FORM OF OFFER TO PURCHASE, DATED AUGUST 21, 2002
EXHIBIT (a)(1)-A
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THE VERMONT TEDDY BEAR CO., INC.
6655 Shelburne Road
P.O. Box 965
Shelburne, Vermont 05482
OFFER TO PURCHASE FOR CASH
Up to 3,000,000 Shares of its
Common Stock, Par Value $.05 Per Share
At a Purchase Price of $3.50 Per Share
August 21, 2002
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THE OFFER TO PURCHASE, PRORATION PERIOD AND
WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., EASTERN TIME, ON
SEPTEMBER 27, 2002, UNLESS THE OFFER TO PURCHASE IS EXTENDED.
The information agent for the offer is:
D.F. King & Co., Inc.
77 Water Street
New York, NY 10005
(212) 269-5550 (call collect) or
(800) 431-9642 (toll free)
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OFFER TO PURCHASE
The Vermont Teddy Bear Co., Inc. (the "Company") is inviting its
shareholders to sell up to 3,000,000 shares of its common stock back to the
Company at a price of $3.50 (the "offer"). For a summary of the terms of this
offer in question and answer format, please see the "SUMMARY" section beginning
on page 3.
IMPORTANT PROCEDURES
If you want to tender all or part of your shares, you must do one of
the following before our offer expires:
o Shares Held by Broker or Nominee. If your shares are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee,
contact the nominee and have the nominee tender your
shares for you, or
o Shares Held by You. If you hold certificates in your
own name, complete and sign the "Letter of
Transmittal" according to its instructions and
deliver the Letter of Transmittal and the
certificates for your shares to Continental Stock
Transfer & Trust Company (together with any other
documents that may be required by the Letter of
Transmittal).
PLEASE SEE "SECTION 2. PROCEDURE FOR TENDERING SHARES"
FOR SPECIFIC INSTRUCTIONS REGARDING THE PROPER MANNER
IN WHICH TO TENDER YOUR SHARES.
If you want to tender your shares but:
o your certificates for the shares are not immediately
available or cannot be delivered to the depositary,
or
o your other required documents cannot be delivered to
the depositary before the expiration of our offer,
you can still tender your shares if you comply with
the guaranteed delivery procedure described in
Section 3.
TO TENDER YOUR SHARES YOU MUST CAREFULLY FOLLOW THE PROCEDURES
DESCRIBED IN SECTION 2 AND THE LETTER OF TRANSMITTAL.
If you have any questions or need assistance, you should contact D.F.
King & Co., Inc., the information agent for our offer. You may request
additional copies of this document, the Letter of Transmittal or the notice of
guaranteed delivery from the information agent. D.F. King & Co., Inc., may be
reached at:
D.F. King & Co., Inc.
77 Water Street
New York, NY 10005
(212) 269-5550 (call collect) or
(800) 431-9642 (toll free)
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SUMMARY
Set forth below is a summary of the terms of this offer in question and
answer format. The summary does not describe all of the details of the offer. We
have included in the summary references to the sections of this document where
you will find a more complete discussion of each of the topics mentioned in the
summary.
Who is offering to buy my securities?
The Vermont Teddy Bear Co., Inc. See "Section 9. Information Concerning
The Vermont Teddy Bear Co., Inc." for more detailed information.
What is the class and amount of securities sought in the offer?
We are offering to purchase 3,000,000 shares of our common stock, par
value $0.05, or any lesser number of shares that shareholders properly tender in
the offer. See "Section 1. Number of Shares; Proration" for a more detailed
discussion of the offer. We are also permitting the holders of our Series C
Convertible Preferred Stock to tender the common stock underlying their
preferred shares on an "as converted" basis, and we are permitting the holders
of stock options issued under our Incentive Stock Option Plan to tender the
stock underlying their options on an "as exercised" basis. See discussion under
heading "Participation in Offer by Preferred Stockholders and Holders of Stock
Options" in Section 10.
How much is the Company offering to pay for my securities and what is the form
of payment?
We are offering to purchase the shares for a cash purchase price of
$3.50 per share.
Shareholders whose shares are purchased in the offer will receive the
cash purchase price as soon as practicable after the expiration date. No
interest will be payable on the purchase price. See "Section 1. Number of
Shares; Proration" for a more detailed discussion of the purchase price.
Does the Company have the financial resources to make payment?
Yes. We have cash on hand and a commitment from Banknorth, N.A. to loan
us money sufficient to fund the purchase of the shares. See "Section 8. Source
and Amount of Funds" for a more detailed discussion of the source and amount of
funds for the transaction.
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How long do I have to tender in the offer?
You have until 5:00 P.M. Eastern Time on September 27, 2002. See
"Section 1. Number of Shares; Proration" and "Section 2. Procedure for Tendering
Shares" for a more detailed discussion of the expiration of the offer.
Can the offer be extended, amended or terminated, and under what circumstances?
We can extend or amend the offer in our discretion. If we extend the
offer, we may delay the acceptance of any shares that have been tendered. See
"Section 14. Extension of Tender Period; Termination; Amendments" for a more
detailed discussion of extension and amendment of the offer.
We can terminate the offer under certain circumstances, which include
the threat or institution of legal proceedings or action by a governmental
agency challenging the acquisition of shares pursuant to this tender offer, the
threat or passage of any law or regulation which adversely impacts the
consummation of the offer, or the occurrence of any event that has resulted or
may in our reasonable judgment result in an actual or threatened change in our
business. See "Section 5. Conditions of the Offer" for a more detailed
description of these and other circumstances under which we can terminate the
offer.
How will I be notified if the offer is extended?
We will announce any extension either through a press release or other
public announcement or a subsequent mailing to the shareholders.
We may also communicate the extension of the offer through other means.
See "Section 14. Extension of Tender Period; Termination; Amendments" for a more
detailed discussion of the notification procedure.
Are there any conditions to the offer?
The offer is not subject to a condition that any minimum number of
shares are tendered.
However, we will not be obligated to purchase any shares if, in our
good faith reasonable judgment:
o our purchase of shares in the offer would result in our Common
Stock being held of record by fewer than 300 persons; would
result in our Common Stock no longer being quoted on the Nasdaq
Small Cap Market; or would otherwise constitute a "going private
transaction" for purposes of Rule 13e-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934; or
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o a legal action is pending or has been threatened that might
adversely affect the offer; or
o we experience a material adverse change in our business
conditions (financial or otherwise) during the pendency of the
offer; or
o a third party announces or makes a tender or exchange offer,
merger, business combination or other similar transaction
involving us; or
o we are unable to close the financing transaction with Banknorth,
N.A. to fund the transaction (see "Section 8. Source and Amount
of Funds" for further discussion of the financing arrangements
with Banknorth, N.A.); or
o certain other conditions exist, including the threat or
institution of legal proceedings or action by a governmental
agency which challenges the acquisition of shares pursuant to
this offer, the threat or passage of any law or regulation which
adversely impacts the consummation of the offer, or the
occurrence of any event that has resulted or may in our
reasonable judgment result in an actual or threatened change in
our business. See "Section 5. Conditions of the Offer" for a more
detailed discussion of the conditions of this offer.
How do I tender my shares?
Shares Held In Your Own Name. If the share certificates are registered
in your own name, you should send - on or prior to the expiration date -- the
following documents to Continental Stock Transfer & Trust Company, the
depositary for this offer, at the address specified on page 1 of the "Letter of
Transmittal" enclosed with this offer:
1. The stock certificate(s) for the shares being tendered;
2. A completed and signed Letter of Transmittal; and
3. A completed and signed "Substitute W-9" (part of the
Letter of Transmittal) (or IRS Form W-8BEN or IRS
Form W-8ECI in the case of foreign shareholders).
A pre-addressed envelope is enclosed for your convenience. Your signature on the
Letter of Transmittal may need to be guaranteed by an eligible guarantor
institution if you completed either of the boxes entitled "Special Payment
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
(in which case payment and delivery will not be made to the registered holder)
or your signature on the Letter of Transmittal is not exactly as the name of the
registered holder(s) appears on the certificate(s) for the shares being
tendered. For further information regarding signature guarantees, please see the
instructions under the "Guarantee Of Signatures" paragraph contained in the
Letter of Transmittal.
See "Section 2. Procedure for Tendering Shares" for a more detailed
discussion of the procedure for tendering shares.
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Shares Held by Your Broker or Other Nominee. If your shares are
registered in the name of a broker or other nominee, you should instruct your
broker or other nominee to tender the shares on your behalf. Your broker or
other nominee will execute a Letter of Transmittal on your behalf. See "Section
2. Procedure for Tendering Shares" for a more detailed discussion of the
procedure for tendering shares.
Holders of Preferred Stock. If you hold shares of the Company's Series
C Convertible Preferred Stock, you may tender the shares of common stock which
are issuable upon conversion of the preferred stock on an "as converted" basis
without first converting your preferred stock. To tender your shares, you should
contact the Company directly at the address indicated on the cover page of this
offer, to the attention of Courtney Griesser, Phone: (802) 985-1309. You should
not deliver your shares to the depositary.
Holders of Stock Options. If you hold stock options issued under the
Company's Incentive Stock Option Plan, you may tender the shares of common stock
which are issuable upon exercise of your options on an "as exercised" basis. To
tender your shares, you should contact the Company directly at the address
indicated on the cover page of this offer, to the attention of Courtney
Griesser, Phone: (802) 985-1309. You should not deliver your options to the
depositary.
What should I do if my stock certificates have been lost, stolen, destroyed or
mutilated?
If your stock certificates have been lost, stolen, destroyed or
mutilated, you should contact Continental Stock Transfer & Trust Company
immediately to obtain instructions for replacing them and check the appropriate
box in the Letter of Transmittal.
In what order will tendered shares be purchased? Will tendered shares be
prorated?
If more shares are tendered than we have offered to purchase, we will
purchase shares in the following order of priority:
First, we will purchase shares from all holders of "odd lots" of less
than 100 shares who properly tender all of their shares.
Second, after purchasing all odd lots, we will purchase shares on a pro
rata basis from all other shareholders who properly tender shares until we have
acquired the number of shares that we have offered to purchase. Consequently,
all of the shares that you tender in the offer may not be purchased. See
"Section 1. Number of Shares; Proration" for a more detailed discussion of
proration.
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Until what time can I withdraw previously tendered shares?
You can withdraw shares previously tendered until 5:00 P.M., Eastern
Time on September 27, 2002. If the offer is extended beyond that time, you may
withdraw your tendered shares at any time until the expiration of the offer.
In addition, if we have not yet accepted your shares for payment, you
may withdraw shares you previously tendered after the expiration of 40 business
days from the commencement of the offer. See "Section 3. Withdrawal Rights" for
a more detailed discussion of withdrawal rights.
How do I withdraw previously tendered shares?
You must send a notice containing your name, the number of shares
tendered, the number of shares you wish to withdraw and the name of the
registered holder to the depositary, Continental Stock Transfer & Trust Company,
and the depositary must receive the notice before the time to withdraw shares
has expired.
