolohan Lumber Co.
(the "registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls;
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 26, 2003 James L. Wolohan
-------------------------------------
James L. Wolohan
President and Chief Executive Officer
CERTIFICATION
I, Edward J. Dean, Corporate Controller of Wolohan Lumber Co., certify that:
1. I have reviewed this annual report on Form 10-K of Wolohan Lumber Co.
(the "registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls;
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 26, 2003 Edward J. Dean
---------------------------------------------
Edward J. Dean
Corporate Controller (Chief Financial Officer)
WOLOHAN LUMBER CO.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
CONTENTS
5-YEAR PERFORMANCE.......................................................F-2
QUARTERLY SUMMARIES......................................................F-3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................F-4
REPORT OF MANAGEMENT.....................................................F-9
INDEPENDENT AUDITORS' REPORT.............................................F-10
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS.....................................F-11
CONSOLIDATED STATEMENTS OF INCOME...............................F-12
CONSOLIDATED STATEMENTS OF
SHAREOWNERS' EQUITY.............................................F-13
CONSOLIDATED STATEMENTS OF CASH FLOWS...........................F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................F-15
F-1
5-YEAR PERFORMANCE
(Dollars in thousands, except per-share amounts, ratios and percentages)
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
INCOME STATISTICS
Net sales $197,638 $239,895 $314,972 $405,030 $451,477
Gross profit 46,840 58,312 76,223 92,142 103,332
Store closing costs 511 3,440 2,955 1,304 1,966
Interest expense 86 423 1,158 1,541 1,828
Income before income taxes 5,174 7,256 2,404 9,535 10,113
Income taxes 1,774 2,484 817 3,259 3,334
Net income 3,400 4,772 1,587 6,276 6,779
Net income per share, basic 1.63 1.61 .33 1.19 1.05
Net income per share, assuming dilution 1.49 1.53 .33 1.17 1.03
Cash dividends declared:
Amount per share .28 .28 .28 .28 .28
Percent of net income 17.2% 17.7% 83.9% 23.4% 26.6%
Average shares outstanding 2,080 2,971 4,752 5,271 6,474
--------------------------------------------------------------------
BALANCE SHEET MEASURES
Current assets $ 45,254 $ 42,537 $ 55,801 $ 82,789 $ 94,165
Other assets 18,439 16,001 14,199 14,513 18,907
Properties (net) 18,174 25,477 36,557 43,344 44,439
Total assets 81,867 84,015 106,557 140,646 157,511
Working capital 28,688 20,526 32,119 51,675 52,416
Long-term debt, net of current portion 203 307 5,111 12,593 17,091
Total liabilities 16,769 22,318 28,793 43,707 58,840
Shareowners' equity:
Amount 65,098 61,697 77,764 96,939 98,671
Book value per share 31.40 30.44 22.95 19.27 17.78
--------------------------------------------------------------------
KEY OPERATING PERCENTAGES
Gross profit margin 23.7% 24.3% 24.2% 22.7% 22.9%
Pre-tax profit margin 2.6% 3.0% .8% 2.4% 2.3%
Return on sales 1.7% 2.0% .5% 1.5% 1.5%
Return on average assets 4.1% 4.8% 1.2% 4.2% 4.2%
Return on average working capital 13.8% 18.1% 3.8% 12.1% 11.0%
Return on beginning shareowners' equity 5.5% 6.1% 1.6% 6.4% 6.2%
Return on average total invested capital 5.3% 6.6% 1.6% 5.6% 5.5%
--------------------------------------------------------------------
KEY FINANCIAL RATIOS AND MEASURES
Sales to average working capital 8.0:1 9.1:1 7.5:1 7.8:1 7.3:1
Sales to average shareowners' equity 3.1:1 3.4:1 3.6:1 4.1:1 4.3:1
Sales to average total invested capital 3.1:1 3.3:1 3.3:1 3.6:1 3.7:1
Current ratio 2.7:1 1.9:1 2.4:1 2.7:1 2.3:1
Quick ratio 1.7:1 1.1:1 1.2:1 1.2:1 1.1:1
Liquidity ratio .73:1 .22:1 .49:1 .10:1 .08:1
Debt to total assets ratio .002:1 .004:1 .05:1 .09:1 .11:1
Capitalization ratio .003:1 .005:1 .06:1 .11:1 .15:1
Shareowners' equity to total assets ratio .80:1 .73:1 .73:1 .69:1 .63:1
Inventory turnover 8.76 8.70 7.87 7.31 7.69
Asset turnover 2.36 2.43 2.45 2.71 2.82
--------------------------------------------------------------------
STORES
Number of stores at end of year 25 30 40 48 55
F-2
QUARTERLY SUMMARIES
(in thousands, except per-share amounts)
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
2002
NET SALES $ 37,870 $ 56,690 $ 59,580 $ 43,498 $197,638
GROSS PROFIT 8,334 13,076 13,923 11,507 46,840
NET INCOME:
AMOUNT (875) 892 1,476 1,907 3,400
PER SHARE, BASIC (.43) .44 .71 .91 1.63
PER SHARE, ASSUMING DILUTION (.38) .39 .64 .84 1.49
2001
Net sales $ 44,346 $ 68,281 $ 72,278 $ 54,990 $239,895
Gross profit 10,443 15,530 16,693 15,646 58,312
Net income:
Amount (615) 1,295 2,056 2,036 4,772
Per share, basic (.18) .38 .63 .78 1.61
Per share, assuming dilution (.18) .38 .60 .73 1.53
F-3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain information contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this report may
be deemed to be forward-looking statements within the meaning of The Private
Securities Litigation Reform Act of 1995 and are subject to the Act's safe
harbor provisions. These statements are based on current expectations and
involve a number of risks and uncertainties. Actual results could differ
materially from the results expressed in forward-looking statements. Factors
that might cause such a difference include: fluctuations in customer demand and
spending, expectations of future volumes and prices for the Company's products,
prevailing economic conditions affecting the retail lumber and building
materials markets and seasonality of operating results and other factors,
including risk factors, referred to from time to time in filings made by the
Company with the Securities and Exchange Commission. The Company undertakes no
obligation to update or clarify forward-looking statements, whether as a result
of new information, future events or otherwise.
ACCOUNTING POLICIES AND ESTIMATES
The following discussion and analysis of the results of operations and financial
condition are based on the Company's financial statements that have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosures of contingent assets
and liabilities. The Company bases these estimates on historical results and
various other assumptions believed to be reasonable, the results of which form
the basis for making estimates concerning the carrying values of assets and
liabilities that are not readily available from other sources. Actual results
may differ from these estimates.
The Company's significant accounting polices are described in Note A to the
consolidated financial statements. Management believes that the following
accounting policies affect the more significant estimates used in preparing the
consolidated financial statements.
The Company records an inventory reserve for the estimated shrinkage between
physical inventories. This reserve is based primarily on actual shrink results
from previous physical inventories. Changes in actual shrink results from
completed physical inventories could result in revisions to previously recorded
shrink expense. The Company also records an inventory reserve for the loss
associated with selling discontinued inventories at below cost. This reserve is
based on management's current knowledge with respect to inventory levels and
historical experience relating to the liquidation of discontinued inventories.
Management does not believe the Company's merchandise inventories are subject to
significant risk of obsolescence.
The Company maintains an allowance for doubtful accounts related to trade
receivables by providing for probable uncollectible amounts through a charge to
earnings and a credit to the allowance. Management assesses the current status
of individual accounts on a quarterly basis and makes adjustments to the
allowance as a result of this assessment. Balances that are still outstanding
after management has used reasonable collection efforts are written off through
a charge to the allowance.
The Company records a reserve for store closing costs in the period management
identifies such stores for closing. Costs accrued for include: costs to
liquidate remaining inventory, expensing of future lease payments on long-term
leases, writing off leasehold improvements, severance
F-4
payments and certain other ongoing fixed costs. Management reviews on a
quarterly basis the balance of the reserve for each closed store and makes
appropriate adjustments based on the expected months remaining until each closed
store is disposed of.
Management believes it has sufficient current and historical knowledge to record
reasonable estimates for its inventory reserves, allowance for uncollectible
trade receivables and store closing reserve.
RESULTS OF OPERATIONS
Net income in 2002 totaled $3.4 million ($1.63 per share), compared with $4.8
million ($1.61 per share) in 2001. On a diluted basis, earnings per share were
$1.49 in 2002, compared with $1.53 in 2001.
Significant items affecting net income in 2002 compared with the prior year
included: (1) Gains on sale of real estate properties of $1.0 million in 2002,
compared with $2.6 million recorded in 2001. (2) A LIFO credit resulting in
increased gross margin dollars of $0.9 million in 2002, compared with a LIFO
credit of $1.2 million in 2001. (3) Store closing costs, a portion of which were
charged to cost of sales in 2001, totaled $0.5 million in 2002, compared with
$3.8 million in 2001.
