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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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COHR INC.
(NAME OF SUBJECT COMPANY)
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COHR INC.
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
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192567105
(CUSIP NUMBER OF CLASS OF SECURITIES)
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RAYMOND E. LIST
COHR INC.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
21540 PLUMMER STREET
CHATSWORTH, CA 91311
(818) 773-2647
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
Robert B. Knauss
Munger, Tolles & Olson LLP
355 South Grand Avenue
35th Floor
Los Angeles, California 90071-1560
(213) 683-9100
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Schedule 14D-9") relates to an offer by TCF Acquisition Corporation, a Delaware
corporation (the "Purchaser"), which is currently owned by Three Cities Fund II,
L.P. and Three Cities Offshore II, C.V. (the "Three Cities Funds"), to purchase
all of the Shares (as defined below) of COHR Inc., a Delaware corporation (the
"Company").
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject Company is COHR Inc., a Delaware corporation, and
the address of its principal executive office is 21540 Plummer Street,
Chatsworth, California 91311. This Schedule 14D-9 relates to the Company's
Common Stock, par value $.01 per share (the "Common Shares" or the "Shares").
(Unless the context otherwise requires, all references to Common Shares or
Shares shall be deemed to refer also to the associated preferred stock purchase
rights (the "Rights") issued pursuant to the Company's Rights Agreement (defined
below).)
ITEM 2. TENDER OFFER OF THE BIDDER
This Schedule 14D-9 relates to the tender offer made by the Purchaser,
disclosed in a Tender Offer Statement on Schedule 14D-1 (as may be amended or
supplemented from time to time, the "Schedule 14D-1") dated January 4, 1999, to
purchase all the outstanding Shares at a price of $5.375 per Share (which will
be increased to $6.375 per share if pending Stockholder Suits (defined below)
are settled before the Offer expires on a basis which will not require the
Company to pay more than $3.0 million, net of any insurance proceeds), net to
the seller in cash (the "Offer Price"), upon the terms and subject to the
conditions set forth in the Offer to Purchase dated January 4, 1999 (as amended
or supplemented from time to time, the "Offer to Purchase"), and the related
Letter of Transmittal (the terms and conditions of which, together with any
amendments or supplements thereto, collectively constitute the "Offer"), copies
of which are filed as Exhibits (a)(1) and (a)(2) hereto, respectively, and
incorporated herein by reference.
The Offer is being made pursuant to a Plan and Agreement of Merger dated as
of December 24, 1998, between the Company and the Purchaser (the "Merger
Agreement"), which provides, subject to the conditions and upon the terms of the
Merger Agreement, for the making of the Offer by the Purchaser and, if the
conditions described in the immediately following paragraph are satisfied, for
the subsequent merger of the Purchaser with and into the Company (the "Merger").
In the Merger, each Share outstanding at the Effective Time (as defined in the
Merger Agreement) (other than Shares held by the Three Cities Funds, the
Purchaser, or Shares held by stockholders validly exercising appraisal rights
pursuant to the General Corporation Law of the State of Delaware (the "DGCL"))
will, by virtue of the Merger and without any action by the holder thereof, be
converted into the right to receive, without interest, $5.375 per Share in cash
(which will be increased to $6.375 per share if pending Stockholder Suits are
settled before the Offer expires on a basis which will not require the Company
to pay more than $3.0 million, net of any insurance proceeds) (the "Merger
Consideration"). The Merger Agreement, a copy of which is filed as Exhibit
(c)(1) hereto, is summarized in the "Introduction" and Sections 2, 7, 11 and 16
of the Offer to Purchase and incorporated herein by reference.
The Purchaser will take all steps in its power to cause the Merger to occur
if, after the Purchaser purchases all the Shares which are properly tendered in
response to the Offer and not withdrawn, the Purchaser and its stockholders own
at least 85% of the outstanding Shares. If, after the Purchaser purchases all
the Shares which are properly tendered in response to the Offer and not
withdrawn, the Purchaser and its stockholders do not own at least 85% of the
outstanding Shares, the Purchaser will not cause the Merger to take place and
will not for at least three years engage in any other business combination with
the Company unless the business combination is approved by the Company's Board
of Directors and by holders of 66 2/3% of the Shares which are not owned by the
Purchaser and its affiliates.