If you delivered or otherwise identified the certificates to the
depositary, Continental Stock Transfer & Trust Company, you will need to provide
the serial numbers on those certificates and your signature on your withdrawal
notice must be guaranteed by an eligible institution, which means a bank,
broker, dealer or other firm or entity that is a member in good standing of an
approved signature guarantee medallion program.
If your shares were to be tendered by book-entry transfer, the notice
must identify the relevant account number. See "Section 3. Withdrawal Rights"
for a more detailed discussion of withdrawal procedures.
Will the Company remain a public company after this transaction?
Yes. Following this transaction, we will remain subject to the
reporting requirements of Securities Exchange Act of 1934 and our shares will
continue to be listed on the NASDAQ Small Cap Market.
If I decide not to tender, how will the offer affect my shares?
You will increase your percentage ownership interest in the Company.
You will increase your percentage interest in our future earnings. See "Section
7. Purpose of the Offer; Certain Effects of the Offer" for a more detailed
discussion of the effects of the offer.
Do Company insiders or affiliates have any material interest in the transaction?
The Company has been advised that some of our directors intend to
tender their shares in connection with the offer, and that none of our officers
intend to tender their shares. We do not presently know the intentions of
affiliates of the Company who are not directors or officers. See
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"Section 10. Interest of Directors and Officers; Transactions and Arrangements
Concerning Shares" for a more detailed discussion of the interests of insiders
or affiliates in the transaction.
The percentage of shares owned by executive officers and by the
non-tendering directors of the Company will increase after the offer has been
completed. See "Section 7. Purpose of the Offer; Certain Effects of the Offer"
for a more detailed discussion of the effects of the offer.
Does the Company recommend that I tender in the offer?
The Board of Directors has approved the offer, but is not making any
recommendation whether shareholders should tender.
How will I be paid for my shares?
Checks for all accepted tenders will be issued by the depositary. See
"Section 4. Acceptance For Payment of Shares and Payment of Purchase Price" for
additional information on payment for shares.
Will I have to pay taxes if I sell my shares?
Generally, shareholders will recognize a gain or loss on the tendered
shares equal to the difference between the consideration received and the
shareholder's basis. See "Section 13. Federal Income Tax Consequences" for
additional federal income tax consequences of this offer to Purchase.
Who can I talk to if I have questions about the tender offer?
Questions or requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal or other tender offer materials may
be directed to the Information Agent, D.F. King & Co., Inc., 77 Water Street,
New York, NY 10005. You may call toll free at (800) 431-9642 or collect at (212)
269-5550. Copies of such materials will be furnished promptly at the Company's
expense. Questions regarding the procedures for tendering your shares can be
directed to Continental Stock Transfer & Trust Company, the depositary for this
offer, at the address and telephone number set forth in the Letter of
Transmittal. Questions concerning our convertible preferred stock or outstanding
stock options should be directed to the Company. Shareholders may also contact
their local broker, dealer, commercial bank or trust company for assistance
concerning the offer.
The date of this Offer to Purchase is August 21, 2002.
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TABLE OF CONTENTS
Section Page
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OFFER TO PURCHASE..............................................................2
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IMPORTANT PROCEDURES...........................................................2
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SUMMARY........................................................................3
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FORWARD-LOOKING STATEMENTS....................................................10
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SECTION 1. NUMBER OF SHARES; PRORATION.......................................10
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SECTION 2. PROCEDURE FOR TENDERING SHARES....................................12
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SECTION 3. WITHDRAWAL RIGHTS.................................................16
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SECTION 4. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE....17
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SECTION 5. CONDITIONS OF THE OFFER...........................................18
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SECTION 6. PRICE RANGE OF SHARES.............................................20
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SECTION 7. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER................21
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SECTION 8. SOURCE AND AMOUNT OF FUNDS........................................22
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SECTION 9. INFORMATION CONCERNING THE VERMONT TEDDY BEAR CO..................25
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SECTION 10. INTEREST OF DIRECTORS AND OFFICERS; TRANSACTIONS AND
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ARRANGEMENTS CONCERNING SHARES................................................25
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SECTION 11. SELECTED FINANCIAL INFORMATION...................................30
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SECTION 12. LEGAL MATTERS; REGULATORY APPROVALS..............................32
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SECTION 13. FEDERAL INCOME TAX CONSEQUENCES..................................32
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SECTION 14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS..............36
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SECTION 15. SOLICITATION FEES AND EXPENSES...................................37
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SECTION 16. WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION......................39
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SECTION 17. MISCELLANEOUS....................................................39
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FORWARD-LOOKING STATEMENTS
This Offer to Purchase contains statements that are not historical
facts and constitute projections, forecasts or forward-looking statements. When
we use words like "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "may," "should" or similar expressions, or when we discuss our
strategy or plans, we are making projections, forecasts or forward-looking
statements. These statements are not guarantees of performance. They involve
risks, uncertainties and assumptions that could cause our future results and
shareholder value to differ materially from those expressed in these statements.
Many of the factors that will determine these results and value are beyond our
ability to control or predict. These statements are necessarily based upon
various assumptions involving judgments with respect to the future. These risks
and uncertainties include, among others:
o supply and demand for products and services sold by the Company and its
subsidiaries;
o national, regional and local economic, competitive and regulatory
conditions and developments;
o competitive pricing pressures;
o fluctuation in commercial finance rates and availability of commercial
financing;
o the timing and success of business development efforts; and
o other uncertainties, all of which are difficult to predict and many of
which are beyond our control.
SECTION 1. NUMBER OF SHARES; PRORATION
Number of Shares; Price; Expiration Date. Upon the terms and subject to
the conditions described herein and in the Letter of Transmittal, we will
purchase up to 3,000,000 shares of our common stock that are validly tendered on
or prior to the expiration date of the offer, and not properly withdrawn in
accordance with Section 3, at a price of $3.50. The offer will expire on the
later of 5:00 p.m., Eastern Time, on September 27, 2002, or the latest time and
date to which the offer is extended pursuant to Section 14 (the "expiration
date"). The proration period also expires on the expiration date.
Right to Purchase Additional Shares, Extend, Amend or Terminate Offer.
We reserve the right, in our discretion, to purchase more than 3,000,000 shares
pursuant to the offer. See "Section 14. Extension of Tender Period; Termination;
Amendments" for additional information. In accordance with applicable
regulations of the Securities and Exchange Commission (the "SEC"), we may
purchase an additional number of shares not to exceed 2% of the outstanding
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shares without amending or extending the offer. On August 16, 2002, there were
6,844,001 shares issued and outstanding, 1,463,439 shares reserved for issuance
upon exercise of outstanding stock options, 193,111 shares reserved for issuance
upon exercise of outstanding warrants, and 657,087 shares reserved for issuance
on conversion of preferred stock. As explained in Section 14, we have the right
to extend the period of time the offer is open, terminate the offer, or amend
the offer. If (i) we increase or decrease the price to be paid for the shares,
increase the number of shares being sought by more than 2% of the outstanding
shares, or decrease the number of shares being sought; and (ii) the offer is
scheduled to expire earlier than the tenth business day from, and including, the
date that notice of such increase or decrease is first published, sent or given
in the manner specified in Section 14, the offer will be extended until that
tenth business day.
THIS OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 5.
Prompt Return of Shares Not Purchased. All shares not purchased
pursuant to this offer, including shares not purchased because of proration,
will be returned to the tendering shareholders at our expense as promptly as
practicable following the expiration date.
Priority and Proration. Upon the terms and subject to the conditions of
this offer, if 3,000,000 (or such greater number of shares as we may elect to
purchase) or fewer shares have been validly tendered and not withdrawn on or
prior to the expiration date, we will purchase all the shares. Upon the terms
and subject to the conditions of this offer, if more than 3,000,000 shares (or
such greater number of shares as we may elect to purchase) have been validly
tendered and not withdrawn on or prior to the expiration date, we will purchase
shares in the following order of priority:
(i) first, we will purchase all shares of Common Stock validly
tendered and not withdrawn on or prior to the expiration date
by or on behalf of any shareholder who owned beneficially as
of August 21, 2002, and continued to own beneficially as of
the expiration date an aggregate of fewer than 100 shares and
who tendered all of such shares (partial tenders will not
qualify for this preference) and completed the box captioned
"Odd Lot" in the Letter of Transmittal;
(ii) thereafter, we will purchase all remaining shares properly
tendered (including shares which have been validly tendered on
an "as converted" basis by holders of our convertible
preferred stock and on an "as exercised" basis by holders of
options) on a pro rata basis until we have acquired 3,000,000
shares (or such greater number of shares as we may elect to
purchase).
If proration of tendered shares is required, we do not expect that we
will be able to commence payment for any shares purchased pursuant to this offer
until approximately seven business days after the expiration date. We will
advise you of the results of the proration at the
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time that payment for your shares is sent to the depositary, Continental Stock
Transfer & Trust Company, or your shares that were not purchased are returned to
you.
Extension of Offer Period. We expressly reserve the right, in our sole
discretion, at any time or from time to time, to extend the period of time
during which the offer is open by giving oral or written notice of such
extension to the depositary and making a public announcement thereof or mailing
a written notice of extension to you. See Section 14. We have no present intent
to exercise our right to extend the offer.
Business Day. For purposes of the offer, a "business day" means any day
other than a Saturday, Sunday or federal holiday and consists of the time period
from 12:01 a.m. through 12:00 midnight, Eastern Time.
Dissemination of Offer. Copies of this Offer to Purchase and the
related Letter of Transmittal are being mailed to record holders of shares and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on our shareholder list or, if applicable, who
are listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of shares.
SECTION 2. PROCEDURE FOR TENDERING SHARES
Shares Registered In Your Own Name. To tender shares registered in your
own name, you must send -- on or prior to the expiration date -- the following
documents to Continental Stock Transfer & Trust Company, the depositary for this
offer, at the address specified on page 1 of the "Letter of Transmittal"
enclosed with this offer:
1. The stock certificate(s) for the shares being tendered;
2. A completed and signed Letter of Transmittal; and
3. A completed and signed "Substitute W-9" (part of the
Letter of Transmittal), or W-8 for non-U.S. citizen
shareholders.
Your signature on the Letter of Transmittal may need to be guaranteed
by an eligible guarantor institution if you completed either of the boxes
entitled "Special Payment Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal (in which case payment and delivery will not be made
to the registered holder) or your signature on the Letter of Transmittal is not
exactly as the name of the registered holder(s) appears on the certificate(s)
for the shares being tendered. For further information regarding signature
guarantees, please see the instructions under the "Guarantee Of Signatures"
paragraph below and in Instruction 1 to the Letter of Transmittal.
Shares Registered in Name of Broker or Nominee. To tender shares
registered in the name of a broker or other nominee, you should instruct your
broker or other nominee to tender the shares on your behalf. The shares must be
tendered on or prior to the expiration date. Your broker or other nominee will
execute a Letter of Transmittal on your behalf and will send the
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certificate(s) evidencing the shares to Continental Stock Transfer & Trust
Company or effect delivery to Continental Stock Transfer & Trust Company
pursuant to the procedures for delivery of shares by book-entry transfer
described below under "Delivery of Shares by Book-Entry Transfer."