Earnings per share for 2002 and 2001 were positively impacted by a reduction in
shares outstanding due to the Company's share repurchases, primarily through two
tender offers, completed in the third quarter of 2001 and the fourth quarter of
2000. Average shares outstanding were 30-percent lower for 2002, compared with
2001 and 37-percent lower for 2001, compared with 2000.
Net income in 2001 improved to $4.8 million from $1.6 million in 2000. The
improvement in 2001 net income resulted primarily from a reduction in the
operating expense ratio and a slight improvement in gross margin percentage,
which more than offset lower sales volume. Other significant items affecting net
income in 2001 compared with the prior year included: (1) Gains on sale of real
estate properties of $2.6 million in 2001, compared with $0.8 million recorded
in 2000. (2) A LIFO credit resulting in increased gross margin dollars of $1.2
million in 2001, compared with a LIFO credit of $3.5 million in 2000. (3) Store
closing costs, a portion of which were charged to cost of sales, totaled $3.8
million in 2001, compared with $5.0 million in 2000.
Sales of $197.6 million in 2002 were 18 percent lower than 2001 sales of $239.9
million, which were 24 percent lower than 2000 sales of $315.0 million.
Comparable-store sales declined 5 percent in both 2002 and 2001, compared with
the prior year. Price deflation in lumber and structural panel products,
strategic product changes and a lower store count negatively impacted sales in
both 2002 and 2001, compared with the prior year. The Company estimates that at
least two-thirds of its sales were to the professional contractor in 2002, 2001
and 2000.
The gross profit margin in 2002 was 23.7 percent, compared with 24.3 percent in
2001 and 24.2 percent in 2000. Gross profit margin included a LIFO credit of
$0.9 million, $1.2 million and $3.5 million, respectively, for 2002, 2001 and
2000. The LIFO credit in both 2002 and 2001 was due primarily to lower inventory
levels resulting from reduced store count and product-line eliminations. The
significant LIFO credit in 2000 was due to deflation in lumber and panel costs
and lower inventory levels. The gross profit margin in 2002, excluding the
provision for LIFO, was 23.2 percent, compared to 23.8 percent in 2001 and 23.1
percent in 2000.
F-5
Other operating income, which results primarily from finance charges related to
receivables, rental income and gains from sale of excess equipment, totaled $2.4
million in 2002, $3.0 million in 2001 and $2.9 million in 2000.
Selling, general, and administrative expenses (excluding store-closing costs)
declined 15 percent in 2002 to $40.1 million from $47.1 million in 2001 and
$66.9 million in 2000, resulting in an expense factor of 20.3 percent of sales
in 2002, compared with 19.6 percent and 21.2 percent in 2001 and 2000,
respectively. The higher 2002 expense factor, compared with 2001, includes costs
related to completing the conversion to one computer system for all stores,
costs to complete the transition of all corporate administrative functions to
one office and higher costs for health insurance. The lower 2001 expense factor,
compared with 2000 was primarily due to significantly decreased bad debt
expense, improved labor productivity and elimination of unnecessary expenses.
The closing of five stores in 2002 resulted in costs of approximately $0.5
million, compared with $3.8 million recorded in 2001 resulting from the closing
of ten stores in 2001 and the identification of five additional stores to be
closed or consolidated with other stores in 2002. In 2000, $5.0 million of
closing costs were recorded from the closing of eight stores in 2000 and the
identification of six additional stores to be closed in 2001. Store closing
costs are accrued in the period management identifies such stores for closing.
The portion of the closing costs related to the loss on the sale of inventory
($0.4 million in 2001 and $2.0 million in 2000) was charged to cost of sales.
The closing costs in all three years were primarily related to liquidating
inventories, expensing portions of future lease payments on long-term leases,
writing off leasehold improvements, severance payments and certain other ongoing
fixed costs. The Company will continue to evaluate store performances in terms
of meeting minimum return-on-investment criteria, and additional store closings
may result from this ongoing review.
Excluding store-closing costs, the total operating expense factor for 2002 was
22.6 percent of sales, compared with 22.2 percent in 2001 and 23.6 percent in
2000. Depreciation and amortization in 2002 decreased 25 percent to $4.6 million
from $6.2 million in 2001, which had been lowered 16 percent from $7.3 million
in 2000.
Other income and expenses netted to income of $1.1 million in 2002, compared
with income of $2.6 million and $0.5 million in 2001 and 2000, respectively. The
decrease in 2002 versus 2001, was due primarily to lower gains on sale of
properties recorded in 2002. Gains on property sales totaled $1.0 million in
2002, compared with $2.6 million and $0.8 million for 2001 and 2000,
respectively. Interest expense of $0.1 million was 80 percent lower than
interest expense of $0.4 million in 2001, which in turn was 63 percent lower
than interest expense of $1.2 million in 2000. The decreases reflect the
reductions made in long-term debt.
The effective federal income tax rate was 34.3 percent in 2002, compared with
34.2 percent in 2001 and 34.0 percent in 2000.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $12.1 million at year-end 2002, compared with
$4.8 million at year-end 2001. Net cash provided by operating activities totaled
$7.6 million in 2002, compared with $17.6 million in 2001. The decrease in net
cash from operations in 2002, compared with 2001, was primarily a result of
lower accrued expenses relating to closed store reserves and income taxes
payable, some pre-season inventory purchases and lower net income. The decrease
in net cash from operations in 2001 was primarily a result of stronger charge
sales activity during the fourth quarter of 2001, compared with 2000, which
increased the balance of trade receivables
F-6
at year-end 2001, compared with 2000. Both years reflect the Company's
aggressive collection efforts of customer receivables and reductions made in
store count during the year. Lower inventory levels in both 2002 and 2001 are
the result of reductions in store count and progress made in reducing
non-strategic inventory at existing operations.
Investing activities provided net cash of $0.7 million in 2002, compared with
cash provided by investing activities of $17.0 million in 2001. The decrease in
cash from investing activities in 2002, compared with 2001, reflects no
certificate of deposit activity in 2002 compared with a maturity of $10.0
million in 2001, $5.5 million less in proceeds from property sales and $0.7
million more in capital expenditures. The increase in cash from investing
activities in 2001 was due to the maturities of $10 million in certificates of
deposit, $4.4 million less in capital expenditures and $3.4 million more in
proceeds from property sales.
Financing activities used net cash of $1.0 million in 2002 and included $2.1
million for payments on long-term debt, $0.7 million to purchase approximately
36,000 shares of Company common stock at an average price of $19.78 per share
and $0.6 million for dividend payments, offset in part, by short-term bank
borrowings of $1.5 million and $0.9 million of proceeds from the exercise of
stock options. In 2001, net cash used in financing activities totaled $31.5
million and included $10.2 million for payments on long-term debt, $1.0 million
for dividend payments and $20.4 million used to repurchase 1,392,000 shares of
Company common stock at an average price of $14.63 per share. The stock
repurchased in 2001 included 1.3 million shares acquired in a stock tender offer
at a price of $15 per share. The Company has repurchased 5.0 million shares
since Jan. 1, 1998 at an average price of $12.80 per share. The book value per
share has increased to $31.40 at Dec. 31, 2002 from $22.95 per share at year-end
2000. The Company may continue to make open market purchases of its stock from
time to time.
The Company has $25 million available in lines of credit arrangements for
short-term debt. Borrowings of $1.5 million were outstanding at year-end 2002,
compared with no outstanding balance at year-end 2001.
Working capital was $28.7 million at the end of 2002, compared with $20.5
million at year-end 2001. The Company expects that net cash provided from
operating activities and available lines of credit will be adequate to meet
future needs for working capital and capital expenditures for 2003.
The Company had virtually no long-term debt, net of current portion, in either
2002 or 2001.
Capital expenditures totaled $2.2 million in 2002 and consisted primarily of the
expansion of an existing facility to include a new showroom, an enlarged
lumberyard area and improvements to increase capabilities for wall-panelization,
roof trusses and millwork, and replacements and additions of equipment at
existing stores. Capital expenditures to support existing stores are expected to
approximate $1.4 million in 2003. Capital expenditures have totaled $23.6
million over the last 5 years.
Invested capital (long-term debt and shareowners' equity) was 80 percent of
total assets at year-end 2002 and 74 percent at year-end 2001. Shareowners'
equity has been the principal financing factor over the years and accounted for
100 percent of invested capital at year-end 2002.
EFFECT OF INFLATION
The Company does not measure precisely the effect of inflation on its
operations; however, it does not believe inflation had a material effect on
sales or results of operations.
F-7
ENVIRONMENTAL
The Company is subject to laws and regulations relating to the protection of the
environment. While it is not possible to quantify with certainty the potential
impact of actions regarding environmental matters, particularly any future
remediation and other compliance effects, in the opinion of management,
compliance with the present environmental-protection laws will not have a
material adverse effect on the financial condition of the Company or on
operating results or cash flows in any one year.