The Purchaser has agreed that if, prior to the Expiration Time, the
Stockholder Suits are settled on a basis which will not require the Company to
pay (net of any insurance proceeds to which the Company's insurers have agreed
in writing) more than a total of $3.0 million for damages, indemnification of
other
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defendants, fees and expenses of plaintiff's counsel and defendants' counsel and
other out of pocket expenses (but not including any sum paid to the Purchaser,
the Three Cities Funds or any other stockholders of the Purchaser which are
affiliated with the Three Cities Funds), the Purchaser will increase the Offer
Price by $1.00 per Share to $6.375 per Share. The five Stockholder Suits are
Sherleigh Associates Inc. Profit Sharing Plan v. COHR Inc., et al. in the United
States District Court, Central District of California, 98-3028 JSL (BQRx);
Leonard Leeds v. Umesh Malhotra, et al. in the Superior Court of the State of
California, County of Los Angeles, BC189490; Marcia Zabronsky, et al. v. COHR
Inc. et al. in the United States District Court, Central District of California,
Western Division, 98-3493 R (Ex); Robert Schug v. Paul Chopra, et al. in the
Superior Court of the State of California, County of Los Angeles, BC190933; and
Charles Bird v. COHR Inc. et al. in the United States District Court, Central
District of California, 98-4177 WMB(AJWx) (together with any other suits brought
by or on behalf of stockholders of the Company relating to the occurrences which
are the subject of the aforementioned suits, the "Stockholder Suits"). At the
request of the Company's Board of Directors, the Purchaser will extend the
Expiration Time for up to 120 days to permit the Stockholder Suits to be settled
and the Company to obtain preliminary approval of such settlement by the United
States District Court, Central District of California (the "Court"), and, if a
settlement agreement is signed within the 120 day extension period, the
Purchaser will, at the request of the Company, extend the Expiration Time for up
to an additional 90 days to permit the preliminary Court approval to be
obtained. If the Offer Price is increased (i) the increased amount will be paid
to all stockholders who tender Common Shares, including those who tender Shares
before the Stockholder Suits are settled, and (ii) the Purchaser will extend the
Expiration Date until at least 10 business days after it publicly announces the
increased Offer Price.
The Schedule 14D-1 states that the principal executive offices of the
Purchaser and the Three Cities Funds are located at 650 Madison Avenue, New
York, New York 10022.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b)(i) Agreements With Executive Officers and Directors. Certain contracts,
agreements, arrangements and understandings between the Company and its
executive officers and directors are described under the headings "Remuneration
of Executive Officers" and "Election of Directors -- Directors' Compensation"
and "Executive Compensation" on pages 5 through 9 and page 15 of the Company's
Proxy Statement, dated July 24, 1998 for its August 14, 1998 Annual Meeting of
Stockholders (the "1998 Proxy Statement"). Copies of these pages are filed as
Exhibit (c)(2) hereto and are incorporated herein by reference. The following
supplements the information set forth in the 1998 Proxy Statement.
Employment Agreements/Severance. Effective September 1, 1998, the Company
has amended its existing agreement(which was effective June 3, 1998) with Mr.
Raymond E. List, the Company's President and Chief Executive Officer and a
director. The amended agreement provides that Mr. List is to be paid a base
salary of $275,000 per year plus an annual bonus equal to 100% of his base
salary based upon the Company achieving certain objectives in each year. The
amount of such bonus, if any, would be payable 50% in cash within 90 days of the
end of each fiscal year and 50% in cash or stock, within 90 days of the first
anniversary of the fiscal year in which the bonus is earned. The agreement
provides for a three-year initial term, subject to annual renewals, unless
terminated by either party, prior to the expiration of the initial term and each
extension term. In the event Mr. List's employment is terminated for any reason
other than cause, resignation or voluntary termination, he would be entitled to
18 months base salary following termination (12 months base salary if
termination is at the end of the initial term or during any extension term), a
pro-rated bonus, if any, negotiated in good faith by the parties and certain
health benefits.
In connection with the amended agreement, Mr. List was granted options to
purchase 81,250 Common Shares at an exercise price of $7.00 per share under the
Company's 1995 Stock Option Plan. In addition, in October 1998, the Company
loaned Mr. List $100,000, which loan is due August 31, 2000, but is subject to
earlier repayment from any cash bonuses paid to Mr. List. The loan is secured by
Common Shares owned by Mr. List.
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Effective September 1, 1998, the Company has amended its existing
employment agreement dated March 1, 1998 with Mr. Daniel F. Clark, the Company's
Chief Financial Officer. The amended agreement provides for a three-year
employment agreement, subject to renewal annually, unless terminated by either
party, prior to expiration of the initial three year term and each extension
term. Mr. Clark's base salary remains $275,000 per year and he is eligible to
receive a bonus equal to 40% of his base salary (or greater amount subject to
the discretion of the Board) on substantially the same terms as Mr. List. In the
event Mr. Clark's employment is terminated for any reason other than for cause,
retirement or voluntary resignation, he would be entitled to 18 months base
salary following termination (12 months base salary if termination is at the end
of the initial term or during any extension term), a pro rated bonus, if any,
negotiated in good faith by the parties and certain health benefits.