Holders of Preferred Stock. If you hold shares of the Company's Series
C Convertible Preferred Stock, you may tender the shares of common stock which
are issuable upon conversion of the preferred stock on an "as converted" basis
without first converting your preferred stock. To tender your shares, you should
contact the Company directly for instructions at the address indicated on the
cover page of this offer to the attention of Courtney Greisser, whose phone
number is (802)-985-1309. You should not deliver your shares to the depositary.
Holders of Stock Options. If you hold stock options issued under the
Company's Incentive Stock Option Plan, you may tender the shares of common which
are issuable upon exercise of your options on an "as exercised" basis, without
first exercising your stock options. To tender your shares, you should contact
the Company directly for instructions at the address indicated on the cover page
of this offer to the attention of Courtney Greisser, whose phone number is
(802)-985-1309. You should not deliver your shares to the depositary.
Lost, Stolen, Destroyed or Mutilated Certificates. If your stock
certificates have been lost, stolen, destroyed or mutilated, you should contact
Continental Stock Transfer & Trust Company immediately to obtain instructions
for replacing them and check the appropriate box in the Letter of Transmittal.
Your tender with respect to lost, stolen, destroyed or mutilated certificates
will not be valid until you have complied with these procedures and the required
documentation has been received by Continental Stock Transfer & Trust Company.
Guarantee of Signatures. Except as specified forth below under
"Signature Guarantee Not Required," all signatures on a Letter of Transmittal
must be guaranteed by a firm that is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc., or
by a commercial bank, a trust company, a savings bank, a savings and loan
association or a credit union which has membership in an approved signature
guarantee medallion program, each of the foregoing being referred to as an
"eligible institution."
Signature Guarantee Not Required. Signatures on a Letter of Transmittal
do not need to be guaranteed if (a) the Letter of Transmittal is signed by the
registered holder of the shares and the holder has not completed the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (b) the shares are tendered for
the account of an eligible institution. See Instructions 1 and 5 to the Letter
of Transmittal. (For purposes of this section, a "registered holder of the
shares" includes a participant in the book-entry transfer facility whose name
appears on a security position listing as the holder of the shares being
tendered).
Delivery of Shares by Book-Entry Transfer. Continental Stock Transfer &
Trust Company will establish an account with respect to the shares at The
Depositary Trust Company,
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which is a book-entry transfer facility, for purposes of the offer within two
business days after the date of this offer, and any financial institution that
is a participant in the system of the book-entry transfer facility may make
delivery of shares by causing the book-entry transfer facility to transfer such
shares into the account of the depositary, Continental Stock Transfer & Trust
Company, in accordance with the procedures of the book-entry transfer facility.
Although delivery of shares may be effected through book-entry transfer, a
properly completed and duly executed Letter of Transmittal or a manually signed
copy thereof, or an agent's message, as defined below, together with any
required signature guarantees and any other required documents, must be
transmitted to and received by the depositary, Continental Stock Transfer &
Trust Company, at its address set forth in the Letter of Transmittal on or prior
to the expiration date.
Delivery of required documents to the book-entry transfer facility in
accordance with its procedures does not constitute delivery to the depositary,
Continental Stock Transfer & Trust Company, and will not constitute a valid
tender.
The term "agent's message" used above means a message transmitted by
the book-entry transfer facility to, and received by, the depositary and forming
a part of a book-entry confirmation, which states that the book-entry transfer
facility has received an express acknowledgment from the participant in the
book-entry transfer facility tendering the shares, that the participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that we may enforce the terms and conditions of the Letter of Transmittal.
Procedure for Tendering Shares Undeliverable Prior to Expiration Date.
If a shareholder desires to tender shares pursuant to the offer and the
shareholder's share certificates are not immediately available or cannot be
delivered to Continental Stock Transfer & Trust Company prior to the expiration
date (or the procedure for book-entry transfer cannot be completed on a timely
basis) or if time will not permit all required documents to reach Continental
Stock Transfer & Trust Company prior to the expiration date, the shares may
nevertheless be tendered, provided that all of the following conditions are
satisfied:
(a) the tender is made by or through an eligible institution (as
defined above on Page 13);
(b) Continental Stock Transfer & Trust Company receives by hand,
mail, overnight courier, or facsimile transmission, on or
prior to the expiration date, a properly completed and duly
executed Notice of Guaranteed Delivery in the form we have
provided with this offer, including (where required) a
signature guarantee by an eligible institution in the form set
forth in such Notice of Guaranteed Delivery; and
(c) the certificates for all tendered shares, in proper form for
transfer (or confirmation of book-entry transfer of the shares
into the depositary's account at the book-entry transfer
facility), together with a properly completed and duly
executed Letter of
-14-
Transmittal (or a manually signed facsimile) and any required
signature guarantees or other documents required by the Letter
of Transmittal, are received by the depositary within three
business days after the date of receipt by the depositary of
the Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT
THE OPTION AND RISK OF THE TENDERING SHAREHOLDER. If delivery is by mail,
registered mail with return receipt requested, properly insured, is recommended.
In all cases sufficient time should be allowed to assure timely delivery.
Federal Income Tax Backup Withholding. To prevent United States federal
income tax backup withholding equal to 30% of the gross payments made pursuant
to the offer, each tendering shareholder must provide the depositary with the
shareholder's correct taxpayer identification number and certain other
information by properly completing the substitute Form W-9 included as part of
the Letter of Transmittal. Foreign shareholders, as defined in Section 13, must
submit a properly completed Form W-8BEN, which may be obtained from the
depositary. For a discussion of certain federal income tax consequences to
tendering shareholders, see Section 13. Each shareholder is urged to consult
with his, her or its own tax advisor regarding his, her or its qualification for
exemption from backup withholding and the procedure for obtaining any applicable
exemption.
Warranty of Compliance with Rule 14e-4. It is a violation of Rule 14e-4
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), for a person to tender shares for his or her own account unless the
person so tendering (i) has a net long position equal to or greater than the
amount tendered in either common stock or other securities immediately
convertible into or exercisable or exchangeable for common stock and will
acquire such common stock for tender by conversion, exercise or exchange of such
other securities and (ii) will cause such shares to be delivered in accordance
with the terms of the offer. Rule 14e-4 provides a similar restriction
applicable to the tender on behalf of another person. The tender of shares
pursuant to any one of the procedures described above will constitute the
tendering shareholder's representation and warranty that (i) the shareholder has
a net long position in the shares being tendered within the meaning of Rule
14e-4 promulgated under the Exchange Act, and (ii) the tender of such shares
complies with Rule 14e-4. Our acceptance for payment of shares tendered pursuant
to the offer will constitute a binding agreement between the tendering
shareholder and us upon the terms and subject to the conditions of the offer.
Proper Form of Documentation. All questions as to the form of
documents, the number of shares to be accepted and the validity, eligibility,
including time of receipt, and acceptance for payment of any tender of shares
will be determined by us, in our sole discretion, which determination shall be
final and binding on all parties. We reserve the absolute right to reject any or
all tenders of shares that we determine are not in proper form or the acceptance
for payment of, or payment for, shares that may, in the opinion of our counsel,
be unlawful. We also reserve the absolute right to waive any defect or
irregularity in any tender of any particular shares, except any defect or
irregularity that may, in the opinion of our counsel be unlawful. None of
-15-
the representatives of the Company, the depositary or any other person is or
will be under any duty to give notice of any defect or irregularity in tenders,
nor shall any of them incur any liability for failure to give any such notice.
Proper Delivery to Depositary. Certificates for shares together with a
properly completed Letter of Transmittal or, in the case of a book-entry
transfer, an agent's message, and any other documents required by the Letter of
Transmittal, must be delivered to Continental Stock Transfer & Trust Company and
not to us. Any such documents delivered to us will not be forwarded to
Continental Stock Transfer & Trust Company and therefore will not be deemed to
be properly tendered.
SECTION 3. WITHDRAWAL RIGHTS
Withdrawal of Tendered Shares. Tenders of shares made pursuant to the
offer may be withdrawn at any time prior to the expiration date. Thereafter,
tenders are irrevocable, except that they may be withdrawn after the expiration
of 40 business days from the commencement of the offer, unless previously
accepted for payment by us as provided in this Offer to Purchase. If we extend
the period of time during which the offer is open, are delayed in purchasing
shares or are unable to purchase shares pursuant to the offer for any reason,
then, without prejudice to our rights under the offer, the depositary may, on
behalf of us, retain all shares tendered, and the shares may not be withdrawn
except as otherwise provided in this Section 3, subject to Rule 13e-4(f)(5)
under the Exchange Act, which provides that the issuer making the tender offer
shall either pay the consideration offered or return the tendered securities
promptly after the termination or withdrawal of the tender offer.
Withdrawal of Shares Held in Physical Form. Tenders of shares made
pursuant to the offer may not be withdrawn after the expiration date, except
that they may be withdrawn after the expiration of 40 business days from the
commencement of the offer, unless accepted for payment by us as provided in this
offer. For a withdrawal to be effective prior to that time, a shareholder of
shares held in physical form must provide a written, telegraphic or facsimile
transmission notice of withdrawal to the depositary at its address set forth in
the Letter of Transmittal before the expiration date, which notice must contain:
(A) the name of the person who tendered the shares; (B) a description of the
shares to be withdrawn; (C) the certificate numbers shown on the particular
certificates evidencing the shares; (D) the signature of the shareholder
executed in the same manner as the original signature on the Letter of
Transmittal, including any signature guarantee, if such original signature was
guaranteed; and (E) if the shares are held by a new beneficial owner, evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of the shares. A purported notice of withdrawal
which lacks any of the required information will not be an effective withdrawal
of a tender previously made.
Withdrawal of Shares Held with the Book-Entry Transfer Facility.
Tenders of shares made pursuant to the offer may not be withdrawn after the
expiration date, except that they may be withdrawn after the expiration of 40
business days from the commencement of the offer,
-16-
unless accepted for payment by us as provided in this offer. For a withdrawal to
be effective prior to that time, a shareholder of shares held with the
book-entry transfer facility must (i) call his or her broker and instruct the
broker to withdraw the tender of shares by debiting the depositary's account at
the book-entry transfer facility for all shares to be withdrawn; and (ii)
instruct the broker to provide a written, telegraphic or facsimile transmission
notice of withdrawal to the depositary on or before the expiration date. The
notice of withdrawal shall contain (A) the name of the person who tendered the
shares; (B) a description of the shares to be withdrawn; and (C) if the shares
are held by a new beneficial owner, evidence satisfactory to us that the person
withdrawing the tender has succeeded to the beneficial ownership of the shares.
A purported notice of withdrawal which lacks any of the required information
will not be an effective withdrawal of a tender previously made.
Rescission of Withdrawals Not Permitted. Any permitted withdrawals of
tenders of shares may not be rescinded, and any shares so withdrawn will
thereafter be deemed not validly tendered for purposes of the offer; provided,
however, that withdrawn shares may be re-tendered prior to the expiration date
by following the procedures for tendering.