OUTLOOK
Wolohan Lumber Co. enters 2003 prepared to implement strategies designed to
improve market share to its core customers: professional home builders and
project-oriented consumers. Such strategies include ongoing initiatives to
increase the efficiency and volume of sales made from existing value-added
manufacturing facilities or due to existing offerings of value-added services
such as installation, estimating and design, and specialized delivery. The
Company will also place renewed focus on sales training and marketing, both
important aspects of achieving growth in project sales. The Company will
emphasize continued improvement in expense control as well, and expects added
efficiencies created by its implementation of a common computer platform
throughout all stores to assist in achieving this goal.
The Company expects to maintain its traditionally strong balance sheet in 2003
through its annual efforts at inventory management, accounts receivable review
and collection, and responsible cash management. Strategies targeted at
continuing the Company's track record of effectively liquidating or leasing idle
properties will further improve the Company's liquidity and strengthen its
balance sheet.
F-8
REPORTS OF MANAGEMENT AND INDEPENDENT AUDITORS
REPORT OF MANAGEMENT
The accompanying consolidated financial statements of Wolohan Lumber Co.,
together with the other financial information included in this report, were
prepared by management.
The responsibility for the integrity of the consolidated financial statements,
and other financial information included in this report, rests with management.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles appropriate in the circumstances and,
of necessity, include certain amounts which are based on our best estimates and
judgments. The other financial information included herein is consistent with
that reported in the consolidated financial statements.
Wolohan Lumber Co. maintains internal accounting-control systems that are
designed to provide reasonable assurance that assets are safeguarded from loss
or unauthorized or illegal use and that transactions are executed and recorded
in accordance with management authorization. There are limits inherent in all
systems of internal control, based on the recognition that costs of such a
system should not exceed the benefits to be derived. We believe the Company's
system provides an appropriate balance.
The Board of Directors, through its Audit Committee, is responsible for assuring
that management fulfills its responsibilities in the preparation of the
consolidated financial statements. The Audit Committee meets periodically with
the independent auditors and representatives of management to ensure that each
is discharging its responsibilities. To ensure complete independence, Rehmann
Robson has full and free access to meet with the Audit Committee to discuss the
results of their audit, the adequacy of internal controls, the quality of
financial reporting and other matters of mutual interest.
/s/ James L. Wolohan
James L. Wolohan
Chairman of the Board,
President and Chief Executive Officer
/s/ Edward J. Dean
Edward J. Dean
Corporate Controller
F-9
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners
Wolohan Lumber Co.
Saginaw, Michigan
We have audited the accompanying consolidated balance sheets of Wolohan Lumber
Co. as of December 31, 2002 and 2001, and the related consolidated statements of
income, changes in shareowners' equity and cash flows for each of the three
years in the period ended December 31, 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Wolohan
Lumber Co. as of December 31, 2002 and 2001, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
REHMANN ROBSON
Saginaw, Michigan
February 14, 2003
F-10
WOLOHAN LUMBER CO.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------
(in thousands, except per-share amounts) 2002 2001
- ----------------------------------------------------------------------------------------------------
Assets
CURRENT ASSETS
Cash and cash equivalents $ 12,100 $ 4,798
Trade receivables, net 15,783 18,796
Inventories, net 16,368 17,499
Other current assets 1,003 1,444
- ----------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 45,254 42,537
PROPERTIES
Land 3,528 4,826
Land improvements 6,414 8,002
Buildings 21,807 26,604
Equipment 24,372 31,858
- ----------------------------------------------------------------------------------------------------
TOTAL PROPERTIES 56,121 71,290
Accumulated depreciation (37,947) (45,813)
- ----------------------------------------------------------------------------------------------------
PROPERTIES, NET 18,174 25,477
OTHER ASSETS
Properties held for sale 13,117 10,383
Intangible assets, net 2,873 3,073
Other 2,449 2,545
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 81,867 $ 84,015
- ----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 6,949 $ 7,431
Employee compensation and accrued expenses 8,013 12,476
Short-term borrowings 1,500 --
Current portion of long-term debt 104 2,104
- ----------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 16,566 22,011
LONG-TERM DEBT, NET OF CURRENT PORTION 203 307
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 16,769 22,318
SHAREOWNERS' EQUITY
Common stock, $1 par value
Authorized - 20,000 shares;
issued and outstanding - 2,073 shares (2,027 in 2001) 2,073 2,027
Additional capital 539 --
Retained earnings 62,486 59,670
- ----------------------------------------------------------------------------------------------------
TOTAL SHAREOWNERS' EQUITY 65,098 61,697
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 81,867 $ 84,015
- ----------------------------------------------------------------------------------------------------
BOOK VALUE PER SHARE $ 31.40 $ 30.44
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
(in thousands, except per-share amounts) 2002 2001 2000
- -------------------------------------------------------------------------------------------------------
NET SALES $ 197,638 $ 239,895 $ 314,972
Cost of sales 150,798 181,583 238,749
- -------------------------------------------------------------------------------------------------------
GROSS PROFIT 46,840 58,312 76,223
Other operating income 2,430 3,041 2,866
OPERATING EXPENSES
Selling, general and administrative 40,057 47,096 66,874
Depreciation and amortization 4,594 6,166 7,342
Store closing costs 511 3,440 2,955
- -------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 45,162 56,702 77,171
- -------------------------------------------------------------------------------------------------------
Income from operations 4,108 4,651 1,918
OTHER INCOME (EXPENSES)
Gain on sale of held for sale properties 1,014 2,640 831
Interest income 138 388 813
Interest expense (86) (423) (1,158)
- -------------------------------------------------------------------------------------------------------
OTHER INCOME, NET 1,066 2,605 486
- -------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 5,174 7,256 2,404
Income taxes 1,774 2,484 817
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 3,400 $ 4,772 $ 1,587
=======================================================================================================
NET INCOME PER SHARE, BASIC $ 1.63 $ 1.61 $ .33
=======================================================================================================
NET INCOME PER SHARE, ASSUMING DILUTION $ 1.49 $ 1.53 $ .33
=======================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(in thousands, except per-share amounts) COMMON STOCK TOTAL
------------ ADDITIONAL RETAINED SHAREOWNERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 25, 1999 5,031 $ 5,031 $ 673 $ 91,235 $ 96,939
Net income for 2000 1,587 1,587
Cash dividends - $.28 per share (1,331) (1,331)
Shares issued under Long-Term
Incentive Plan and Stock Option Plan,
net of related tax benefit 11 11 141 152
Shares repurchased and retired (1,654) (1,654) (814) (17,115) (19,583)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2000 3,388 3,388 -- 74,376 77,764
Net income for 2001 4,772 4,772
Cash dividends - $.28 per share (843) (843)
Shares issued under Long-Term
Incentive Plan and Stock Option Plan,
net of related tax benefit 31 31 383 414
Shares repurchased and retired (1,392) (1,392) (383) (18,635) (20,410)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2001 2,027 2,027 -- 59,670 61,697
Net income for 2002 3,400 3,400
Cash dividends - $.28 per share (584) (584)
Shares issued under Long-Term
Incentive Plan and Stock Option Plan,
net of related tax benefit 82 82 1,222 1,304
Shares repurchased and retired (36) (36) (683) -- (719)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2002 2,073 $ 2,073 $ 539 $ 62,486 $ 65,098
===================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
(In thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 3,400 $ 4,772 $ 1,587
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 4,393 5,862 7,036
Amortization 201 305 306
Provision for losses on receivables 190 6 1,106
Effect of LIFO (937) (1,229) (3,546)
Deferred income taxes (benefit) 1,158 (331) 120
Gain on sale of held for sale properties (1,014) (2,640) (831)
(Gain) loss on sale of other properties (276) (296) 386
Common stock based compensation 46 208 223
Changes in assets and liabilities
Trade receivables 2,823 (1,345) 15,178
Other assets 22 1,483 7,408
Inventories at FIFO cost 2,068 6,857 16,272
Accounts payable and accrued expenses (4,444) 3,973 (10,761)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,630 17,625 34,484
INVESTING ACTIVITIES
Maturities (purchases) of certificates of deposit -- 10,000 (10,000)
Additions to properties (2,204) (1,473) (5,906)
Proceeds from the sale of properties 2,890 8,437 5,048
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 686 16,964 (10,858)
FINANCING ACTIVITIES
Net short-term borrowings 1,500 -- --
Repayments of long-term debt (2,104) (10,182) (4,189)
Proceeds from exercise of stock options 890 117 --
Dividends paid (581) (1,021) (1,366)
Repurchase and retirement of common stock (719) (20,410) (19,583)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (1,014) (31,496) (25,138)
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,302 3,093 (1,512)
Cash and cash equivalents at beginning of year 4,798 1,705 3,217
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 12,100 $ 4,798 $ 1,705
===========================================================================================================================
Supplemental disclosures of cash flows information
Interest paid $ 118 $ 594 $ 1,202
===========================================================================================================================
Income taxes paid $ 1,828 $ 2,259 $ 2,810
===========================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
WOLOHAN LUMBER CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING PRACTICES
ORGANIZATION AND BUSINESS. Wolohan Lumber Co. ("WLC"), together with its
wholly-owned subsidiaries Wolohan Lumber Co., LLC and Wolohan Lumber Co. of
Michigan, LLC, (collectively the "Company"), is engaged in the retail sale of a
full line of lumber and building materials and related merchandise through a
chain of 25 (30 in 2001 and 40 in 2000) building supply stores operated in
Michigan, Ohio, Indiana, Kentucky and Illinois. The stores operate primarily
under the names Wolohan Lumber or CML.