Effective September 1, 1998, the Company has amended its existing
employment agreement (which was effective June 3, 1998) with Mr. Steven W.
Ritterbush, a director of the Company. The amended agreement provides for a
one-year employment term, providing for an annualized salary of $180,000 for
three-quarter time work and $120,000 for half-time work, plus a bonus negotiable
in good faith by the parties. If Mr. Ritterbush's employment is terminated for
any reason other than cause, retirement or voluntary resignation, he is entitled
to receive the remainder of his base salary plus any pro rated bonus negotiable
in good faith by the parties.
Effective September 1, 1998, the Company amended its existing management
services agreement dated as of June 3, 1998, between the Company and Fairfax
Consulting Company LLC ("Fairfax Consulting"), pursuant to which Fairfax
Consulting provides the management, executive and consulting services of certain
professionals (the "Professionals"), other than Messrs. List and Ritterbush, a
minimum of two business days each month as requested by the Company. For such
services, the Company will pay Fairfax Consulting (i) $1,500 per month for use
of an office facility, (ii) up to $500 per month as an administration fee, (iii)
$8,300 per year as reimbursement for Mr. Ritterbush's health and dental care
insurance, and (iv) a fee based on the number of hours spent by certain of the
Professionals multiplied by an hourly rate, which ranges from $100 to $200 per
hour depending on which of the Professionals provided the services. The Company
will also pay Fairfax Consulting a fee equal to 2% of any capital raised by
Fairfax for expansion of the Company's business (such fee does not apply to any
sale of the Company). The management services agreement has a term which expires
on August 31, 1999, and is terminable on 30 days notice by either party. Mr.
List and Mr. Ritterbush are affiliated with Fairfax Consulting.
Pursuant to an Employment Agreement, dated as of March 1, 1998, between the
Company and Mr. David A. Roesler, the Company's Senior Vice President of
Operations, Purchase Connection, Mr. Roesler is to receive a base salary of not
less than $160,000 annually, plus a possible discretionary bonus. The term of
the agreement is through May 31, 1999, subject to automatic renewal annually
unless one party gives timely notice of non-renewal. In the event Mr. Roesler's
employment is terminated for any reason other than for cause, retirement, or
voluntary resignation, he would be entitled to 13 months base salary following
termination plus certain health benefits.
Pursuant to an Employment Agreement, dated as of March 1, 1998, between the
Company and Mr. Ed Gravell, the Company's Senior Vice President of Sales and
Customer Service, Purchase Connection, Mr. Gravell is to receive a base salary
of not less than $160,000 annually, plus a possible discretionary bonus. The
term of the agreement is through May 31, 1999, subject to automatic renewal
annually unless one party gives timely notice of non-renewal. In the event Mr.
Gravell's employment is terminated for any reason other than for cause,
retirement, or voluntary resignation, he would be entitled to 13 months base
salary following termination plus certain health benefits.
Pursuant to an Employment Agreement, dated as of July 1, 1998, between the
Company and Bernie Bartoszek, the Company's Senior Vice President of Sales and
Marketing, Mr. Bartoszek is to receive a base salary of not less than $140,000
annually, plus a possible discretionary bonus. The term of the agreement is
through June 30, 1999, with automatic renewal annually unless one party gives
timely notice of non-renewal. In the event Mr. Bartoszek's employment is
terminated for any reason other than for cause, retirement, or voluntary
resignation, he would be entitled to 13 months following such termination plus
certain health benefits.
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Stock Options. The Merger Agreement contemplates that at the Effective
Time, each outstanding option or warrant issued by the Company will become the
right to receive (i) the amount, if any, by which the Offer Price exceeds the
exercise price of the option or warrant, times (ii) the number of Common Shares
issuable upon exercise of the option or warrant in full.
The transactions contemplated by the Merger Agreement will constitute a
"change in control" for purposes of the Company's existing stock option plans
and stock option grants. As a result, all outstanding options will become vested
and exercisable upon the occurrence of a "change in control" (as respectively
defined in such plans and grants). Mr. Daniel F. Clark was granted 50,000
options in June 1998 with an exercise price of $5.125 and is the only director
or executive officer having options with an exercise price that is less than
$5.375 (or $6.375).