Form and Validity of Withdrawals. All questions as to the form and
validity, including time of receipt, of any notice of withdrawal will be
determined by us, in our sole discretion, which determination shall be final and
binding on all parties. None of the Company, the depositary or any other person
is or will be under any duty to give notification of any defect or irregularity
in any notice of withdrawal or incur any liability for failure to give any such
notification.
SECTION 4. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE
Prompt Acceptance and Payment. Upon the terms and subject to the
conditions of the offer and as promptly as practicable after the expiration
date, we will, subject to the proration provisions of the offer, accept for
payment and pay the purchase price for shares validly tendered and not
withdrawn. Thereafter, payment for all shares validly tendered on or prior to
the expiration date and accepted for payment pursuant to the offer will be made
by the depositary by check as promptly as practicable. In all cases, payment for
shares accepted for payment pursuant to the offer will be made only after timely
receipt by the depositary of certificates for such shares, or of a timely
confirmation of a book-entry transfer of such shares into the depositary's
account at the book-entry transfer facility, a properly completed and duly
executed Letter of Transmittal or a manually signed copy thereof, with any
required signature guarantees, or in the case of a book-entry delivery an
agent's message, and any other required documents.
Deemed Acceptance. For purposes of the offer, we shall be deemed to
have accepted for payment, and thereby purchased, subject to proration, shares
that are validly tendered and not withdrawn, if and when we give oral our
written notice to the depositary of our acceptance for payment of the shares. In
the event of proration, we will determine the proration factor and pay for those
tendered shares accepted for payment as soon as practicable after the expiration
date.
-17-
However, if proration is necessary, we do not expect to be able to commence
payment for the shares purchased as a result of such proration until
approximately seven business days after the expiration date. We will pay the
cash price for shares that we have purchased pursuant to the offer by depositing
the aggregate purchase price therefor with the depositary. The depositary will
act as agent for tendering shareholders for the purpose of receiving payment
from us and transmitting payment to tendering shareholders. Under no
circumstances will interest be paid on amounts to be paid to tendering
shareholders, regardless of any delay in making such payment.
Return of Certificates Not Purchased. Certificates for all shares not
purchased, including shares not purchased because of proration, will be
returned, or, in the case of shares tendered by book-entry transfer, the shares
will be credited to an account maintained with the book-entry transfer facility
by the participant therein who so delivered the shares, as promptly as
practicable following the expiration date without expense to the tendering
shareholder.
Possible Payment Delay. Payment for shares may be delayed in the event
of difficulty in determining the number of shares properly tendered or if
proration is required. See Section 1. In addition, if certain events occur, we
may not be obligated to purchase shares pursuant to the offer. See Section 5.
Required Federal Income Tax Withholding. Any tendering shareholder or
other payee who fails to complete fully and sign the substitute Form W-9
included in the Letter of Transmittal, or, in the case of a foreign individual,
a Form W-8, may be subject to required federal income tax withholding of 30% of
the gross proceeds paid to such shareholder or other payee pursuant to the
offer. See Section 2.
SECTION 5. CONDITIONS OF THE OFFER
Change of Circumstances. Notwithstanding any other provision of the
offer, we will not be required to accept for payment or pay for any shares
tendered, and we may terminate or amend and may postpone, subject to the
requirements of the Exchange Act for prompt payment for or return of shares
tendered, the acceptance for payment of shares tendered, if at any time after
September 27, 2002 and at or before the time when we have accepted for payment
all shares validly tendered, any of the following shall have occurred:
(a) there shall have been threatened, instituted or pending any
action or proceeding by any government or governmental,
regulatory or administrative agency or authority or tribunal
or any other person, domestic or foreign, or before any court,
authority, agency or tribunal that (i) challenges the
acquisition of shares pursuant to the offer or otherwise in
any manner relates to or affects the offer or (ii) in our
reasonable judgment, could materially and adversely affect the
business, condition, financial or other, income, operations or
prospects of the Company and our subsidiaries, taken as a
whole, or otherwise materially impair in any way the
contemplated future conduct of the business of the Company or
any of our subsidiaries or materially impair the offer's
contemplated benefits to us;
-18-
(b) there shall have been any action threatened, pending or taken,
or approval withheld, or any statute, rule, regulation,
judgment, order or injunction threatened, proposed, sought,
promulgated, enacted, entered, amended, enforced or deemed to
be applicable to the offer or the Company or any of our
subsidiaries, by any legislative body, court, authority,
agency or tribunal which, in our sole judgment, would or might
directly or indirectly (i) make the acceptance for payment of,
or payment for, some or all of the shares illegal or otherwise
restrict or prohibit consummation of the offer, (ii) delay or
restrict our ability or render us unable to accept for payment
or pay for some or all of the shares, (iii) materially impair
the contemplated benefits of the offer to the Company or (iv)
materially affect the business, condition, financial or other,
income, operations or prospects of the Company and our
subsidiaries, taken as a whole, or otherwise materially impair
in any way the contemplated future conduct of the business of
the Company or any of our subsidiaries;
(c) it shall have been publicly disclosed or we shall have learned
that (i) any person or "group," within the meaning of Section
13(d)(3) of the Exchange Act, has acquired or proposes to
acquire beneficial ownership of more than 5% of the
outstanding shares whether through the acquisition of stock,
the formation of a group, the grant of any option or right, or
otherwise, other than as disclosed in a Schedule 13D or 13G on
file with the SEC on the date of this Offer to Purchase or
(ii) any person or group that on or prior to the date of this
Offer to Purchase had filed a Schedule 13D or 13G with the SEC
thereafter shall have acquired or shall propose to acquire,
whether through the acquisition of stock, the formation of a
group, the grant of any option or right, or otherwise,
beneficial ownership of additional shares representing 2% or
more of the outstanding shares;
(d) there shall have occurred (i) any general suspension of
trading in, or limitation on prices for, securities on any
national securities exchange or in the over-the-counter
market, (ii) any significant decline in the market price of
the shares or in the general level of market prices of equity
securities in the United States or abroad, (iii) any change in
the general political, market, economic or financial condition
in the United States or abroad that could have a material
adverse effect on our business, condition, financial or
otherwise, income, operations, prospects or ability to obtain
financing generally or the trading in the shares, (iv) the
declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any
limitation on, or any event which, in our reasonable judgment,
might affect the extension of credit by lending institutions
in the United States, (v) the commencement of a war, armed
hostilities or other international or national calamity
directly or indirectly involving the United States, or (vi) in
the case of any of the foregoing existing at the time of the
commencement of the offer, in our reasonable judgment, a
material acceleration or worsening thereof;
-19-
(e) a tender or exchange offer with respect to some or all of the
shares, other than the offer, or a merger, acquisition or
other business combination proposal for the Company, shall
have been proposed, announced or made by another person or
group, within the meaning of Section 13(d) (3) of the Exchange
Act;
(f) there shall have occurred any event or events that has
resulted, or may in our reasonable judgment result, directly
or indirectly, in an actual or threatened change in the
business, condition, financial or other, income, operations,
stock ownership or prospects of the Company and our
subsidiaries; or
(g) we shall not have procured the financing for the purchase
described in Section 8 and shall not have procured alternative
financing on the same or similar terms;
and, in our reasonable judgment, such event or events make it undesirable or
inadvisable to proceed with the offer or with such acceptance for payment.
No Waiver. The foregoing conditions are for the reasonable benefit of
the Company and may be asserted by us regardless of the circumstances, including
any action or inaction by us, giving rise to any of these conditions, and any
such condition may be waived by us, in whole or in part, at any time and from
time to time in our reasonable discretion. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of the
right and each of these rights shall be deemed an ongoing right which may be
asserted at any time and from time to time. Any determination by us concerning
the events described above will be final and binding on all parties.
Additional Conditions Related to Public Trading of Non-Tendered Shares.
Acceptance of shares validly tendered in the offer is subject to the conditions
that, as of the expiration date, and after giving proforma effect to the
acceptance of shares validly tendered, the Company would in its good faith
reasonable judgment: (1) continue to have at least 300 shareholders of record,
determined as provided in Exchange Act Rule 12g5-1; (2) continue to be quoted on
the Nasdaq Small Cap Market, and (3) the Company's purchase of shares would not
otherwise constitute a "going private" transaction for purposes of Rule 13e-3 of
the Securities and Exchange Commission. This condition may not be waived.
Expiration Date. The Exchange Act requires that all conditions to the
offer must be satisfied or waived before the expiration date.
SECTION 6. PRICE RANGE OF SHARES
Our Common Stock is traded on the Nasdaq Small Cap Market under the
symbol BEAR. As of August 16, 2002, we had outstanding 6,844,001 shares of
Common Stock, $.05 par value. The following table sets forth the high and low
sales prices for shares of our Common Stock during the past two years. Our
fiscal year end is June 30.
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- -------------------------------------------------------------------------------
Quarter Ended High Low Average Daily
Trading Volume
- ----------------------------------------- -------------------------------------
June 30, 2002 $3.76 $3.20 4,299
- ----------------------------------------- -------------------------------------
March 31, 2002 $3.95 $3.10 6,281
- ----------------------------------------- -------------------------------------
December 31, 2001 $3.60 $2.62 3,260
- ----------------------------------------- -------------------------------------
September 30, 2001 $3.97 $2.50 7,348
- ----------------------------------------- -------------------------------------
June 30, 2001 $4.00 $3.50 4,556
- ----------------------------------------- -------------------------------------
March 31, 2001 $4.13 $2.63 14,637
- ----------------------------------------- -------------------------------------
December 31, 2000 $4.66 $3.66 21,025
- ----------------------------------------- -------------------------------------
September 30, 2000 $3.88 $2.88 9,273
- ----------------------------------------- -------------------------------------
June 30, 2000 $3.75 $2.56 11,059
- ----------------------------------------- -------------------------------------
On August 16, 2002, the closing price of the shares on the Nasdaq Small
Cap Market was $2.30 per share. We urge you to obtain current market quotations
for the shares.
SECTION 7. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
Purpose of the Offer. We are making the offer for two reasons. First,
we want to offer our shareholders the opportunity to sell some or all of their
shares on a basis that is more favorable than probably could be achieved in the
public market. As indicated in Section 6 above, the number of shares we are
offering to purchase is approximately six hundred ninety-eight (698) times the
average daily trading volume of our shares traded on the Nasdaq Small Cap Market
during the three months ended June 30, 2002, and the price we are offering to
pay represents a premium of fifty-two percent (52)% to the closing price on
August 16, 2002. We do not believe that the public market could absorb nearly
the quantity of shares that we are offering to purchase. Even if buyers could be
found for such a large number of shares, the prevailing market prices would, in
all likelihood, decline significantly. We believe that the offer allows our
shareholders to achieve liquidity that would not otherwise be available. It also
allows them to effect a sale of their shares without incurring the usual
commission and other transaction costs associated with open-market sales.