The Company sells to professional contractors and large
project-oriented consumers. The volume of residential construction and large
project purchases can be volatile and is highly dependent on general economic
conditions. A significant decrease in residential construction could have an
adverse effect on the Company's operating results.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of the
Company include the accounts of WLC and its subsidiaries after elimination of
significant intercompany accounts and transactions.
USE OF ESTIMATES. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of income and
expenses during the reporting period. Significant estimates include but are not
limited to the allowance for bad debts, allowance for obsolete inventory,
self-insured medical and workers' compensation accruals, carrying values and
recovery period of intangible assets and fair value less cost to sell of
held-for-sale properties. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially subject
the Company to significant concentrations of credit and other financial risk
consist principally of cash investments and trade receivables.
The Company invests its available cash in deposits with a local bank,
money market accounts and tax-exempt securities through a brokerage company.
Cash balances held at financial institutions are insured by the Federal Deposit
Insurance Corporation up to $100,000. Bank balances at December 31, 2002 exceed
this insured limit by approximately $871,000. Investments held by a brokerage
company consist of triple-A-rated tax-exempt securities. Each of these
investments is further supported by private insurance or collateral.
The Company grants credit in the normal course of business related to
product sales. Concentrations of credit risk with respect to trade receivables
from product sales are limited because of the large number of businesses and
individual customers comprising the Company's customer base. The Company's
receivables are primarily from professional contractors.
F-15
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Cash equivalents consist principally of demand deposits in banks, money market
funds and short-term tax exempt securities.
TRADE RECEIVABLES. Trade receivables are stated at the amount management expects
to collect from outstanding balances. Generally, no collateral is required to
support trade receivables; in certain circumstances the Company files liens to
protect its interest in certain accounts. Accounts are considered delinquent
when not paid in accordance with payment terms. Management provides for probable
uncollectible amounts through a charge to earnings and a credit to a valuation
allowance based on its assessment of the current status of individual accounts.
Balances that are still outstanding after management has used reasonable
collection efforts are written off through a charge to the valuation allowance
and a credit to trade receivables.
INVENTORIES. Inventories are stated at the lower of cost, determined by the
last-in, first-out method ("LIFO"), or market. Current cost exceeded the LIFO
value of inventories by approximately $7,231,000 at December 31, 2002 and
$8,168,000 at December 31, 2001. The liquidation of certain LIFO layers
decreased cost of sales and increased pre-tax income by $884,000, $1,395,000 and
$637,000 in 2002, 2001 and 2000, respectively.
PROPERTIES. Properties are stated at cost. Depreciation is provided on the
straight-line basis over the estimated useful life of the property. Management
reviews these assets quarterly to determine whether carrying values have been
impaired.
PROPERTIES HELD FOR SALE. Properties held for sale are stated at the lower of
cost or estimated fair value less costs to sell and consists of land, buildings
and building improvements.
INTANGIBLE ASSETS. Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible
Assets". SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually. As of December 31, 2002 the Company has
unamortized goodwill of approximately $2,773,000. Other intangible assets, which
consist of customer lists and the trained employee work force, have been
amortized on a straight-line basis over their expected lives, which is
approximately 5 years. Amortization of intangible assets reported in 2001 and
2000 was approximately $105,000 in each year. The Company evaluates intangible
assets for impairment on an annual basis.
REVENUE RECOGNITION. Revenues are generally recognized when product ordered by
the customer is either delivered to the customer or when the customer picks up
the product at one of the Company's retail locations. Accruals for customer
discounts and rebates are provided when sales are recognized.
INCOME TAXES. Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and federal income tax basis of
assets and liabilities that will result in taxable or deductible amounts in the
future, based on enacted tax laws and rates
F-16
applicable to the periods in which the differences are expected to affect
taxable income. Deferred income taxes arise from temporary basis differences
principally related to inventory, store closings and properties. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the year plus or minus the change during the year in deferred tax
assets and liabilities.
ADVERTISING EXPENSES. The cost of advertising is expensed as incurred. The
Company incurred $1,203,000, $1,132,000 and $1,254,000 in advertising costs
during 2002, 2001 and 2000, respectively.
EARNINGS PER SHARE. Earnings-per-share information is based on the weighted
average number of shares outstanding for the year. The effect of the assumed
issuance of the performance-based incentive share awards and the assumed
exercise of outstanding stock options is presented in the following table. This
table presents a reconciliation of the denominator used in the calculation of
basic net income per share and net income per share assuming dilution:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
(in thousands) 2002 2001 2000
-----------------------------------------------------------------------
Weighted average number
of common shares outstanding
used for basic calculation 2,080 2,971 4,752
Dilutive effect of assumed
issuance of performance awards
and exercise of options 200 138 97
-----------------------------------------------------------------------
Number of shares outstanding
assuming dilution 2,280 3,109 4,849
=======================================================================
Exercisable stock options not included in the computation of diluted
EPS because the option prices were greater than the average monthly market
prices totaled 3,000, 154,000, and 298,000 shares, respectively, for 2002, 2001
and 2000. The exercise price for these shares averaged $23.05, $12.63 and $12.88
for 2002, 2001 and 2000, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS. In April 2002, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 145. SFAS No. 145 requires that gains and losses from
extinguishment of debt be classified as extraordinary items only if they meet
the criteria defined in APB Opinion No. 30 which are that the event or
transaction is both unusual in nature and infrequent in occurrence. Events
considered unusual should have a high degree of abnormality and be clearly
unrelated to the Company's normal operations and infrequency is defined as not
expected to recur in the foreseeable future. It is not expected that provisions
of SFAS No. 145 will have a material impact on the financial position or results
of operations of the Company.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which is effective for exit or
disposal activities that are initiated after December 31, 2002. This Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issues No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Under Issue 94-3, a liability for an exit cost as defined in Issue 94-3 was
F-17
recognized at the date of an entity's commitment to an exit plan. The Company is
currently evaluating the effects of adopting SFAS No. 146 and cannot predict
whether or not its provisions will have a material impact on its financial
position or results of operations.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others", which addresses the disclosure
to be made by a guarantor in its interim and annual financial statements about
its obligations under guarantees. FIN 45 requires the guarantor to recognize a
liability for the non-contingent component of the guarantee, this is the
obligation to stand ready to perform in the event that specified triggering
events or conditions occur. The initial measurement of this liability is the
fair value of the guarantee at inception. The recognition of the liability is
required even if it is not probable that payments will be required under the
guarantee or if the guarantee was issued with a premium payment or as part of a
transaction with multiple events. The initial recognition and measurement
provisions are effective for all guarantees within the scope of FIN 45 issued or
modified after December 31, 2002. Adoption of this Interpretation is not
expected to have a significant impact on the Company's financial position.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of FASB Statement No.
123", which is effective for years beginning after December 15, 2002. This
statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock based employee compensation and the
effect of the method used on reported results. The Company is currently
evaluating the effects of voluntarily adopting this statement but does not
believe the provisions, if adopted, will have a material impact on its financial
position or results of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of financial
instruments in the accompanying consolidated balance sheet approximate their
fair values.
RECLASSIFICATIONS. Certain amounts as originally reported in the 2001 and 2000
financial statements have been reclassified to conform to the 2002 presentation.
NOTE B--VALUATION ACCOUNTS
The following tables present a summary of the changes in certain
valuation accounts for each of the years in the three-year period ended December
31, 2002:
(in thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS 2002 2001 2000
----------------------------------------------------
Balance at beginning of year $ 1,096 $ 1,891 $ 2,566
Provision for doubtful accounts 190 6 1,106
Amounts charged off (299) (801) (1,781)
----------------------------------------------------
Balance at end of year $ 987 $ 1,096 $ 1,891
====================================================
ALLOWANCE FOR NON-STRATEGIC INVENTORY 2002 2001 2000
----------------------------------------------------
Balance at beginning of year $ 663 $ 1,730 $ 1,862
Net reduction of allowance (334) (1,067) (132)
----------------------------------------------------
Balance at end of year $ 329 $ 663 $ 1,730
====================================================
F-18
NOTE C--SHAREOWNERS' EQUITY AND RELATED MATTERS
The Company's Long-Term Incentive Plan was established to enable key
employees to participate in the future growth and profitability of the Company
by offering them long-term performance-based incentive compensation through
issuance of stock options and performance share awards, which are vested based
on achievement of performance goals. Performance shares awarded are earned and
vested at the rate of 20% per year and become issuable 10 years after the date
of award. No performance shares were awarded during 2002 and 2001 (17,300 shares
were awarded in 2000 at a weighted average fair value of $10.75 per share). At
December 31, 2002, there were 51,260 performance shares awarded but unissued, of
which 21,710 shares are vested.