Indemnification. Under the terms of the Merger Agreement, the Company (as
the surviving corporation in the Merger) will honor, and will not amend or
modify for a period of not less than six years after the date of the Merger
Agreement, any and all obligations of the Company and its subsidiaries to
indemnify present and former directors, officers or employees of the Company or
its subsidiaries with respect to matters which occur on or prior to the date of
the Merger, whether provided in the certificate of incorporation or by-laws of
the Company or any of its subsidiaries, in certain of the Company's employment
agreements listed on an exhibit to the Merger Agreement under the DGCL. The
Company will maintain in effect for not less than six years after the date of
the Merger with respect to occurrences prior to the date of the Merger the
Company's policies of directors and officers' liability insurance which are in
effect on the date of the Merger Agreement to the extent that such insurance (or
substantially similar insurance) is available.
Board of Directors. Effective concurrently with the execution of the Merger
Agreement, the Board approved increasing the number of members constituting the
entire Board to 10 and elected J. William Uhrig and W. Robert Wright II to fill
the two vacancies. The Merger Agreement provides that until the Purchaser
purchases all the Common Shares which are properly tendered in response to the
Offer and not withdrawn, or the Merger Agreement terminates, neither the Three
Cities Funds nor the Purchaser will vote any Shares or take any other action to
cause (i) anyone other than J. William Uhrig and W. Robert Wright II (or
replacements designated by the Purchaser) to be elected to the Company's Board
(except by voting at an annual meeting of stockholders in favor of the Board's
nominees for election to the Board), (ii) the number of directors constituting
the entire Board to be increased or decreased, or (iii) any director to be
removed from the Board other than for cause. The Merger Agreement provides that
if the Merger is consummated, the directors of the Purchaser will be the
directors of the Company, as the surviving corporation in the Merger.
(ii) Terms of the Merger Agreement. The summary of the Merger Agreement
contained in the "Introduction" and in Sections 2, 7, 11 and 16 of the Offer to
Purchase, which has been filed with the Securities and Exchange Commission (the
"SEC") as an exhibit to the Schedule 14D-1, is incorporated herein by reference.
Such summary should be read in its entirety for a description of the terms and
provisions of the Merger Agreement. A copy of the Merger Agreement has been
filed as Exhibit (c)(1) hereto and is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
At a meeting held on December 23, 1998, the Company's Board of Directors
unanimously (i) approved the Offer and the Merger Agreement, (ii) determined
that the terms of the Offer and the Merger are fair to, and in the best
interests of, holders of Shares and (iii) recommended that holders of Shares
accept the Offer and tender their Shares pursuant to the Offer. Accordingly, the
Board unanimously recommends that the stockholders of the Company tender their
Shares pursuant to the Offer. Copies of the Company's press release announcing
the Merger Agreement and the transactions contemplated thereby and a letter to
the stockholders of the Company communicating the Board's recommendation are
filed as Exhibits (a)(3) and (a)(4) hereto, respectively, and are incorporated
herein by reference.
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(b)(1) BACKGROUND.
In December 1997, the Company announced the engagement of Lehman Brothers
Inc. ("Lehman Brothers"), as its financial advisor, to evaluate strategic
alternatives available to the Company, including a possible sale.
On February 17, 1998, the Company disclosed that it had restated its
financial statements for the fiscal year ended March 31, 1997 and for the first
two quarters of the fiscal year ended March 31, 1998. For the fiscal year ended
March 31, 1998, the Company reported a net loss of $27.3 million, including
pre-tax special charges of $11.4 million. During the Spring of 1998 the
Stockholder Suits were filed alleging, among other things, federal and/or state
securities law violations and the SEC commenced a formal investigation of the
Company.
In June 1998, after conducting a sale process throughout the Spring, the
Board of Directors determined that it was not in the best interests of the
Company's stockholders to continue to pursue a sale of the Company at that time.
Since June 1998, the Company has from time to time explored on a
preliminary basis with various entities the possibility of an investment in the
Company and/or various financial or strategic alliances to extend the marketing
and sales reach of the Company. On September 16, 1998 a mutual acquaintance
introduced Mr. J. William Uhrig, of Three Cities Research, Inc. (the adviser to
the Three Cities Funds), to Mr. Steven W. Ritterbush, a director of the Company.
Mr. Uhrig and Mr. Ritterbush discussed the Company and the Company's desire to
raise capital in order to expand its business. On September 21, 1998, there was
a conference call in which Lynn P. Reitnouer, the Chairman of the Company, was
told of the September 16 meeting and arrangements were made for representatives
of Three Cities Research to visit the Company. That visit took place on October
27, 1998, and was attended by Mr. Raymond E. List, the President and Chief
Executive Officer of the Company, Mr. Daniel F. Clark, the Chief Financial
Officer of the Company as well as Messrs. Ritterbush and Reitnouer. During the
meeting, the representatives of Three Cities Research expressed interest in the
potential for an investment in the Company by investors advised by Three Cities
Research and said they did not want to receive material non-public information
about the Company which would impede them from purchasing Shares of the Company.