Second, we believe that the offer represents a good investment
opportunity for the Company and its continuing shareholders. If the Company had
repurchased 3,000,000 shares for the price we are offering as of June 30, 2001,
and had financed this purchase on the terms contemplated by the loan commitments
we have received for the offer, our pro forma earnings per share for the fiscal
year ended June 30, 2001 would have been $.42 per share, as compared to the $.29
per share actually reported for that year. Management does not believe that a
similar increase in earnings per share could be achieved by spending the
estimated $10,750,000 aggregate of purchase price and transaction costs in the
offer for acquisitions or other expansion measures. Accordingly, we believe that
the offer represents the best use of the Company's available cash and borrowing
capacity to increase earnings per share and overall value for our continuing
shareholders.
-21-
Each shareholder must make his, her or its own decision as to the value
of the shares and relative benefits, in light of his, her or its own financial
position and investment objectives, of tendering in the offer or retaining the
shares for the possibility of increased value in the future. The Board of
Directors has approved this offer but makes no recommendation as to whether any
shareholder should tender his, her or its shares. Directors, officers and
employees of the Company who own shares may participate in the offer on the same
basis as our other shareholders. We have been advised that some of the directors
of the Company intend to tender shares pursuant to the offer, but none of our
officers intend to tender. We do not presently know the intentions of affiliates
of the Company who are not directors or officers.
Effect of the Offer. Shareholders who do not tender their shares
pursuant to the offer and shareholders who otherwise retain an equity interest
in the Company as a result of a partial tender of shares or a proration pursuant
to Section 1 of the Offer to Purchase will continue to be owners of the Company
with the attendant risks and rewards associated with owning the equity
securities of the Company. Shareholders who determine not to accept the offer
will realize a proportionate increase in their relative equity interest in the
Company and, thus, in the Company's earnings and assets, subject to any risks
resulting from our purchase of shares and our ability to issue additional equity
securities in the future. In addition, to the extent the purchase of shares
pursuant to the offer results in a reduction of the number of shareholders of
record, our costs for services to shareholders may be reduced.
If fewer than 3,000,000 shares are purchased pursuant to the offer, we
may repurchase the remainder of the shares on the open market, in privately
negotiated transactions or otherwise. In the future, we may determine to
purchase additional shares on the open market, in privately negotiated
transactions, through one or more tender offers or otherwise. Any purchases may
be on the same terms as, or on terms which are more or less favorable to
shareholders than, the terms of the offer. However, Rule 13e-4 under the
Exchange Act prohibits us and our affiliates from purchasing any shares, other
than pursuant to the offer, until at least ten business days after the
expiration date. Any future purchases of shares by the Company would depend on
many factors, including the market price of the shares, our business and
financial position, and general economic and market conditions.
Shares we acquire pursuant to the offer will be restored to the status
of authorized and unissued shares and will be available for us to issue without
further shareholder action, except as required by applicable law, for purposes
including, but not limited to, the acquisition of other businesses, the raising
of additional capital for use in our business and the satisfaction of
obligations under existing or future employee benefit plans. We have no current
plans for reissuance of the shares repurchased pursuant to the offer.
SECTION 8. SOURCE AND AMOUNT OF FUNDS
Assuming that the Company purchases 3,000,000 shares pursuant to the
offer at a purchase price of $3.50 per share, net to the sellers in cash, the
Company expects the maximum
-22-
aggregate cost, including all fees and expenses applicable to the offer, to be
approximately $10,750,000. The Company anticipates that its cash on hand plus
the proceeds of loans from Banknorth N.A. (the "Bank"), described below, will be
sufficient to pay those costs.
The Company has obtained a commitment (the "Commitment") from the Bank
to finance performance of the Company's payment obligations under the offer. The
Bank has agreed to provide two loan facilities: a term loan in an amount of up
to $3,000,000 which may be used for the repurchase of the Company's capital
stock ("Term Loan") and a revolving line of credit in an amount up to $4,000,000
for working capital needs ("Revolving Line of Credit"). The terms and conditions
of the Commitment are described below.
Term Loan. The Term Loan in an amount up to $3,000,000 shall be paid by
monthly payments of principal and interest over a term of five years. Before the
closing on the Term Loan, the Company will have the option to select one of
three interest rate options, as follows: (i) (A) a variable rate equal to either
the Bank's prime rate (adjusted daily) or (B) LIBOR (for 30, 60, 90 day interest
periods) plus 2.20% (except that no more than three LIBOR based borrowings would
be allowed at any one time) or (ii) a variable rate equal to the Bank's prime
rate minus 0.5% or (iii) a fixed rate per annum to be determined at the closing
of the loan equal to the 2.5 year term Federal Home Loan Bank rate plus 2.0%. If
a variable rate option is selected, we may at any time convert to a fixed rate
based upon the available Federal Home Loan Bank rate with a term most closely
approximating one-half the remaining term of the loan, plus 2.0% The Term Loan
will be subject to a prepayment fee during the first two years of the loan in
the event the Company prepays the loan as a result of refinancing with another
lender or a sale of the Company. The Term Loan will also be subject to a
prepayment fee during the term of the loan if a fixed rate is chosen and
prepayment is made or the LIBOR option is selected and prepayment is made before
the expiration of the applicable LIBOR interest period. In addition, the Company
will be required to make prepayments each year in an amount equal to 25% of the
Company's excess cash flow for the year for which the prepayment is calculated,
until certain loan to value ratios are met by the Company. The Term Loan is
subject to an origination fee of 0.25% of the principal amount.
Revolving Line of Credit. The Revolving Line of Credit in the amount of
$4,000,000 shall be repaid on its second anniversary, at which time all
principal outstanding plus accrued and unpaid interest shall be due. During the
term of the Revolving Line of Credit, the Company shall make monthly payments of
interest on the outstanding principal balance. The interest rate will be
variable. Before the closing on the Revolving Line of Credit, the Company will
have the option to select one of two variable interest rate options, as follows:
(i) (A) the Bank's prime rate (adjusted daily) or (B) LIBOR (for 30, 60, 90 day
interest periods) plus 2.20% (except that no more than three LIBOR based
borrowings will be allowed at any one time) or (ii) the Bank's prime rate minus
0.5% The Revolving Line of Credit will be subject to prepayment fees similar to
those applicable to the Term Loan. The Revolving Line of Credit is also subject
to an origination fee of 0.25% of the principal amount.
-23-
Other Terms and Conditions. The Term Loan and the Revolving Line of
Credit are to be secured by all assets of the Company. Under the Commitment, the
Company would be required to adhere to the following financial covenants:
Minimum Fixed Charge Coverage: Measured quarterly on a trailing
four-quarter basis, the Company would be required to realize a minimum Fixed
Charge Coverage Ratio level equal to or greater than the following: for all
fiscal quarters through June 30, 2004, 1.15 to 1; for the fiscal quarter ending
September 30, 2004 and for each fiscal quarter thereafter, 1.75:1. The term
"Fixed Charge Coverage" would be defined to mean EBITDA minus taxes minus
un-financed capital expenditures minus dividends all divided by the sum of
interest expense plus principal payments on all long-term debt and capital
leases. "EBITDA" would be defined to mean, with respect to any fiscal period,
the consolidated net earnings (or loss), minus extraordinary gains, plus
interest expense, income taxes, and depreciation and amortization, for such
period, and less any investment income and so called "other income" all
determined in accordance with generally accepted accounting principles,
consistently applied.
Maximum Total Funded Debt to EBITDA: The ratio of Total Funded Debt to
EBITDA, measured quarterly, could not exceed the following ratio levels: for all
fiscal quarters through June 30, 2003, 2.6 to 1; for all fiscal quarter
commencing September 30, 2003 through June 30, 2004, 2.0 to 1; for all fiscal
quarters beginning September 30, 2004 and ending June 30, 2005, 1.5 to 1; and
for the fiscal quarter ending September 30, 2005 and for all fiscal quarters
thereafter, 1.0 to 1.
Minimum Tangible Net Worth: The Company would be required to maintain a
minimum tangible net worth of not less than $3,000,000 at all times. Beginning
with the fiscal year period ending June 30, 2003, that minimum amount would be
increased by 50% of net income on an annual basis but would not be reduced by
net losses (if any).
Maximum Capital Expenditures: The Company would not be permitted to
make any capital expenditures in excess of $1,750,000 in the aggregate in any
year.
In addition to these covenants, the loan agreements would contain
prohibitions against assuming liabilities or obligations of others, restrictions
of dividend payments, limitations on the purchase or sale of equipment and fixed
assets, limitations on compensation of officers, limitations on selling assets,
restrictions concerning acquisitions, consolidations, mergers, investments or
similar transactions, and restrictions on changes in the Company's
organizational structure or its management. The Company would also be required
to obtain a life insurance policy on its Chief Executive Officer in the amount
of $3,500,000 and to comply with other covenants typical for a transaction of
this nature.
Conditions Precedent to the Financing. The Bank's obligation to close
on the financing described in the Commitment is subject to the condition that
there be no material adverse change in the financial condition or business
operations of the Company or its landlord, URSA, or in any of the assets of the
Company or URSA, or in government regulation or monetary policy. If there
-24-
is any material adverse change in the Company's business operations, assets or
prospects for performance before the closing on the financing, the Bank may
terminate the Commitment.
Risk Factors. If we are unable to close the financing transaction with
the Bank, then we will attempt to procure alternative financing for the purchase
of the shares. There can be no assurance that we will be able to find
alternative financing on acceptable terms or at all. We intend to repay the loan
from the Bank through cash flow from operations.
SECTION 9. INFORMATION CONCERNING THE VERMONT TEDDY BEAR CO.
For information concerning the Company, we urge you to review the
Company's Form 10-KSB for the fiscal year ended June 30, 2001 filed with the
Securities and Exchange Commission ("SEC") on September 28, 2001, and the
Company's Form 10-Q for the period ended March 31, 2002, filed with the SEC on
May 15, 2002. These reports are available for inspection and copying at the
public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 or 233 Broadway, New York, New York 10279
or CitiCorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies can also be obtained at a prescribed rate from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, or free of charge at the Web site maintained by the SEC at
http://www.sec.gov.
SECTION 10. INTEREST OF DIRECTORS AND OFFICERS; TRANSACTIONS AND ARRANGEMENTS
CONCERNING SHARES; PARTICIPATION IN OFFER BY PREFERRED SHAREHOLDERS AND HOLDERS
OF VESTED STOCK OPTIONS
Shares Beneficially Owned by Directors and Officers. As of August 16,
2002, the Company had 6,844,001 shares of common stock issued and outstanding,
and had reserved 1,463,439 shares for issuance upon exercise of outstanding
stock options, 193,111 shares for issuance upon exercise of outstanding
warrants, and 657,087 shares for issuance upon conversion of outstanding shares
of preferred stock. The 3,000,000 shares that we are offering to purchase
represent approximately 32.8% of the outstanding shares on a fully diluted
basis. As of August 16, 2002, our directors and executive officers as a group
beneficially owned an aggregate of 1,713,175 shares (including 689,895 shares
issuable upon exercise of options granted under our stock option plans) and
owned 69 shares of Series C Convertible Preferred Stock convertible into 657,087
shares of common stock, representing approximately 25.9% of the outstanding
common shares on a fully diluted basis. Directors, officers and employees of the
Company who own shares may participate in the offer on the same basis as our
other shareholders. We have been advised that while none of our officers intend
to tender shares, the following directors intend to tender the number of shares
indicated below pursuant to the offer:
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Name of Director Number of Shares
-----------------------------------------------------------------------
Robert Hamilton 23,000
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Barbara Johnson 13,416
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Fred Marks 50,000
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Spencer Putnam 30,000
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Thomas Shepherd/William Woo 525,000/1/
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- ----------
/1/ This figure represents the number of common shares issuable upon conversion
of the 55.13 shares of Series C convertible preferred stock held by
investors represented by TSG Equity Partners, LLC, of which Mr. Shepherd is
chairman and Mr. Woo is managing director.