The Company also has a stock option plan for non-employee directors in
addition to the options available under the Long-Term Incentive Plan for key
employees. The following table summarizes information about all stock option
transactions:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE PER SHARE
- -----------------------------------------------------------------------------------------------------------------
Outstanding at December 25, 1999 312,100 $ 9.25 - 14.50 $12.74
- -----------------------------------------------------------------------------------------------------------------
Granted 156,400 10.06 - 11.88 10.10
Exercised (200) 9.25 9.25
Forfeited (36,400) 9.25 - 14.38 12.61
- -----------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2000 431,900 9.25 - 14.38 11.80
- -----------------------------------------------------------------------------------------------------------------
Granted 4,000 10.20 10.20
Exercised (12,500) 9.25 - 10.50 9.35
Forfeited (43,200) 9.25 - 14.38 12.79
- -----------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2001 380,200 9.25 - 14.38 11.75
- -----------------------------------------------------------------------------------------------------------------
Granted 3,000 23.05 23.05
Exercised (66,000) 9.25 - 14.38 13.47
Forfeited (9,300) 9.25 - 14.38 12.52
- -----------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 2002 307,900 $ 9.25 - 23.05 $11.47
=================================================================================================================
The number of shares exercisable were 117,720, 147,600, and 154,000 as
of December 31, 2002, 2001 and 2000, respectively. The fair value of options
granted was $10.19, $2.83 and $2.89 per share in 2002, 2001 and 2000,
respectively. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2002, 2001 and 2000,
respectively: dividend yield of 1.2, 2.7 and 2.8 percent; expected volatility of
35, 25 and 24 percent; risk-free interest rates of 3.9, 4.9 and 5.3 percent and
expected lives of 10 years for all years.
F-19
Options at December 31, 2002:
OUTSTANDING EXERCISABLE
----------------------------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICES SHARES LIFE PRICE SHARES PRICE
- ----------------------------------------------------------------------------------------------------------------------
$ 9.25 - 11.13 162,900 7.57 $10.05 7,900 $ 9.72
11.88 - 13.06 61,500 6.05 12.34 43,520 12.37
13.13 - 14.00 73,500 5.27 13.14 59,300 13.14
14.38 - 23.05 10,000 3.73 16.98 7,000 14.38
- ----------------------------------------------------------------------------------------------------------------------
$ 9.25 - 23.05 307,900 6.60 $11.47 117,720 $12.70
======================================================================================================================
All options expire 10 years after the date of grant. As of December 31,
2002, there are 191,000 shares reserved for future issuance under the Long-Term
Incentive Plan and 21,000 shares reserved for future issuance under the stock
option plan for non-employee directors.
Holders of common shares received a distribution of one right for each
common share held on February 16, 2000. The rights become exercisable ten days
after a person or group acquires or commences a tender or exchange offer that
could result in the acquisition of 20% or more of the Company's common shares
(except pursuant to an offer for all shares determined by the non-officer
Directors to be fair and in the best interest of the Company and its
shareowners). The rights also become exercisable 10 days after an acquisition of
20% or more of the Company's common shares by a person or group deemed by the
Board of Directors to have interests adverse to those of the Company and its
shareowners. Each right would, subject to certain adjustments and alternatives,
entitle the rightholder to purchase common shares of the Company having a market
value of $50 based on a price per share equal to 50% of the then fair market
value of the shares. The rights are nonvoting, may generally be redeemed by the
Company at a price of 1 cent per right and expire on February 15, 2010. The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued shares of common stock the number
of shares of common stock that, as provided in the Rights Agreement, will be
sufficient to permit the exercise in full of all outstanding rights.
The Company has elected to continue to apply the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and accordingly, because the exercise price does not exceed the fair
value on the date of grant, stock options do not constitute compensation expense
in the determination of net income. Had stock option compensation expense been
determined pursuant to the methodology provided in Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", the
proforma effect on results of operations would have been a reduction in net
income of $89,000 or 4 cents per common share in 2002, a reduction in net income
of $106,000 or 3 cents per share in 2001 and a reduction in net income of
$84,000 or 1 cent per share in 2000.
On August 7, 2001, the Company announced its intention to repurchase up
to 1,500,000 shares of the Company's common stock through a self-tender offer at
a price of $15 per share. The tender offer was concluded on September 21, 2001,
with the purchase of 1,258,307 shares.
F-20
On November 9, 2000, the Company announced its intention to purchase up to
1,500,000 shares of the Company's common stock pursuant to a Dutch auction
self-tender offer at a price range of $10 to $12 per share. The Dutch auction
was concluded on December 15, 2000, with the purchase of 1,189,113 shares at a
price of $12 per share. The Board of Directors has authorized the Company to
repurchase from time to time on the open market up to 2,500,000 shares
(excluding the two tender offers) of the Company's common stock. Shares
repurchased on the open market totaled 36,354 shares at prices ranging from
$19.75 to $20.63 in 2002, 133,692 shares at prices ranging from $10 to $19.25 in
2001, and 464,598 shares at prices ranging from $9.75 to $13 in 2000.
NOTE D--DEBT AND LEASE TRANSACTIONS
The Company has available, under revolving lines-of-credit arrangements
with two banks, $25 million in unsecured short-term borrowings. The interest
rate applicable when drawing against these lines is dependent upon a variety of
formulas which utilize different money rate pricing indexes. In no case does the
interest rate exceed the Prime Rate and there are no commitment fees. The terms
of these credit arrangements are reviewed and generally renewed annually. At
December 31, 2002, $1.5 million was outstanding under these arrangements (no
borrowings were outstanding at year-end 2001). The Company also has an unused
letter of credit in the amount of $1.3 million related to liability coverage.
Long-term debt consisted of the following obligations at December 31:
(in thousands) 2002 2001
---------------------------
Promissory note due in monthly installments through
October 2005 plus interest at 7%, collateralized by a
mortgage $ 283 $ 383
Other 24 28
Unsecured notes to insurance company,
repaid in 2002 -- 2,000
---------------------------
Total long-term debt 307 2,411
Current portion of long-term debt 104 2,104
---------------------------
Long-term debt, net of current portion $ 203 $ 307
---------------------------
Scheduled maturities of long-term debt for each of the four years
following 2003 approximate: $104,000 in 2004, $88,000 in 2005, $5,000 in 2006
and $6,000 in 2007.
The Company leases certain facilities and equipment under various
operating leases which expire at various dates through 2009. Lease expense for
such facilities and equipment totaled approximately $114,000 in 2002, $305,000
in 2001, and $402,000 in 2000. Future minimum lease payments for each of the
next five years approximate $121,000 and aggregate $252,000 thereafter.
F-21
NOTE E--INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's federal deferred income tax assets, included in
other assets on the accompanying balance sheets, are as follows at December 31:
(in thousands) 2002 2001
--------------------------------
Deferred tax assets
Basis differences in properties $ 335 $ 522
Compensation and employee benefits 342 491
Allowance for doubtful accounts 336 384
Basis differences in inventories 126 282
Store closings 512 979
Insurance claims accrual 133 147
Other 131 268
--------------------------------
Total deferred tax assets $1,915 $3,073
================================
The provisions for income taxes consist of:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
(in thousands) 2002 2001 2000
---------------------------------------------------------------------
Current $ 616 $2,815 $697
Deferred (benefit) 1,158 (331) 120
---------------------------------------------------------------------
Total provision for income taxes $1,774 $2,484 $817
=====================================================================
A reconciliation of the income tax provisions and the amount computed
by applying the statutory federal income tax rate of 34% to income before income
taxes, is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
(in thousands) 2002 2001 2000
---------------------------------------------------------------------
Computed amount $1,759 $2,467 $ 817
Tax exempt investment
income (18) (11) (35)
Other 33 28 35
---------------------------------------------------------------------
Total provision for
income taxes $1,774 $2,484 $ 817
=====================================================================
NOTE F--STORE-CLOSINGS AND SALES
During 2002, the Company closed five stores which it had identified and
had accrued closing costs in 2001. Closing costs associated with these stores
approximated $511,000 in 2002. The closing costs were primarily related to
liquidating inventory, severance payments and absorbing certain other ongoing
fixed costs. Closing costs in 2001 approximated $3.8 million, including $400,000
recorded as a charge to cost of sales, resulting from the closing of ten stores
in 2001 and the identification of five additional stores to be closed in 2002.