Mr. List then discussed the Company's business, subject to that limitation, and
the representatives of Three Cities Research described Three Cities Research,
the investments in which it had been involved, and the Three Cities Funds.
During the ensuing weeks, there were a number of conversations, primarily
between Mr. List and Mr. Uhrig. Among the topics of those conversations was the
fact that, according to filings with the SEC, two groups of investment funds
(together, the "Funds") owned more than 50% of the outstanding Common Shares,
and that the Three Cities Funds might be interested in purchasing those Shares.
Mr. Uhrig expressed concern that, if the Three Cities Funds were to acquire
those Shares without prior approval from the Company's Board of Directors, under
Section 203 of the DGCL, the Company would be precluded for three years from
entering into a business combination with the Three Cities Funds or their
affiliates unless the business combination were approved by holders of 66 2/3%
of the Shares which were not owned by the Three Cities Funds or their
affiliates. On November 23, 1998, Mr. Uhrig sent a letter to Mr. List, in
connection with a regularly scheduled meeting of the Company's Board, asking
that the Board approve entities advised by Three Cities Research purchasing more
than 15% of the Company's Common Shares.
On November 23, 1998, the Board completed its consideration of the adoption
of a stockholder rights plan ("Rights Plan"), which the Board had begun
discussing in February 1998, discussed again in June 1998 and tentatively
adopted in September 1998. At the November 23, 1998, meeting, the Board adopted
a Rights Plan under which, if anyone acquired or agreed or arranged to acquire
more than 15% of the outstanding Common Shares, the stockholders, other than the
one who purchased 15% or more of the outstanding Common Shares, would be able to
purchase for $20 Series A Junior Participating Cumulative Preferred Stock which
would be equivalent to the number of Common Shares which at the time had a
market value of $40, subject to the right of the Board to redeem the Rights for
$.001 per Right, or to amend the Rights Plan. The Board adopted the Rights
Agreement to assist the Board in protecting stockholder interests and enhancing
the maximization of stockholder value. The Company's Board of Directors also
discussed the letter from Three
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Cities Research, determined that it required more definitive information in
order to consider the request and authorized Mr. List to obtain such
information.
On November 24, 1998, Mr. List told Mr. Uhrig by telephone that the Board's
action in adopting the Rights Plan did not mean the Board was unwilling to
consider a purchase of Shares by the Three Cities Funds, informing him that the
Rights Plan was the culmination of an ongoing deliberation by the Board designed
to protect stockholder interests. He suggested that representatives of Three
Cities Research meet the members of the Board.
On December 10, 1998, the Company's directors met with Mr. Uhrig and W.
Robert Wright II, also of Three Cities Research, in a series of meetings in
Southern California. During those meetings, Mr. Uhrig and Mr. Wright described
Three Cities Research and the Three Cities Funds to the directors and discussed
their desire to purchase a significant portion, and perhaps all, of the stock of
the Company.
On December 14, 1998, Mr. Reitnouer called Mr. Uhrig to schedule further
discussions and the Three Cities Funds sent a letter to Mr. Reitnouer, outlining
their proposal and committing that, if the Three Cities Funds purchased
substantially all the Common Shares owned by the Funds, the Three Cities Funds
would offer to purchase any and all the other outstanding Common Shares for a
price at least as high as the highest price the Three Cities Funds paid to the
Funds. On December 15, 1998, the Board (other than Mr. Meyer) met by telephone
to discuss the Three Cities Funds proposal, with representatives of Lehman
Brothers and the Company's outside counsel participating.
On December 16, 1998, Messrs. Uhrig and Wright met with Mr. Reitnouer and
an attorney for the Company, with a representative of Lehman Brothers and an
attorney for the Three Cities Funds participating in the meeting by telephone,
to discuss the proposed transaction. On December 16 and 17, 1998, the Board met
by telephone to discuss further the Three Cities Funds proposal with
representatives of Lehman Brothers and the Company's outside legal counsel
participating. (At the December 16th meeting. Mr. Ritterbush was not present.)