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The following table sets forth as of August 16, 2002, the beneficial
ownership of shares of all classes of the Company's capital stock for persons
who are executive officers or directors of the Company:
Name and Address of Number of Percentage of Class
Beneficial Owner Title of Class Shares Owned Outstanding
---------------- -------------- ------------ -----------
Jason Bacon Common 62,669 /2/ 0.9
2970 Lime Kiln Road
New Haven, VT 05472
Maxine Brandenburg Common -
131 Northshore Drive - /3/
Burlington, VT 05401
Robert Hamilton Common -
7205 West Lake Street - /4/
Addison, VT 05491
Barbara Johnson Common -
97 Valley Road - /5/
Larchmont, NY 10538
Fred Marks Common 535,500/6/ 7.8
2531 N. Placita de La Lantana
Tucson, AZ 85749-9182
Spencer C. Putnam Common 126,500/7/ 1.8
575 Morgan Horsefarm Road
Weybridge, VT 05753
Elisabeth B. Robert Common 298,460/8/ 4.4
c/o The Vermont Teddy Bear Co., Inc.
6655 Shelburne Road, P.O. Box 965
Shelburne, VT 05482
- ----------
/2/ This figure includes 500 shares held of record by Mr. Bacon's wife, as to
which beneficial ownership is disclaimed. This figure does not include
options granted under the Company's Non-Employee Director Stock Option Plan
to Mr. Bacon to purchase 41,000 shares of the Company's Common Stock, which
have fully vested.
/3/ This figure does not include options granted under the Company's
Non-Employee Director Stock Option Plan to Ms. Brandenburg to purchase
11,167 shares of the Company's Common Stock, which have fully vested.
/4/ This figure does not include options granted under the Company's
Non-Employee Director Stock Option Plan to Mr. Hamilton to purchase 23,000
shares of the Company's Common Stock, which have fully vested.
/5/ This figure does not include options granted under the Company's
Non-Employee Director Stock Option Plan to Ms. Johnson to purchase 26,883
shares of the Company's Common Stock, which have fully vested.
/6/ This figure includes 500 shares held of record by Mr. Mark's wife, as to
which beneficial ownership is disclaimed. This figure does not include
options granted under the Company's Incentive Stock Option Plan to Mr.
Marks to purchase 3,000 shares of the Company's Common Stock which have
fully vested.
/7/ This figure includes 40,000 shares held of record by Mr. Putnam's children.
This figure also includes 4,500 shares held of record by Mr. Putnam's wife,
as to which beneficial ownership is disclaimed. This figure does not
include options granted under the Company's Incentive Stock Option Plan to
Mr. Putnam to purchase 67,332 shares of the Company's Common which have
fully vested.
/8/ This figure includes 2,000 shares held of record by Ms. Robert's minor
children. This figure does not include options granted under the Company's
Incentive Stock Option Plan to Ms. Robert to purchase 411,250 shares of the
Company's Common Stock, which have fully vested.
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Thomas R. Shepherd Preferred C 69/9/,/10/ 100.0
c/o TSG Equity Partners, LLC
636 Great Road
Stow, MA 01775
William Woo Preferred C 60.489/9/ 87.7
c/o TSG Equity Partners, LLC
636 Great Road
Stow, MA 01775
Mark Sleeper Common 100/11/ -
15 Booth Woods
Vergennes, VT 05491
Irene Steiner Common 51/12/
240 Shelburne Road
Burlington, VT 05401
Common 1,023,280 15.0
Directors and Officers as a Group Preferred C 69 100.0
The following table presents information, as of August 16, 2002, about all
classes of the Company's stock owned by those persons known by the Company to
own beneficially five percent or more of the shares of any voting class of the
Company's stock outstanding, other than the directors and officers listed in the
prior table:
- ----------
/9/ Mr. Shepherd's beneficial ownership consists of (i) 7.131 shares of Series
C Preferred, convertible into 67,908 shares of Common Stock and (ii) 1.38
shares of Series C Preferred, convertible into 13,142 shares of Common
Stock directly and beneficially owned by Mr. T. Nathanael Shepherd for
which TSG Equity Partners, LLC has the authority to vote.
/10/ Mr. Shepherd and Mr. Woo's beneficial ownership consists of (i) .149 shares
of Series C Preferred, convertible into 1,419 shares of Common Stock
directly and beneficially owned by TSG Equity Partners, LLC, of which Mr.
Shepherd is the Chairman and Mr. Woo is Managing Director; (ii) 14.341
shares of Series C Preferred, convertible into 136,569 shares of Common
Stock, and warrants to purchase 103,058 shares of Common Stock beneficially
owned by The Shepherd Venture Fund I, of which TSG Equity Partners, LLC is
its sole general partner; (iii) 46 shares of Series C Preferred,
convertible into 438,058 shares of Common Stock beneficially owned
collectively by the Investors for which TSG Equity Partners, LLC has been
appointed as irrevocable proxy; Mr. Shepherd, as Chairman and Mr. Woo as
Managing Director of TSG Equity Partners, LLC, have the right to vote all
of the shares in clauses (i) through (iii) in connection with any matter
requiring a vote of the stockholders of the Company. Mr. Shepherd and Mr.
Woo disclaim beneficial ownership of the shares held by the Investors (as
defined in footnote 13 below).
/11/ This figure includes 100 shares owned by Mr. Sleeper's wife, as to which
beneficial ownership is disclaimed. It does not include options granted
under the Company's Incentive Stock Option Plan to Mr. Sleeper to purchase
12,875 shares of the Company's Common Stock, of which 10,375 shares have
vested.
/12/ This figure includes 51 shares owned by Ms. Steiner's husband, as to which
beneficial ownership is disclaimed. It does not include options to purchase
93,438 shares granted under the Company's Incentive Stock Option Plan, of
which 13,438 shares have vested.
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Number of Percentage of
Name and Address Shares Class
Of Beneficial Owner Title of Class Owned/12/ Outstanding
------------------- -------------- --------- -----------
Malcolm Candlish Preferred C 3.45 5.0
465 Wall's Way
Osprey, FL 34229
Edwin Kozlowski Preferred C 4.60 6.7
6960 Greensward Road
New Albany, OH 43054
David Lucas Preferred C 8.625 12.5
Bonita Bay Executive Center
3451 Bonita Bay Boulevard, Suite 202
Bonita Springs, FL 34132
Joan Martin Common 1,840,975 26.8
34 Woodbury Hill
Woodbury, CT 06798
Ronald Rossetti Preferred C 4.60 6.7
120 Oaks Plantation
St. Helena, SC 29920
T. Nathanael Shepherd Preferred C 61.87/13/ 89.7
c/o TSG Equity Partners, LLC
636 Great Road
Stow, MA 01775
William Watts Preferred C 3.45 5.0
BW Consulting
510 Hegnenway
Sewickley, PA 15143
- ------------------------------------------------
Directors and Officers Intending to Tender. As described above, we have
been informed that six (6) directors of the Company intend to tender
approximately 641,416 shares in the offer, which includes 525,000 common shares
issuable upon conversion of 55.13 shares of Series C Convertible Preferred
Stock.
- ----------
/12/ Each of the listed holders of Series C Preferred listed here (the
"Investors") has appointed The Shepherd Group LLC as his, her, or its
irrevocable proxy to act for and vote on behalf of him, her, or it with
respect to the Series C Preferred Stock and Warrants in connection with any
matter requiring a vote of the stockholders of the Company. Mr. T.
Nathanael Shepherd and Mr. Thomas R. Shepherd are considered to be the
beneficial owners of the Series C Stock held by the Investors, although
they disclaim beneficial ownership
/13/ Mr. Shepherd's beneficial ownership consists of (i) 1.38 shares of Series C
Preferred, convertible into 13,142 shares of Common Stock directly and
beneficially owned by Mr. Shepherd; (ii) .149 shares of Series C Preferred,
convertible into 1,419 shares of Common Stock, directly and beneficially
owned by TSG Equity Partners, LLC, of which Mr. Shepherd is the President;
(iii) 14.341 shares of Series C Preferred, convertible into 136,569 shares
of Common Stock beneficially owned by The Shepherd Venture Fund I, of which
TSG Equity Partners, LLC is its sole general partner; and (iv) 46 shares of
Series C Preferred, convertible into 438,058 shares of Common Stock by
other Investors in the Company's Series C Preferred (the "Investors") for
which TSG Equity Partners, LLC has been appointed as irrevocable proxy. Mr.
Shepherd, as President of TSG Equity Partners, LLC, has the right to vote
all of the shares in clauses (ii) through (iv) in connection with any
matter requiring a vote of the stockholders of the Company. Mr. Shepherd
disclaims beneficial ownership of the shares held by the Investors.
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Transactions by Directors and Officers During Past 60 Days. Based on
our records and information provided to us by our directors and officers, during
the past 60 days there have not been any transactions in the Company's
securities by the Company or by any of the Company's officers and directors.
Arrangements by Directors and Officers Concerning Shares. Except as
described in this offer and except for outstanding options to purchase shares
granted from to time to time over recent years to certain directors and
employees, including executive officers of the Company pursuant to our Incentive
Stock Option Plan and our Non-Employee Directors' Stock Option Plan, and except
as set forth below and otherwise described herein, neither the Company nor, to
the best of our knowledge, any of our affiliates, directors or executive
officers, or any of the directors or executive officers of any of its
affiliates, is a party to any contract, arrangement, understanding or
relationship with any other person relating, directly or indirectly, to any
securities of the Company 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, guaranties of loans, guaranties against loss or the giving or withholding
of proxies, consents or authorizations.
The Company has issued two warrants to URSA (VT) QRS 12-30, Inc.
("URSA") to purchase a total of 193,111 shares of the common stock in connection
with the Company's sale-leaseback transaction and consent to a prior equity
financing by the Company. In consideration of certain rent concessions to be
made by URSA in connection with the refinancing of its mortgage on our property,
we have agreed to extend the expiration date on the URSA warrants to the date
which is seven years after the date of the closing of that financing.