Closing costs in
F-22
2000 approximated $5.0 million, including $2.1 million recorded as a charge to
cost of sales, resulting from the closing of eight stores in 2000 and the
identification of six additional stores to be closed in 2001. Store closing
costs are accrued in the period management identifies such stores for closing.
Real estate owned related to closed stores is held for sale or lease and
included with properties held for sale on the accompanying consolidated balance
sheets.
NOTE G--CASH-BASED EMPLOYEE BENEFIT PLANS
The Company has a 401(k) retirement savings and profit sharing plan
under which eligible employees may contribute up to the maximum allowed under
the internal revenue code. The Company matches the employees' contribution up to
1/3 of the first 6% of eligible wages. In addition, eligible employees receive a
Company contribution equal to 3% of wages. Profit-sharing contributions
approximated $523,000, $481,000 and $722,000 for 2002, 2001 and 2000,
respectively, and contributions to the 401(k) plan were approximately $252,000,
$289,000 and $386,000 for 2002, 2001 and 2000, respectively.
NOTE H--CONTINGENCIES
Various lawsuits arising during the normal course of business are
pending against the Company. In the opinion of management, based upon discussion
with legal counsel, the ultimate liability, if any, resulting from these matters
will have no significant effect on the Company's consolidated results of
operations, liquidity or financial position.
F-23
CORPORATE INFORMATION
ANNUAL MEETING BOARD OF DIRECTORS
The Annual Meeting of shareowners of Wolohan Lumber Co. will be James L. Wolohan Charles Weeks
held May 1, 2003, 11:00 a.m., at the Company's corporate office, Chairman of the Board, formerly chairman and Chief
1740 Midland Road, Saginaw, Michigan. Shareowners are welcome. President and Chief Executive Executive Officer of
Officer; Director since 1986 Citizens Banking Corp.,
COPIES OF REPORTS Director since 1996
Shareowners may obtain additional copies of this report and Hugo E. Braun, Jr. Lee A. Shobe
quarterly 10-Q reports by writing to the Company's Investor Partner, Braun Kendrick Formerly President and
Relations Dept., Wolohan Lumber Co., P.O. Box 3235, Saginaw, MI Finkbeiner, Chief Executive Officer
48605. To view quarterly information please visit our website at: Attorneys-at-Law; Of Dow Brands, Inc.;
Director since 1984 Director since 1996
http://www.wolohan.com
John A. Sieggreen
Executive Vice President
and Chief Operating Officer
Director since 1999
HEADQUARTERS COMMITTEES
Wolohan Lumber Co. Administrative Offices MANAGEMENT REVIEW AUDIT COMMITTEE
1740 Midland Road COMMITTEE Hugo E. Braun, Jr.
P.O. Box 3235 Lee A. Shobe, Chairman Chairman
Saginaw, MI 48605 Hugo E. Braun, Jr. Lee A. Shobe
(989) 793-4532 Charles R. Weeks Charles R. Weeks
COMMON STOCK COMPENSATION COMMITTEE
Charles R. Weeks, Chairman
Wolohan's common stock trades on The Nasdaq Stock Hugo E. Braun, Jr.
Market(TM) under the symbol WLHN.
TRANSFER AGENT OFFICERS
Registrar and Transfer Company James L. Wolohan Daniel P. Rogers
10 Commerce Drive Chairman of the Board, Senior Vice President-
Cranford, NJ 0701603572 President and Chief General Merchandise
(800) 368-5948 Executive Officer Manager
GENERAL COUNSEL John A. Sieggreen Edward J. Dean
Executive Vice President Corporate Controller
Dickinson Wright PLLC and Chief Operating
500 Woodward Avenue, Suite 4000 Officer
Detroit, Michigan 48226
George I. Gibson Jr.
INDEPENDENT AUDITORS Corporate Secretary
Rehmann Robson
5800 Gratiot
Saginaw, Michigan 48603
APPENDIX E
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarter ended June 30, 2003
---------------------------------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
----------------- ----------------------
Commission file number 0-6169
-----------------------------------------------------
WOLOHAN LUMBER CO.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-1746752
- --------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1740 Midland Road, Saginaw, Michigan 48603
- ----------------------------------------------------------------------------
(Address of principal executive offices)
(989) 793-4532
- ----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, $1 par value -- 2,042,688 shares as of July 31, 2003
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
---------------------
WOLOHAN LUMBER CO.
CONSOLIDATED BALANCE SHEETS
(in thousands)
JUNE 30, DEC. 31,
2003 2002
-------- --------
(Unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,116 $ 12,100
Trade receivables, net 21,413 17,272
Inventories, at average cost 23,834 23,599
Reduction to LIFO cost (7,231) (7,231)
-------- --------
Inventories at the lower of LIFO cost or market 16,603 16,368
Other current assets 1,158 1,427
-------- --------
TOTAL CURRENT ASSETS 50,290 47,167
NET PROPERTIES AND EQUIPMENT 18,186 18,174
OTHER ASSETS 16,891 18,439
-------- --------
TOTAL ASSETS $ 85,367 $ 83,780
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 9,937 $ 7,373
Employee compensation and accrued expenses 9,087 9,502
Short-term borrowings 1,000 1,500
Current portion of long-term debt 104 104
-------- --------
TOTAL CURRENT LIABILITIES 20,128 18,479
LONG-TERM DEBT, NET OF CURRENT PORTION 151 203
-------- --------
TOTAL LIABILITIES
SHAREOWNERS' EQUITY 20,279 18,682
Common stock 2,043 2,073
Additional capital -- 539
Retained earnings 63,045 62,486
-------- --------
TOTAL SHAREOWNERS' EQUITY 65,088 65,098
-------- --------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 85,367 $ 83,780
======== ========
Note: The consolidated balance sheet at December 31, 2002, has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements.
See notes to condensed consolidated financial statements.
2
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
THREE MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
2003 2002
-------- --------
NET SALES $ 51,662 $ 56,690
Cost of sales 39,259 43,614
-------- --------
Gross Profit 12,403 13,076
Other operating income 612 652
-------- --------
Total operating income 13,015 13,728
OPERATING EXPENSES
Selling, general and administrative 10,191 11,202
Depreciation and amortization 935 1,178
-------- --------
Total Operating Expenses 11,126 12,380
-------- --------
INCOME FROM OPERATIONS 1,889 1,348
OTHER INCOME (EXPENSES)
Gain on sale of properties 755 --
Interest income 41 27
Interest expense (6) (24)
-------- --------
OTHER INCOME, NET 790 3
-------- --------
INCOME BEFORE INCOME TAXES 2,679 1,351
Income taxes 911 459
-------- --------
NET INCOME $ 1,768 $ 892
======== ========
Average shares outstanding 2,050 2,098
Net income per share, basic $ .85 $ .44
Net income per share, assuming dilution $ .78 $ .39
Dividends per share $ .07 $ .07
See notes to condensed consolidated financial statements.
3
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
2003 2002
-------- --------
NET SALES $ 81,638 $ 94,560
Cost of sales 61,948 73,150
-------- --------
Gross Profit 19,690 21,410
Other operating income 1,070 1,228
-------- --------
Total operating income 20,760 22,638
OPERATING EXPENSES
Selling, general and administrative 18,885 20,445
Depreciation and amortization 1,892 2,442
-------- --------
Total Operating Expenses 20,777 22,887
-------- --------
LOSS FROM OPERATIONS (17) (249)
OTHER INCOME (EXPENSES)
Gain on sale of properties 1,427 299
Interest income 92 58
Interest expense (21) (82)
-------- --------
OTHER INCOME, NET 1,498 275
-------- --------
INCOME BEFORE INCOME TAXES 1,481 26
Income taxes 504 9
-------- --------
NET INCOME $ 977 $ 17
======== ========
Average shares outstanding 2,070 2,077
Net income per share, basic $ .47 $ .01
Net income per share, assuming dilution $ .43 $ .01
Dividends per share $ .14 $ .14
See notes to condensed consolidated financial statements.
4
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(in thousands)
COMMON STOCK TOTAL
------------------------ ADDITIONAL RETAINED SHAREOWNERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- -------- ---------- -------- ------------
BALANCES AT DEC. 31, 2002 2,073 $ 2,073 $ 539 $ 62,486 $ 65,098
Net loss (791) (791)
Cash dividends - $.07 per share (146) (146)
Shares issued under Long-Term
Incentive Plan 5 5 107 112
Shares issued in connection with
exercise of stock options 15 15 182 197
------- -------- -------- -------- --------
Balances at Mar. 31, 2003 2,093 2,093 828 61,549 64,470
Net income 1,768 1,768
Cash dividends - $.07 per share (143) (143)
Shares repurchased and retired (50) (50) (828) (129) (1,007)
------- -------- -------- -------- --------
BALANCES AT JUNE 30, 2003 2,043 $ 2,043 -- $ 63,045 $ 65,088
======= ======== ======== ======== ========
See notes to condensed consolidated financial statements.