At the meetings, the Board discussed, among other things, the structure of any
transaction, the protections to the minority stockholders in the event the Three
Cities Funds purchased Shares owned by the Funds, the offer price to the
minority public stockholders, the conditions to any tender offer and merger, the
Company's ability to cause the Purchaser to tender into or vote in favor of any
potential superior proposal to acquire the Company (the "Call Provision"), the
Company's financial and business prospects and the risks and benefits of a
transaction with Three Cities Funds. During this period of time, Mr. Reitnouer
and the Company's financial and legal advisors continued to speak with Three
Cities Funds and its legal counsel to discuss the terms of a potential
transaction.
On December 17, 1998 , after the Board meeting and after further
negotiation, Mr. Reitnouer indicated to Three Cities Funds that the Board would
be willing to negotiate, on the terms authorized by the Board at its recent
meeting, a transaction in which the Three Cities Funds would solicit tenders of
Common Shares from stockholders other than the Funds and enter into a cash
merger with the Company. Drafts of a Merger Agreement were then prepared by
attorneys for the Three Cities Funds and circulated on December 21, 1998. There
were extensive discussions among the Company, the Three Cities Funds and their
respective advisors over the next several days with respect to the terms and
conditions of the Merger Agreement, including the Call Provision in the event a
superior proposal is made to acquire the Company and the amount of the Offer
Price and how it might be increased if the Stockholder Suits were settled on a
specified basis.
The Board met in person on December 23, 1998 to consider the terms and
conditions of the Merger Agreement. A representative of Lehman Brothers
presented in detail a financial analysis of the Company and the proposed
transaction, and presented orally the firm's opinion that consideration of
$5.375 per share to be received by the Company's stockholders (other than the
Funds) was fair from a financial point of view to such holders, subject to the
satisfactory resolution of the final terms of the Merger Agreement. After
extensive discussion and subject to satisfactory resolution of the final terms,
the Board (a) approved the acquisition by each of the Three Cities Funds and by
a company they formed (i.e., the Purchaser) of more than 15% of the outstanding
Common Shares, (b) approved an amendment of the Rights Agreement which would
exclude the Three Cities Funds and the Purchaser from the persons whose
acquisitions of more than 15% of the Common Shares might cause the Rights to
become exercisable, (c) approved the Merger Agreement and the
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transactions contemplated by it, and (d) resolved to recommend that the
Company's stockholders tender their Common Shares in response to the Offer.
Final negotiations were completed later in the day on December 23 and early
on December 24, 1998. On December 24, 1998, Lehman Brothers delivered its
written fairness opinion and (i) the Three Cities Funds purchased a total of
3,085,425 shares of Common Shares from the Funds for $5.125 per share plus
assignment of the Funds' claims regarding the matters which are the subject of
the Stockholder Suits (including their rights as members of any class of
plaintiffs in the Stockholder Suits) and (ii) the Company and the Purchaser
signed the Merger Agreement, under which the Purchaser agreed to seek tenders of
any and all the outstanding Common Shares for $5.375 per share, which would be
increased to $6.375 per share if the Stockholder Suits were settled before the
Expiration Date on a basis which did not require the Company to pay, net of any
insurance proceeds, more than $3 million, and to pay the same amount per share
in the Merger to stockholders other than the Purchaser. On December 24, 1998,
the Company issued a press release announcing the execution of the Merger
Agreement.
(2) REASONS FOR RECOMMENDATIONS.
In making the determinations and recommendations set forth in subparagraph
(a) above, the Board considered a number of factors, including, without
limitation, the following:
(i) information with regard to the financial condition, results of
operations, business and prospects of the Company, including its net loss
of more than $6 million (and an operating loss of almost $6.5 million) for
the six months ended September 30, 1998 and that the Company expects to
have a net loss and operating loss at least through the remainder of the
fiscal year ending March 31, 1999, and the risks associated with continuing
to operate the Company as a publicly-traded independent company;
(ii) the amount of consideration to be received by the Company's
stockholders in the Offer and the Merger (including the fact that the Offer
Price includes a premium of $0.25 per share over the price paid by
Purchaser to the Funds for 48.3% of the outstanding Shares), as compared to
the risks associated with continuing to operate the Company as a
publicly-traded independent company;
(iii) the historical and recent market prices of the Shares and the
fact that the Offer and the Merger will enable the holders of the Shares to
realize a substantial premium over the prices at which the Shares traded
prior to the execution of the Merger Agreement. The consideration of $5.375
per Share is a premium of 39.8% over the closing price for the Shares on
December 23, 1998 (one day prior to the announcement of the Offer and the
Merger) and 60.95% over the 30-day average closing price for the Shares for
the period ended December 23, 1998;
(iv) the fact that the consideration to be received by the Company's
stockholders in the Offer and the Merger might be increased by $1.00 if the
Stockholder Suits can be settled before the Offer expires on a basis which
will not cost the Company more than $3 million net of insurance proceeds.