No Plans or Proposal of Directors and Officers. Except as disclosed in
this offer, the Company, its directors and executive officers have no current
plans or proposals which relate to or would result in:
o an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its
subsidiaries;
o a purchase, sale or transfer of a material amount of assets of the
Company or any of our subsidiaries;
o any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company;
o any change in the present board of directors or management of the
Company;
o any other material change in the Company's corporate structure or
business;
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o a class of equity security of the Company ceasing to be authorized for
quotation on an automated quotation system operated by a national
securities association;
o a class of equity securities of the Company becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the
Exchange Act;
o the suspension of the Company's obligation to file reports pursuant to
Section 15(d) of the Exchange Act;
o the acquisition by any person of additional securities of the Company
or the disposition of securities of the Company; or
o any change in our certificate of incorporation or bylaws or any actions
which may impede the acquisition of control of the Company by any
person.
Recommended Consultation with Tax Advisor. Each holder of Preferred
Stock and each holder of Options should consult his, her or its own tax advisor
as to the particular United States federal income tax consequences to the holder
of tendering Preferred Stock or Options on an "as converted" or "as exercised"
basis and the applicability and effect of any state, local or foreign tax laws
and recent changes in applicable tax laws. The tax discussion in Section 13 is
included for general information only for the holders of Common Stock and may
not apply to Preferred Stock or Options or shares of Common Stock acquired in
connection with the exercise of Options or pursuant to other compensation
arrangements with the Company.
SECTION 11. SELECTED FINANCIAL INFORMATION
Financial Statement Information. The Company files annual, quarterly
and special reports and other information with the SEC. The Company filed a
statement relating to this tender offer on Schedule TO with the SEC. The
Schedule TO and such reports and other information contain additional
information about the Company. For information on how to retrieve these filings,
please see Section 9.
Each person to whom a copy of this Offer to Purchase has been delivered
may obtain, upon request, a copy of any or all of the documents that we have
filed with the SEC, other than the exhibits to such documents. You may request
these documents by writing or telephoning the information agent for the offer at
the following address or phone number: D.F. King & Co., Inc., 77 Water Street,
New York, NY 10005, telephone (212) 269-5550 (call collect) or toll free (800)
431-9642. The information relating to the Company contained in this Offer to
Purchase does not purport to be comprehensive and should be read together with
the information contained in the documents incorporated or deemed to be
incorporated by reference.
If you would like to request documents from the Information Agent,
please do so by September 25, 2002 to receive them before the expiration of the
offer.
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Ratio of Earnings to Fixed Charges and Book Value Per Share.
The selected data presented below are derived from audited consolidated
financial statements as of and for the years ended June 30, 2001 and 2000. The
selected data as of and for the nine months ended March 31, 2002 and 2001 are
derived from the unaudited consolidated financial statements of the Company. In
the opinion of management, such unaudited data reflect all adjustments,
consisting only of normally recurring adjustments, necessary to fairly present
the Company's financial position and results of operations for the periods
presented.
- --------------------------------------------------------------------------------------
Unaudited
Nine Months Ended
March 31
- --------------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------------
Consolidated Statements of Income Data
- --------------------------------------------------------------------------------------
Revenues 27,836,123 27,094,197
- --------------------------------------------------------------------------------------
Income before Income Taxes 2,897,450 3,266,601
- --------------------------------------------------------------------------------------
Net Income to Common Shareholders 1,746,310 1,893,408
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Ratio of Earnings to Fixed Charges 4.79 5.68
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Basic Income Per Shares .26 .28
- --------------------------------------------------------------------------------------
Diluted Income Per Share .21 .22
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Basic Weighted Average Shares
Outstanding 6,836,738 6,771,199
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Diluted Weighted Average Shares
Outstanding 8,283,211 8,668,658
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Consolidated Balance Sheet Data
- --------------------------------------------------------------------------------------
Working Capital 12,057,975 9,745,312
- --------------------------------------------------------------------------------------
Total Assets 27,166,085 26,463,156
- --------------------------------------------------------------------------------------
Stockholders' Equity 15,395,462 13,796,672
- --------------------------------------------------------------------------------------
Book Value Per Share 2.05 1.82
- --------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------
Audited Years Ended
June 30
- --------------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------------
Consolidated Statements of Income Data
- --------------------------------------------------------------------------------------
Revenues 37,255,267 33,332,473
- --------------------------------------------------------------------------------------
Income before Income Taxes 4,205,333 3,965,175
- --------------------------------------------------------------------------------------
Net Income to Common Shareholders 2,431,903 3,677,683
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Ratio of Earnings to Fixed Charges 5.51 7.02
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Basic Income Per Shares .36 .57
- --------------------------------------------------------------------------------------
Diluted Income Per Share .29 .45
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Basic Weighted Average Shares
Outstanding 6,786,121 6,415,825
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Diluted Weighted Average Shares
Outstanding 8,667,192 8,395,463
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Consolidated Balance Sheet Data
- --------------------------------------------------------------------------------------
Working Capital 10,947,544 8,602,820
- --------------------------------------------------------------------------------------
Total Assets 24,961,786 22,347,845
- --------------------------------------------------------------------------------------
Stockholders' Equity 14,353,729 11,752,794
- --------------------------------------------------------------------------------------
Book Value Per Share 1.90 1.53
- --------------------------------------------------------------------------------------
SECTION 12. LEGAL MATTERS; REGULATORY APPROVALS
We are not aware of any license or regulatory permit that appears to be
material to our business that might be adversely affected by our acquisition of
shares as contemplated herein or of any approval or other action by, or any
filing with, any government or governmental, administrative or regulatory
authority or agency, domestic or foreign, that would be required for the
acquisition or ownership of shares by the Company as contemplated herein. Should
any approval or other action be required, we presently contemplate that the
approval or other action will be sought. We are unable to predict whether we may
determine that we are required to delay the acceptance for payment of, or
payment for, shares tendered pursuant to this offer pending the outcome of any
such matter. There can be no assurance that any approval or other action, if
needed, would be obtained, or would be obtained without substantial conditions,
or that the failure to obtain any approval or other action might not result in
adverse consequences to the Company's business. Our obligations under the offer
to accept for payment, and pay for, shares is subject to the conditions
specified in "Section 5. Conditions of the Offer."
SECTION 13. FEDERAL INCOME TAX CONSEQUENCES
General. The following is a discussion of the material United States
federal income tax consequences to shareholders with respect to a sale of shares
pursuant to the offer. The discussion is based upon the provisions of the
Internal Revenue Code of 1986, as amended, Treasury Regulations, Internal
Revenue Service rulings and judicial decisions, all in effect as of the date
hereof and all of which are subject to change, possibly with retroactive effect,
by subsequent legislative, judicial or administrative action. The discussion
does not address all
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aspects of United States federal income taxation that may be relevant to a
particular shareholder in light of the shareholder's particular circumstances or
to certain types of holders subject to special treatment under the United States
federal income tax laws, such as certain financial institutions, tax-exempt
organizations, life insurance companies, dealers in securities or currencies,
employee benefit plans or shareholders holding the shares as part of a
conversion transaction, as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes. In addition, the discussion below does
not consider the effect of any foreign, state, local or other tax laws that may
be applicable to particular shareholders. The discussion assumes that the shares
are held as "capital assets" within the meaning of Section 1221 of the Internal
revenue Code. We have neither requested nor obtained a written opinion of
counsel or a ruling from the IRS with respect to the tax matters discussed
below.
Recommended Consultation with Own Tax Advisor. Each shareholder should
consult his, her or its own tax advisor as to the particular United States
federal income tax consequences to that shareholder of tendering shares pursuant
to the offer and the applicability and effect of any state, local or foreign tax
laws and recent changes in applicable tax laws.
Characterization of the Surrender of Shares Pursuant to the Offer. The
surrender of shares by a shareholder to the Company pursuant to the offer will
be a taxable transaction for United States federal income tax purposes and may
also be a taxable transaction under applicable state, local and foreign tax
laws. The United States federal income tax consequences to a shareholder may
vary depending upon the shareholder's particular facts and circumstances. Under
section 302 of the Internal Revenue Code, the surrender of shares by a
shareholder to the Company pursuant to the offer will be treated as a "sale or
exchange" of shares for United States federal income tax purposes, rather than
as a distribution by the Company with respect to the shares held by the
tendering shareholder, if the distribution received by the shareholder upon
surrender (i) is "substantially disproportionate" with respect to the
shareholder, (ii) results in a "complete redemption" of the shareholder's
interest in the Company, or (iii) is "not essentially equivalent to a dividend"
with respect to the shareholder, each as described below.
If any of the above three tests is satisfied, and the surrender of the
shares is therefore treated as a "sale or exchange" of shares for United States
federal income tax purposes, the tendering shareholder will recognize gain or
loss equal to the difference between the amount of the distribution received by
the shareholder and the shareholder's tax basis in the shares surrendered
pursuant to the offer. Any gain or loss will be capital gain or loss, and will
be long term capital gain or loss if the shares have been held for more than one
year.
If none of the above three tests is satisfied, the tendering
shareholder will be treated as having received a distribution by the Company
with respect to the shareholder's shares in an amount equal to the distribution
received by the shareholder pursuant to the offer. The distribution will be
treated as a dividend taxable as ordinary income to the extent of the Company's
current or accumulated earnings and profits for tax purposes. The amount of the
distribution in excess of the Company's current or accumulated earnings and
profits will be treated as a return of the shareholder's tax basis in the
shares, and then as gain from the sale or
-33-
exchange of the shares. If a shareholder is treated as having received a
distribution by the Company with respect to his or her shares, the shareholder's
tax basis in his or her remaining shares will generally be adjusted to take into
account the shareholder's return of basis in the shares tendered.
Constructive Ownership. In determining whether any of the three tests
under Section 302 of the Internal Revenue Code is satisfied, shareholders must
take into account not only the shares that are actually owned by the
shareholder, but also shares that are constructively owned by the shareholder
within the meaning of Section 318 of the Internal Revenue Code. Under Section
318 of the Code, a shareholder may constructively own shares actually owned, and
in some cases constructively owned, by certain related individuals or entities
and shares that the shareholder has the right to acquire by exercise of an
option or by conversion.
Effect of Proration. Contemporaneous dispositions or acquisitions of
shares by a shareholder or related individuals or entities may be deemed to be
part of a single integrated transaction and may be taken into account in
determining whether any of the three tests under Section 302 of the Internal
Revenue Code has been satisfied. Each shareholder should be aware that because
proration may occur in the offer, even if all the shares actually and
constructively owned by a shareholder are tendered pursuant to the offer, fewer
than all of these shares may be purchased by the Company. Thus, proration may
affect whether the surrender by a shareholder pursuant to the offer will meet
any of the three tests under Section 302 of the Code.
Section 302 Tests. The receipt of cash by a shareholder will be
"substantially disproportionate" if the percentage of the outstanding shares in
the Company actually and constructively owned by the shareholder immediately
following the surrender of shares pursuant to the offer is less than 80% of the
percentage of the outstanding shares actually and constructively owned by the
shareholder immediately before the sale of shares pursuant to the offer.
Shareholders should consult their tax advisors with respect to the application
of the "substantially disproportionate" test to their particular situation.