5
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
SIX MONTHS ENDED
-----------------------
June 30, June 30,
2003 2002
--------- ---------
OPERATING ACTIVITIES
Net income $ 977 $ 17
Adjustments to reconcile net income to net
cash (used in) provided by operating activities
Depreciation 1,842 2,342
Amortization 50 100
Provision for losses on receivables 157 116
Effect of LIFO -- (225)
Gain on sale of properties (1,427) (299)
Gain on sale of equipment (126) (238)
Common stock based compensation 13 34
Changes in operating assets and liabilities
Trade receivables (4,298) (1,150)
Other assets (91) (474)
Inventories (235) (1,776)
Accounts payable and accrued expenses 2,448 2,843
-------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (690) 1,290
-------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (1,894) (1,084)
Proceeds from the sale of properties and equipment 3,253 475
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,359 (609)
-------- --------
FINANCING ACTIVITIES
Net repayments of short-term borrowings (500) --
Repayments of long-term debt (52) (2,052)
Repurchases of common stock (1,007) (169)
Proceeds from exercise of stock options 197 878
Dividends paid (291) (287)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (1,653) (1,630)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (984) (949)
Cash and cash equivalents at beginning of period 12,100 4,798
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,116 $ 3,849
======== ========
See notes to condensed consolidated financial statements.
6
WOLOHAN LUMBER CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2003
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have
been included.
The Company's business is seasonal in nature, subject to general
economic conditions and outside factors, and accordingly, its operating
results for the three months and six months ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the
entire year ending December 31, 2003.
The Company recognizes revenues when products, ordered by the customer,
are either delivered to the customer or the customer picks up the
products at one of the Company's retail locations.
For further information, refer to the consolidated financial statements
and footnotes included in the Company's annual report on Form 10-K for
the year ended December 31, 2002.
NOTE B - NEW ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 149 which amends
and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 149 requires
that contracts with comparable characteristics be accounted for
similarly. In particular, SFAS No. 149 clarifies under what
circumstances a contract with an initial net investment meets the
characteristic of a derivative discussed in paragraph 6(b) of Statement
133, clarifies when a derivative contains a financing component, amends
the definition of an underlying to conform to language used in FASB
Interpretation No. 45, and amends certain other existing
pronouncements. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003. The adoption of SFAS No. 149 will not
have a significant effect on the financial position or results of
operations of the Company
In May 2003, the FASB issued SFAS No. 150 which establishes standards
for how an issuer classifies and measures certain financial instruments
with
7
characteristics of both liabilities and equity. SFAS No. 150 requires
that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS No. 150 is
effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No.
150 will not have a significant effect on the financial position or
results of operations of the Company
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain information contained in Management's Discussion and Analysis
of Financial Condition and Results of Operations and elsewhere in this
report may be deemed to be forward-looking statements within the
meaning of The Private Securities Litigation Reform Act of 1995 and are
subject to the Act's safe harbor provisions. These statements are based
on current expectations and involve a number of risks and
uncertainties. Actual results could differ materially from the results
expressed in forward-looking statements. Factors that might cause such
a difference include but are not limited to: fluctuations in customer
demand and spending, expectations of future volumes and prices for the
Company's products, prevailing economic conditions affecting the retail
lumber and building materials markets and seasonality of operating
results and other factors, including risk factors, referred to from
time to time in filings made by the Company with the Securities and
Exchange Commission. The Company undertakes no obligation to update or
clarify forward-looking statements, whether as a result of new
information, future events or otherwise.
Accounting Policies and Estimates
The following discussion and analysis of the results of operations and
financial condition are based on the Company's financial statements
that have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of
these financial statements requires management to make estimates that
affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosures of contingent assets and liabilities.
The Company bases these estimates on historical results and various
other assumptions believed to be reasonable, the results of which form
the basis for making estimates concerning the carrying values of assets
and liabilities that are not readily available from other sources.
Actual results may differ from these estimates.
The Company's significant accounting polices are described in Note A to
the consolidated financial statements included in the Company's annual
report on Form 10-K for the year ended December 31, 2002. Management
believes that the following accounting policies affect the more
significant estimates used in preparing the consolidated financial
statements.
The Company records an inventory reserve for the estimated shrinkage
between physical inventories. This reserve is based primarily on actual
shrink results from
8
previous physical inventories. Changes in actual shrink results from
completed physical inventories could result in revisions to previously
recorded shrink expense. The Company also records an inventory reserve
for the loss associated with selling discontinued inventories at below
cost. This reserve is based on management's current knowledge with
respect to inventory levels and historical experience relating to the
liquidation of discontinued inventories. Management does not believe
the Company's merchandise inventories are subject to significant risk
of obsolescence.
The Company maintains an allowance for doubtful accounts related to
trade receivables by providing for probable uncollectible amounts
through a charge to earnings and a credit to the allowance. Management
assesses the current status of individual accounts on a quarterly basis
and makes adjustments to the allowance as a result of this assessment.
Balances that are still outstanding after management has used
reasonable collection efforts are written off through a charge to the
allowance.
The Company records a reserve for store closing costs in the period
management identifies such stores for closing. Accrued costs include:
costs to liquidate remaining inventory, expensing of future lease
payments on long-term leases, writing off leasehold improvements,
severance payments and certain other ongoing fixed costs. Management
reviews on a quarterly basis the balance of the reserve for each closed
store and makes appropriate adjustments based on the expected months
remaining until each closed store is disposed of.
Management believes it has sufficient current and historical knowledge
to record reasonable estimates for its inventory reserves, allowance
for uncollectible trade receivables and store closing reserve.
Results of Operations
Net income was $1.77 million (85 cents per share basic; 78 cents per
share fully diluted) for the second quarter ended June 30, 2003,
compared with $892,000 (44 cents per share basic; 39 cents per share
fully diluted) for the same period of 2002. For the six-month period
ended June 30, 2003, net income totaled $977,000 (47 cent per share
basic; 43 cents per share fully diluted), compared with $17,000 (1 cent
per share basic and fully diluted) for the similar period of 2002.
Net sales in 2003 were $51.7 million for the second quarter and $81.6
million for the first six months, compared with $56.7 million and $94.6
million for the comparable periods of 2002. Compared with 2002,
same-store sales in 2003 declined 2 percent for the second quarter and
6 percent for the six-month period.
Sales results reflect a reduction in the number of operating stores
compared with 2002. At June 30, 2003, the Company had 25 stores
compared with 29 at the end of the second quarter of 2002. In addition,
with the Company's strategic focus on the professional builder and the
large project-oriented consumer, it continues to eliminate or reduce
certain products previously sold to the do-it-yourself home-improvement
market, which in turn, may have a negative impact on sales comparisons.
9
The Company estimates that at least two-thirds of its sales were to
professional builders in the second quarter and six-month period of
2003 and 2002.
The net income improvement in the second quarter and six month-period
of 2003, compared with similar periods in 2002 reflects:
1. Higher pre-tax gains (net) recorded on the sale of real estate
properties in 2003 versus 2002 ($755,000 more for the second
quarter and $1.13 million more for the six-month period).
2. An improvement in gross margin to 24.0 percent for the second
quarter and 24.1 percent for the six-month period of 2003,
compared with 23.1 percent and 22.6 percent, respectively, for the
similar periods of 2002. The 2002 gross margin percentages reflect
a significant inventory shrinkage recorded at one store.
The operating expense ratio for the second quarter of 2003 was 21.5
percent, compared with 21.8 percent for the same period in 2002. For
the 2003 six-month period, the ratio was 25.5 percent compared with
24.2 percent in 2002. The increase for the six-month period was due
primarily to higher advertising costs and the significantly lower sales
base which minimized leverage gains from lowering expenses in other
areas. Total operating expense dollars were reduced $1.3 million and
$2.1 million, respectively, for the second quarter and six-month
period, compared with similar periods in 2002.
The effective federal income tax rate for the second quarter and six
month period of 2003 and 2002 was 34 percent.
Financial Condition
At June 30, 2003, the Company's balance sheet remained strong. Net
working capital at June 30, 2003, totaled $30.2 million, compared with
$23.0 million at June 30, 2002, and $28.7 million at Dec. 31, 2002. The
current ratio at June 30, 2003, was 2.5 to 1, compared with 2.0 to 1 at
June 30, 2002, and 2.6 to 1 at Dec. 31, 2002.
Cash and cash equivalents totaled $11.1 million at June 30, 2003,
compared with $3.8 million at June 30, 2002, and $12.1 million at Dec.
31, 2002. The liquidity ratio at June 30, 2003, was .55 to 1, compared
to .16 to 1 at June 30, 2002, and .65 to 1 at Dec. 31, 2002. Cash and
cash equivalents decreased $1.0 million during the first half of 2003.