With respect to the likelihood of a settlement of the Stockholder Suits
within such parameters, settlement negotiations have been proceeding for
the last six months. Although those settlement negotiations have not to
date produced an agreement to settle, the Company is cautiously optimistic
that a settlement upon the terms and in the time frame described in the
Offer can be achieved. Any such settlement, however, will require
significant movement by parties not under the control of the Company and
the Company can give no assurance that it will be able to reach such a
settlement;
(v) the possible alternatives to the Offer and the Merger, including
the possibility of continuing to operate the Company as a publicly-traded
independent entity and the results of the prior sale process, the range of
possible benefits and risks to the Company's stockholders of such
alternatives and the timing and likelihood of accomplishing the goal of
enhancing stockholder value in excess of the premium being offered in the
Offer and the Merger;
(vi) the high likelihood that the proposed acquisition would be
consummated, including the ability of the Three Cities Funds to finance the
Offer and the Merger, the absence of a financing condition and
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the absence of a condition that there be no material adverse change in the
Company after December 24, 1998;
(vii) the Purchaser's agreement to the Call Provision, specifically
the ability of the Company, for a limited period, to cause the Shares held
by the Purchaser to be tendered into or voted in favor of a superior
proposal to acquire the Company;
(viii) the Purchaser's agreement to provide the Company's stockholders
essentially the same protections they would have had under Section 203 of
the DGCL had the Board not exempted from Section 203 the purchase by the
Three Cities Funds of the Shares held by the Funds (i.e., the Purchaser has
agreed that, unless after it purchases Shares through the Offer, it and its
stockholders own at least 85% if the outstanding Common Shares, neither the
Purchaser nor the Three Cities Funds will for three years enter into a
business combination with the Company unless the business combination is
approved by the Company's Board of Directors and by the vote of 66 2/3% of
the Common Shares not owned by the Purchaser or its affiliates); and
(ix) the terms of the Merger Agreement and the parties'
representations, warranties and covenants and the conditions to their
respective obligations;
(x) the financial analysis and presentation of Lehman Brothers to the
Board on December 23, 1998, and the oral opinion of Lehman Brothers
delivered December 23, 1998 (which opinion was subsequently confirmed in
writing on December 24, 1998, the date of execution of the Merger
Agreement), to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated in such opinion, the $5.375 per
Share cash consideration to be received by holders of Shares in the Offer
and the Merger was fair, from a financial point of view, to such holders
(other than the Funds). The full text of Lehman Brothers' written opinion,
which sets forth the assumptions made, matters considered and limitations
on the review undertaken by Lehman Brothers, is attached hereto as Annex A
and is incorporated herein by reference. Lehman Brothers' opinion is for
the use and benefit of the Board and was rendered to the Board in
connection with its consideration of the Offer and the Merger and does not
constitute a recommendation as to whether any stockholders should tender
Shares pursuant to the Offer. Holders of Shares are urged to read such
opinion carefully in its entirety.
The Board did not assign relative weights to the above factors or determine
that any factor was more significant than another. Rather, the Board viewed its
position and recommendations as being based on the totality of the information
presented to and considered by it. In addition, it is possible that different
members of the Board assigned different weights to the various factors described
above.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Pursuant to the terms of an engagement letter, dated December 30, 1997 (the
"Engagement Letter"), the Company engaged Lehman Brothers to act as its
exclusive financial advisor in connection with the sale, merger, consolidation
or any other business combination involving the control of or a material
interest in the Company or any of its businesses or a material amount of any of
their respective assets and certain other transactions. As part of its role as
exclusive financial advisor, Lehman Brothers has delivered to the Board of
Directors an opinion that the consideration of $5.375 per share to be received
in the Offer and the Merger was, as of December 24, 1998, fair to the Company's
stockholders (other than the Funds) (the "Fairness Opinion").
Pursuant to the terms of the Engagement Letter, the Company has committed
to pay Lehman Brothers an aggregate financial advisory fee equal to 1.25% of the
total consideration payable in connection with a sale of the Company (as defined
in the Engagement Letter), subject to a minimum of $1,000,000 (the "Sale Fee").