The receipt of cash by a shareholder will be a "complete redemption" if
either (i) the shareholder owns no shares in the Company either actually or
constructively immediately after the shares are surrendered pursuant to the
offer, or (ii) the shareholder actually owns no shares in the Company
immediately after the surrender of shares pursuant to the offer and, with
respect to shares constructively owned by the shareholder immediately after the
offer, the shareholder is eligible to waive, and effectively waives,
constructive ownership of all such shares under procedures described in Section
302(c) of the Internal Revenue Code. A director, officer or employee of the
Company is not eligible to waive constructive ownership under the procedures
described in Section 302(c) of the Internal Revenue Code.
Even if the receipt of cash by a shareholder fails to satisfy the
"substantially disproportionate" test or the "complete redemption" test, a
shareholder may nevertheless satisfy the "not essentially equivalent to a
dividend" test if the shareholder's surrender of shares pursuant to the offer
results in a "meaningful reduction" in the shareholder's interest in the
Company. Whether
-34-
the receipt of cash by a shareholder will be "not essentially equivalent to a
dividend" will depend upon the individual shareholder's facts and circumstances.
The IRS has indicated in published rulings that even a small reduction in the
proportionate interest of a small minority shareholder in a publicly held
corporation who exercises no control over corporate affairs may constitute such
a "meaningful reduction." Shareholders expecting to rely upon the "not
essentially equivalent to a dividend" test should consult their own tax advisors
as to its application in their particular situation.
Corporate Shareholder Dividend Treatment. If a sale of shares by a
shareholder that is itself a corporation is treated as a dividend, the corporate
shareholder may be entitled to claim a deduction equal to 70% of the dividend
under Section 243 of the Internal Revenue Code, subject to applicable
limitations. Corporate shareholders should, however, consider the effect of
Section 246(c) of the Internal Revenue Code, which disallows the 70%
dividends-received deduction with respect to stock that is held for 45 days or
less. For this purpose, the length of time a taxpayer is deemed to have held
stock may be reduced by periods during which the taxpayer's risk of loss with
respect to the stock is diminished by reason of the existence of certain options
or other transactions. Moreover, under Section 246A of the Internal Revenue
Code, if a corporate shareholder has incurred indebtedness directly attributable
to an investment in shares, the 70% dividends-received deduction may be reduced.
In addition, amounts received by a corporate shareholder pursuant to
the offer that are treated as a dividend may constitute an" extraordinary
dividend" under Section 1059 of the Internal Revenue Code. The "extraordinary
dividend" rules of the Internal Revenue Code are highly complicated.
Accordingly, any corporate shareholder that might have a dividend as a result of
the sale of shares pursuant to the offer should review the "extraordinary
dividend" rules to determine the applicability and impact of such rules to it.
Additional Tax Considerations. The distinction between long-term
capital gains and ordinary income is relevant because, in general, individuals
currently are subject to taxation at a reduced rate on their "net capital gain,"
which is the excess of net long-term capital gains over net short-term capital
losses, for the year. Tax rates on long-term capital gain for individual
shareholders vary depending on the shareholders' income and holding period for
the shares. In particular, reduced tax rates, currently 20 percent or less,
apply to gains recognized by an individual from the sale of capital assets held
for more than one year.
Shareholders are urged to consult their own tax advisors regarding any
possible impact on their obligation to make estimated tax payments as a result
of the recognition of any capital gain, or the receipt of any ordinary income,
caused by the surrender of any shares to the Company pursuant to the offer.
Foreign Shareholders. The Company will withhold United States federal
income tax at a rate of 30% from gross proceeds paid pursuant to the offer to a
foreign shareholder or his agent, unless we determine that a reduced rate of
withholding is applicable pursuant to a tax treaty or that an exemption from
withholding is applicable because the gross proceeds are effectively
-35-
connected with the conduct of a trade or business by the foreign shareholder
within the United States. For this purpose, a foreign shareholder is any
shareholder that is not (i) a citizen or resident of the United States, (ii) a
domestic corporation or domestic partnership, (iii) an estate the income of
which from sources without the United States is effectively connected with the
conduct of a trade or business within the United States, or (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. Without definite
knowledge to the contrary, we will determine whether a shareholder is a foreign
shareholder by reference to the shareholder's address. A foreign shareholder may
be eligible to file for a refund of the tax or a portion of the tax if the
shareholder (i) meets the "complete redemption," "substantially
disproportionate" or "not essentially equivalent to a dividend" tests described
above, (ii) is entitled to a reduced rate of withholding pursuant to a treaty
and the Company withheld at a higher rate, or (iii) is otherwise able to
establish that no tax or a reduced amount of tax was due. In order to claim an
exemption from withholding on the ground that gross proceeds paid pursuant to
the offer are effectively connected with the conduct of a trade or business by a
foreign shareholder within the United states or that the foreign shareholder is
entitled to the benefits of a tax treaty, the foreign shareholder must deliver
to the depositary, or other person who is otherwise required to withhold United
States tax, a properly executed statement claiming such exemption or benefits.
These statements may be obtained from the depositary. Foreign shareholders are
urged to consult their own tax advisors regarding the application of United
States federal income tax withholding, including eligibility for a withholding
tax reduction or exemption and the refund procedures.
Backup Withholding. See Section 4 with respect to the application of
the United States federal income tax backup withholding.
Consult Your Tax Advisor. The tax discussion set forth above is
included for general information only and may not apply to shares acquired in
connection with the exercise of stock options or pursuant to other compensation
arrangements with the Company. The tax consequences of a sale pursuant to the
offer may vary depending upon, among other things, the particular circumstances
of the tendering shareholder. No information is provided herein as to the state,
local or foreign tax consequences of the transaction contemplated by the offer.
Shareholders are urged to consult their own tax advisors to determine the
particular federal, state, local and foreign tax consequences to them of
tendering shares pursuant to the offer and the effect of the stock ownership
attribution rules described above.
SECTION 14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS
Right to Extend, Amend or Terminate Offer. We expressly reserve the
right, in our sole discretion and at anytime or from time to time, to extend the
period of time during which the offer is open by giving oral or written notice
of the extension to the depositary and making a public announcement thereof or
by mailing written notice to each shareholder. However, we have no current
intent to extend the offer. During any extension, all shares previously tendered
will remain subject to the offer, except to the extent that shares may be
withdrawn as set forth in
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Section 3. We also expressly reserve the right, in our sole discretion, (i) to
terminate the offer and not accept for payment any shares not previously
accepted for payment or, subject to Rule 13e-4(f)(5) under the Exchange Act
which requires us either to pay the consideration offered or to return the
shares tendered promptly after the termination or withdrawal of the offer, to
postpone payment for shares upon the occurrence of any of the conditions
specified in Section 5 hereof, by giving oral or written notice of such
termination to the depositary and making a public announcement thereof and (ii)
at any time, or from time to time, to amend the offer in any respect. Amendments
to the offer may be effected by public announcement or by a subsequent mailing
to the shareholders. The Company shall have no obligation, except as otherwise
required by applicable law, to publish, advertise or otherwise communicate any
extension, termination or amendment, other than by making a public announcement
or a subsequent mailing to all shareholders. Material changes to information
previously provided to holders of the shares in this offer or in documents
furnished subsequent thereto will be disseminated to holders of shares in
compliance with Rule 13e-4(e)(3) promulgated by the SEC under the exchange Act.
Material Changes to Offer. If the Company materially changes the terms
of the offer or the information concerning the offer, or if we waive a material
condition of the offer, we will extend the offer to the extent required by
Rule13e-4 under the Exchange Act. The minimum period during which an offer must
remain open following material changes in the terms of the offer or information
concerning the offer, other than a change in price or change in percentage of
securities sought, depends on the facts and circumstances, including the
relative materiality of the change or information. In a published release, the
SEC has stated that in its view, an offer should remain open for a minimum of
five business days from the date that notice of a material change is first
published, sent or given. Under Rule 13e-4(f)(1) of the Exchange Act, the offer
will continue or be extended for at least ten business days from the time the
Company publishes, sends or gives to holders of shares a notice that we will (a)
increase or decrease the price we will pay for shares or (b) increase, except
for an increase not exceeding 2% of the outstanding shares, or decrease the
number of shares we seek.
SECTION 15. SOLICITATION FEES AND EXPENSES
The Company has retained Continental Stock Transfer & Trust Company as
depositary in connection with the offer. The depositary will receive reasonable
and customary compensation for its services and also will be reimbursed for
certain out-of-pocket expenses. The Company has agreed to indemnify the
depositary against certain liabilities, including certain liabilities under the
federal securities laws, in connection with the offer. The depositary has not
been retained to make solicitations or recommendations in connection with the
offer.
The Company has retained D.F. King & Co., Inc. as information agent in
connection with the offer. The information agent will receive reasonable and
customary compensation for its services and also will be reimbursed for certain
out-of-pocket expenses. The Company has agreed to indemnify the information
agent against certain liabilities including liabilities under the federal
securities laws, in connection with the offer. The information agent has not
been retained to make solicitations or recommendations in connection with the
offer. The information agent
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may contact shareholders by mail, telephone, facsimile, or other electronic
means and may request brokers, dealers, and other nominee shareholders to
forward materials and information concerning the offer to the beneficial owners.
We will not pay any fees or commissions to any broker, dealer or other
person for soliciting tenders of shares pursuant to the offer. The Company will,
upon request, reimburse brokers, dealers, commercial banks and trust companies
for reasonable and customary handling and mailing expenses incurred by them in
forwarding materials relating to the offer to their customers.
SECTION 16. WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION
Additional copies of this Offer to Purchase, the Letter of Transmittal
or other tender offer materials may be obtained from the information agent, D.F.
King & Co., Inc., at 77 Water Street, New York, NY 10005, Tel. (212) 269-5550
(collect) or (800) 431-9642 (toll free) and will be furnished at the Company's
expense. Any questions concerning tender procedures may be directed to the
depositary at the address and telephone number set forth in the Letter of
Transmittal or their local broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the tender offer.
The Company has also filed an Issuer Tender Offer Statement on Schedule
TO with the SEC, which includes certain additional information relating to the
offer. Such statement and other information may be inspected and copied at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such information may also be accessed electronically by
means of the SEC's web page on the Internet (http://www.sec.gov).
SECTION 17. MISCELLANEOUS
The offer is being made to all holders of shares. The Company is not
aware of any state where the making of the offer is prohibited by administrative
or judicial action pursuant to a valid state statute. If we become aware of any
valid state statute prohibiting the making of the offer, we will make a good
faith effort to comply with the statute. If, after such good faith effort, we
cannot comply with the statute, the offer will not be made to, nor will tenders
be accepted from or on behalf of, holders of shares in that state.
No person has been authorized to make any recommendation on behalf of
the Company as to whether shareholders should tender shares pursuant to the
offer. No person has been authorized to give any information or to make any
representations in connection with the offer other than those contained in this
Offer to Purchase or in the related Letter of Transmittal. If given or made, the
recommendation and the other information and representations must not be relied
upon as having been authorized by the Company.
August 21, 2002 THE VERMONT TEDDY BEAR CO., INC.
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