Operating activities used net cash of $.7 million during the first half
of 2003. Investing activities in the first half of 2003 included $3.3
million in proceeds from the sale of properties and equipment,
offsetting $1.9 million in capital expenditures, which were primarily
related to equipment replacements and additional land purchased at an
existing location. Financing activities in the first half of 2003 used
net cash of $1.7 million and included $1.0 million to purchase 50,000
shares of Company common stock at $20.14 per
10
share, $.5 million to reduce short-term borrowings to $1.0 million at
June 30, 2003 and $.3 million for dividend payments.
The Company expects that net cash from operating activities and
available lines of credit should be adequate to meet working capital
needs for the foreseeable future.
Invested capital was equal to 76% of total assets at June 30, 2003,
compared with 78% at year-end 2002. Shareowners' equity accounted for
100 percent of invested capital at June 30, 2003 and Dec. 31, 2002.
Outlook
Wolohan Lumber Co. continues to implement strategies designed to
improve market share to its core customers: professional home builders
and project-oriented consumers. Such strategies include ongoing
initiatives to increase the efficiency and volume of sales made from
existing value-added manufacturing facilities or due to existing
offerings of value-added services such as installation, estimating and
design, and specialized delivery. The Company has also placed renewed
focus on sales training and marketing, both important aspects of
achieving growth in sales. The Company continues to emphasize continued
improvement in expense control as well.
The Company expects to maintain a strong balance sheet in 2003 through
the continued attainment of profitable operations, its annual efforts
at inventory management, accounts receivable review and collection, and
responsible cash management. Strategies targeted at continuing the
Company's track record of effectively liquidating or leasing idle
properties are expected to further improve the Company's liquidity and
strengthen its balance sheet.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
As of July 18, 2003, an evaluation was performed under the supervision
of and with the participation of the Company's management, including
the President and Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation,
the Company's management, including the President and Chief Executive
Officer and the Chief Financial Officer, concluded that the Company's
disclosure controls and procedures were effective as of July 18, 2003.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal
controls subsequent to July 18, 2003.
11
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company may be involved in various legal
proceedings that are incidental to its business. In management's
opinion, the Company is not a party to any current legal proceedings
that are material to its financial condition, either individually or in
the aggregate.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following information is furnished with respect to the Annual
Meeting of security holders of the Registrant held during May 2003:
(a) A meeting was held on May 1, 2003 and was an Annual Meeting.
(b) Not applicable.
(c) At such meeting the following nominees for election as
directors were elected to hold office until the next annual
meeting of stockholders or until their successors are elected
and qualified. The votes cast with respect to each nominee for
director are as follows:
Votes to Withhold
Authority to Vote for
Nominee Votes for Nominee the Nominee
------- ----------------- ---------------------
Hugo E. Braun, Jr. 1,897,917 3,438
James L. Wolohan 1,899,917 1,438
Charles R. Weeks 1,899,917 1,438
Lee A. Shobe 1,899,917 1,438
John Sieggreen 1,892,176 9,179
12
ITEM 5. OTHER INFORMATION
On May 16, 2003 the Board of Directors of Wolohan Lumber Co. announced
it had received a proposal from certain current shareholders and
members of management, including James L. Wolohan, the President and
Chief Executive Officer of the Company, John A. Sieggreen, the
Company's Executive Vice President and Chief Operating Officer, Daniel
P. Rogers, Senior Vice-President-General Merchandise Manager and
Edward J. Dean, Vice President and Chief Financial Officer (the
"Continuing Shareholders"), who own approximately 51.3% of Wolohan
stock, to acquire the shares of common stock of the Company in the
hands of public shareholders at a price of $21.75 per share in a cash
merger transaction.
The Board of Directors has established a Special Committee of the Board
consisting of independent directors to review the proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
99 Exhibits:
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
31.1 Certification of President and Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.
32.1 Certification of President and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The registrant filed two reports on Form 8-K during the quarter for
which this Report is filed. The filing dates were April 23 and May 16,
2003.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WOLOHAN LUMBER CO.
-------------------------------------
Registrant
Date: August 8, 2003 James L. Wolohan
------------------------ -------------------------------------
James L. Wolohan
President and Chief Executive Officer
Date: August 8, 2003 Edward J. Dean
------------------------ -------------------------------------
Edward J. Dean
Chief Financial Officer
(Principal Accounting Officer)
14
Preliminary Copy
WOLOHAN LUMBER CO.
PROXY SOLICITED BY THE BOARD OF DIRECTORS 1. Adoption and approval of the Agreement and Plan of
FOR THE SPECIAL MEETING OF SHAREHOLDERS Merger dated as of August 13, 2003 between Wolohan
TO BE HELD ON SEPTEMBER ___, 2003 Acquisition Co. and Wolohan Lumber Co.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned hereby appoints JAMES L. WOLOHAN and GEORGE I. 2. In their discretion, the Proxies are authorized to
GIBSON, JR., or either of them, with power of substitution in each, vote upon such other matters as may properly come
Proxies to vote all Common Stock of the undersigned in Wolohan Lumber before the meeting.
Co., at the Special Meeting of Shareholders to be held on September __,
2003, and at all adjournments thereof.
UNLESS OTHERWISE SPECIFIED, THE PROXIES ARE APPOINTED TO VOTE FOR
THE AGREEMENT AND PLAN OF MERGER.
-------------------
Please be sure to sign and date DATE:
this Proxy in the Box below.
-------------------
- ----------------------------------- ----------------------------------
Shareholder sign above Co-holder (if any) sign above
- ----------------------------------- ----------------------------------
Detach above card, sign, date and mail in postage paid
envelope
WOLOHAN LUMBER CO.
PLEASE VOTE, DATE AND SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. JOINT OWNERS SHOULD EACH SIGN PERSONALLY. TRUSTEES AND OTHER FIDUCIARIES
SHOULD INDICATE THE CAPACITY IN WHICH THEY SIGN, AND WHERE MORE THAN ONE NAME APPEARS, A MAJORITY MUST SIGN. IF A CORPORATION, THIS
SIGNATURE SHOULD BE THAT OF AN AUTHORIZED OFFICER WHO SHOULD STATE HIS OR HER TITLE.
IF YOUR ADDRESS HAS CHANGED, PLEASE
CORRECT THE ADDRESS IN THE SPACE
PROVIDED BELOW AND RETURN THIS PORTION
WITH THE PROXY IN THE ENVELOPE PROVIDED.
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Contact: James L. Wolohan, C.E.O. FOR IMMEDIATE RELEASE
(989) 793-4532, ext. 248
John A. Sieggreen, C.O.O.
(989) 793-4532, ext. 246
August 13, 2003
MANAGEMENT AND SHAREHOLDER GROUP
AGREES TO BUY WOLOHAN LUMBER CO.
Wolohan Lumber Co. (NASDAQ: WLHN) today announced that its Board of Directors,
acting upon the recommendation of the Special Committee of the Board, has
approved a definitive agreement and plan of merger. Under the agreement, Wolohan
will acquire all shares of the Company's common stock owned by its public
shareholders other than the shares owned by certain current shareholders and
members of management (the "Continuing Shareholders"). The Continuing
Shareholders own approximately 51.3% of the Company's outstanding common stock.
Pursuant to the merger, all shares of Wolohan common stock owned by the public
shareholders will be acquired for $25.75 per share. The consummation of the
merger is subject to approval by the Company's shareholders and other customary
closing conditions.
The management group includes James L. Wolohan, the Company's President and
Chief Executive Officer, John A. Sieggreen, its Executive Vice President and
Chief Operating Officer, Daniel P. Rogers, its Senior Vice President-General
Merchandise Manager, and Edward J. Dean, its Vice President and Chief Financial
Officer.
The Company also announced that it has reached an agreement in principle today
to resolve the asserted class action litigation presently pending in the Circuit
Court for the County of Saginaw, State of Michigan, styled William C. Frazier,
et al. v. Wolohan Lumber Company, et al. The settlement, embodied in an executed
Memorandum of Understanding, is subject to additional procedures, including
court approval, to confirm the fairness of the settlement terms.
Wolohan is engaged in the retail sale of a full-line of lumber and building
materials and related products, used primarily for new-home construction and
large home-improvement projects. Wolohan operates a chain of 25 building supply
stores located in Illinois, Indiana, Kentucky, Michigan and Ohio.
FORWARD LOOKING STATEMENT
This press release may contain statements that constitute forward-looking
statements including statements regarding Wolohan's expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this press release are based on information available to Wolohan on
the date hereof.
Wolohan will file a proxy statement and other relevant documents concerning the
proposed merger with the Securities and Exchange Commission ("SEC"). INVESTORS
ARE URGED TO READ THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE AND ANY OTHER
RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. You will be able to obtain the documents free of charge at the web
site maintained by the SEC at www.sec.gov. In addition, you may obtain documents
filed with the SEC by Wolohan free of charge by requesting them in writing from
George I. Gibson, Jr., Corporate Secretary, Wolohan Lumber Co., 407 North
Clinton Avenue, St. Johns, Michigan 48879.
5