The Company is currently obligated to pay Lehman Brothers $300,000 in connection
with the delivery of the Fairness Opinion and an additional $700,000 for its
role as financial advisor in the Offer and the Merger. The Company previously
paid Lehman Brothers upon execution of the Engagement Letter a retainer of
$100,000, which also is to be credited against the Sale Fee. Thus, pursuant to
the Engagement Letter, the Company is currently obligated to pay Lehman Brothers
in connection with the Offer and the Merger compensation in the amount of
$900,000. The Company also has agreed to reimburse Lehman Brothers for
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reasonable out-of-pocket expenses, including fees and disbursements of counsel,
and to indemnify Lehman Brothers and certain related parties against certain
liabilities arising out of Lehman Brothers' engagement.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any person to make solicitations or
recommendations to stockholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Except as set forth below, during the past 60 days, neither the Company
nor any subsidiary of the Company nor, to the best of the Company's knowledge,
any executive officer, director or affiliate of the Company has effected a
transaction in Shares: Mr. Daniel Clark acquired 5,000, 5,000, 4,000 and 1,000
Shares on November 19, 20, 23 and 24, 1998, respectively; Mr. Frederick Meyer
placed an order for 2,500 Shares on December 14, 1998, which was executed on
December 15, 1998; Mr. David Roesler acquired 2,000 Shares on December 15, 1998.
(b) The Merger Agreement provides that each of the directors and executive
officers of the Company has agreed to tender and sell his or her Shares in
response to the Offer, except that directors and executive officers whose sales
might result in liability under Section 16(b) of the Exchange Act have agreed
that if they do not tender and sell their Shares in response to the Offer, they
will votes their Shares in favor of the Merger.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Other than as set forth in Item 3(b) or 4, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in:
(1) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company;
(2) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company;
(3) a tender offer for or other acquisition of securities by or of the
Company; or
(4) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described above or in Item 3(b) of this Schedule 14D-9, there
are no transactions, board resolutions, agreements in principle or signed
contracts in response to the Offer which relate to and would result in one or
more of the matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
(a) SECTION 203. As a Delaware corporation, the Company is subject to
Section 203 of the DGCL. Section 203 would prevent an "Interested Stockholder"
(defined as a person beneficially owning 15% or more of a corporation's voting
stock) from engaging in a "Business Combination" (as defined in Section 203)
with a Delaware corporation for three years following the date such person
became an Interested Stockholder unless: (i) before such person became an
Interested Stockholder, the board of directors of the corporation approved the
transaction in which the Interested Stockholder became an Interested Stockholder
or approved the Business Combination, (ii) upon consummation of the transaction
which resulted in the Interested Stockholder becoming an Interested Stockholder,
the Interested Stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers and employee stock ownership plans that
do not provide for confidential voting by plan participants), or (iii) following
the transaction in which such person became an Interested Stockholder, the
Business Combination is (x) approved by the board of directors of the
corporation and (y) authorized at a meeting of stockholders by the affirmative
vote of the holders of 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder. The Board of Directors of
the Company has unanimously approved the Three Cities' Funds' acquisition of
shares from the Funds, the Merger Agreement
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and the Purchaser's acquisition of Shares pursuant to the Offer. Accordingly,
Section 203 will not apply to such transactions.
(b) RIGHTS PLAN. The Company amended its Rights Agreement, dated November
23, 1998, between the Company and ChaseMellon Shareholder Services LLC (The
"Rights Agreement"), to exclude the Three Cities Funds and the Purchaser from
the persons whose acquisitions of Shares could cause Rights to be distributed
and become exercisable under the Rights Agreement. Therefore, neither the Offer
nor the Merger will cause there to be a Distribution Date under the Rights
Agreement.
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal which are filed as Exhibits (a)(1) and (a)(2), respectively, and are
incorporated herein by reference in their entirety.
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*+(a)(1) Offer to Purchase dated January 4, 1999.
*+(a)(2) Letter of Transmittal.
++(a)(3) Press release issued by the Company dated December 24, 1998.
*(a)(4) Letter to stockholders of the Company dated January 6, 1999.
+(a)(5) Form of Summary Advertisement dated January 4, 1999.
*(a)(6) Opinion of Lehman Brothers Inc.
(b) Not applicable.
+(c)(1) Plan and Agreement of Merger dated as of December 24, 1998.
(c)(2) Copies of pages 5 through 9 and page 10 of the Company's
Proxy Statement dated July 24, 1998, for its August 14, 1998
Annual Meeting.
- ---------------
* Included in materials delivered to stockholders of the Company.
+ Filed as an exhibit to the Purchaser's Tender Offer Statement on Schedule
14D-1 dated January 4, 1999 and incorporated herein by reference.
++ Filed as an exhibit to the Company's Form 8-K (File No. 0-27506), filed on
January 5, 1999, and incorporated herein by reference.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
COHR Inc.
By: /s/ Raymond E. List
--------------------------------------
Name: Raymond E. List
Title: President and Chief Executive
Officer
Dated as of January 6, 1999
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