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EXHIBIT 99(A)(1)
OFFER TO PURCHASE FOR CASH
UP TO 1,600,000 SHARES OF COMMON STOCK
OF
DSI TOYS, INC.
AT
$4.38 NET PER SHARE
BY
MVII, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS EXTENDED.
THIS OFFER IS BEING MADE PURSUANT TO THE TERMS OF A STOCK PURCHASE AND SALE
AGREEMENT DATED APRIL 15, 1999 (THE "STOCK PURCHASE AGREEMENT"), BY AND BETWEEN
DSI TOYS, INC., A TEXAS CORPORATION (THE "COMPANY"), AND MVII, LLC, A LIMITED
LIABILITY COMPANY FORMED UNDER THE LAWS OF THE STATE OF CALIFORNIA (THE
"PURCHASER"). UPON CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THE STOCK
PURCHASE AGREEMENT, INCLUDING THE OFFER, THE PURCHASER WILL BE THE RECORD AND
BENEFICIAL OWNER OF APPROXIMATELY FORTY-EIGHT PERCENT (48%) OF THE TOTAL NUMBER
OF SHARES OF THE COMPANY'S COMMON STOCK THEN OUTSTANDING (ASSUMING THAT NO OTHER
SHARES OF COMMON STOCK ARE ISSUED). FOLLOWING CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED BY THE STOCK PURCHASE AGREEMENT, THE PURCHASER'S DESIGNEES WILL
CONSTITUTE A MAJORITY OF THE COMPANY'S BOARD OF DIRECTORS AND THE PURCHASER WILL
CONTROL THE COMPANY. THE PURCHASER HAS ENTERED INTO FIVE (5) SIDE LETTER
AGREEMENTS, EACH DATED APRIL 15, 1999 (THE "SIDE LETTER AGREEMENTS"), WITH
CERTAIN MANAGEMENT SHAREHOLDERS OF THE COMPANY AND A LIMITED PARTNERSHIP
CONTROLLED BY A MANAGEMENT SHAREHOLDER OF THE COMPANY (THE "MANAGEMENT
SHAREHOLDERS"), WHO BENEFICIALLY OWN IN THE AGGREGATE 1,721,693 SHARES. PURSUANT
TO THE SIDE LETTER AGREEMENTS, THE MANAGEMENT SHAREHOLDERS HAVE AGREED, AMONG
OTHER THINGS, TO TENDER INTO THE OFFER SUCH NUMBER OF SHARES OWNED BY THEM IN
THE EVENT THE MINIMUM TENDER CONDITION IS NOT MET AS OF THE INITIAL SCHEDULED
EXPIRATION DATE OF THE OFFER, SUCH THAT THE MINIMUM TENDER CONDITION WILL HAVE
BEEN SATISFIED. THE SIDE LETTER AGREEMENTS DO NOT LIMIT THE NUMBER OF SHARES
THAT MAY BE TENDERED BY THE MANAGEMENT SHAREHOLDERS INTO THE OFFER. THE TENDER
BY THE MANAGEMENT SHAREHOLDERS OF ALL OF THEIR SHARES ALONE WILL CAUSE THE
MINIMUM TENDER CONDITION TO BE SATISFIED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
1,600,000 SHARES (THE "MINIMUM TENDER CONDITION"). THE OFFER IS ALSO CONDITIONED
UPON RECEIPT BY THE PURCHASER OF CERTAIN REGULATORY APPROVALS AND THE
SATISFACTION OF CERTAIN OTHER TERMS AND CONDITIONS. SEE SECTION 14.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE STOCK PURCHASE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER. THE
BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER IS IN THE BEST
INTERESTS OF THE COMPANY'S SHAREHOLDERS AND RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES INTO THE OFFER. THE SHARES
ARE LISTED FOR TRADING ON THE NASDAQ SMALL CAP MARKET UNDER THE SYMBOL "DSIT."
SEE SECTION 6.
THE PURCHASER, THE COMPANY, AND THE MANAGEMENT SHAREHOLDERS HAVE ENTERED
INTO A SHAREHOLDERS' AND VOTING AGREEMENT DATED APRIL 15, 1999 (THE
"SHAREHOLDERS' AGREEMENT"), PURSUANT TO WHICH THE MANAGEMENT SHAREHOLDERS HAVE
APPOINTED THE PURCHASER AS THEIR PROXY AND AUTHORIZED THE PURCHASER TO VOTE
THEIR SHARES ON ALL COMPANY-RELATED MATTERS SUBJECT TO A SHAREHOLDERS VOTE,
SUBJECT TO CERTAIN EXCEPTIONS, CONDITIONED UPON AND EFFECTIVE AS OF THE DATE OF
THE SECOND CLOSING (AS DEFINED HEREIN). IN THE EVENT THE MANAGEMENT SHAREHOLDERS
DO NOT TENDER ANY OF THEIR SHARES INTO THE OFFER AND THE MINIMUM TENDER
CONDITION IS OTHERWISE MET, UPON CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
BY THE STOCK PURCHASE AGREEMENT, INCLUDING THE OFFER, THE PURCHASER WILL
BENEFICIALLY OWN UP TO SIXTY-EIGHT PERCENT (68%) OF THE TOTAL NUMBER OF THE
SHARES OF THE COMPANY'S COMMON STOCK THEN OUTSTANDING (ASSUMING THAT NO OTHER
SHARES OF COMMON STOCK ARE ISSUED), BY VIRTUE OF ITS RIGHT TO VOTE SHARES OWNED
BY THE MANAGEMENT SHAREHOLDERS. THE PURCHASER HAS BEEN ADVISED BY THE COMPANY
THAT, TO THE BEST OF THE COMPANY'S KNOWLEDGE, ALL OF THE MANAGEMENT SHAREHOLDERS
CURRENTLY INTEND TO TENDER SHARES OWNED BY THEM INTO THIS OFFER.
IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
Shares (as defined herein) should either (1) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in the
Letter of Transmittal and mail or deliver it and any other required documents to
the Depositary and either deliver the certificate(s) representing such Shares to
the Depositary along with the Letter of Transmittal or tender such Shares
pursuant to the procedure for book-entry transfer set forth in Section 3 of this
Offer to Purchase prior to the expiration of the Offer, or (2) request such
shareholder's broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for such shareholder. A shareholder whose Shares are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such broker, dealer, commercial bank, trust company
or other nominee if such shareholder desires to tender such Shares.
A shareholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available or who cannot comply with
the procedures for book-entry transfer on a timely basis, may tender such Shares
by following the procedure for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent, at its addresses and telephone numbers set forth on the back cover of
this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter
of Transmittal, the Notice of Guaranteed Delivery and all other related
materials may be obtained from the Information Agent or from brokers, dealers,
commercial banks and trust companies, and will be furnished promptly at the
Purchaser's expense.
------------------------
The Dealer Manager for the Offer is: The Information Agent for the Offer is:
[SOUTHWEST SECURITIES LOGO] [MACKENZIE PARTNERS LOGO]
0000 Xxx Xxxxxx, Xxxxx 0000 000 Xxxxx Xxxxxx
Xxxxxx, Xxxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
0-000-000-0000 (call toll free) (000) 000-0000 (call collect)
or
Call toll free: 000-000-0000
April 21, 1999
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TABLE OF CONTENTS
PAGE
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INTRODUCTION................................................ 3
THE OFFER................................................... 6
1. Terms of the Offer.................................... 6
2. Acceptance for Payment and Payment for Shares......... 8
3. Procedure for Tendering Shares........................ 9
4. Withdrawal Rights..................................... 12
5. Certain Federal Income Tax Consequences............... 13
6. Price Range of the Shares; Dividends.................. 14
7. Possible Effects of the Offer on the Market for the
Shares; Stock Quotation; Exchange Act Registration;
Margin Regulations..................................... 14
8. Certain Information Concerning the Company............ 15
9. Certain Information Concerning the Purchaser and Xx.
Xxxxxx................................................. 19
10. Source and Amount of Funds............................ 21
11. Background of the Offer............................... 21
12. Purpose of the Offer; Plans for the Company; The Stock
Purchase Agreement; The Side Letter Agreements; The
Shareholders' and Voting Agreement; The Registration
Rights Agreement; and The Consulting Agreement........ 22
13. Dividends and Distributions........................... 31
14. Certain Conditions of the Offer....................... 31
15. Certain Legal Matters................................. 33
16. Fees and Expenses..................................... 35
17. Miscellaneous......................................... 35
ANNEX A -- INFORMATION CONCERNING THE SOLE MANAGER AND THE
EXECUTIVE OFFICERS OF THE PURCHASER (INCLUDING XX.
XXXXXX)...................................................
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TO ALL HOLDERS OF COMMON STOCK OF DSI TOYS, INC.:
INTRODUCTION
MVII, LLC (the "Purchaser"), a limited liability company formed under the
laws of the State of California and controlled by X. Xxxxxx (Xxx) Xxxxxx, an
individual residing in San Luis Obispo, California ("Xx. Xxxxxx"), hereby offers
to purchase up to 1,600,000 shares of Common Stock, par value $0.01 per share
(the "Common Stock" or "Shares"), of DSI Toys, Inc., a Texas corporation (the
"Company"), at a purchase price of $4.38 per Share, net to the seller in cash,
without interest thereon (the "Offer Price"), upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which, together with any amendments or supplements hereto or
thereto, collectively constitute the "Offer"). The Offer is being made pursuant
to the terms of the Stock Purchase and Sale Agreement dated April 15, 1999, by
and between the Company and the Purchaser (the "Stock Purchase Agreement").
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE STOCK PURCHASE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER. THE
BOARD OF THE DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER IS IN THE
BEST INTERESTS OF THE SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS ACCEPT
THE OFFER AND TENDER THEIR SHARES INTO THE OFFER.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
1,600,000 SHARES (THE "MINIMUM TENDER CONDITION"). THE OFFER IS ALSO CONDITIONED
UPON RECEIPT BY THE PURCHASER OF CERTAIN REGULATORY APPROVALS AND THE
SATISFACTION OF CERTAIN OTHER TERMS AND CONDITIONS. SEE SECTION 14.
The Purchaser has entered into five (5) Side Letter Agreements, each dated
April 15, 1999 (the "Side Letter Agreements"), with certain management
shareholders of the Company and a limited partnership controlled by a management
shareholder of the Company (the "Management Shareholders"), who beneficially own
in the aggregate 1,721,693 Shares. Pursuant to the Side Letter Agreements, the
Management Shareholders have agreed, among other things, to tender into the
Offer such number of Shares owned by them in the event the Minimum Tender
Condition is not met as of the initial scheduled expiration date of the Offer,
such that the Minimum Tender Condition will have been satisfied. The Side Letter
Agreements do not limit the number of Shares that may be tendered by the
Management Shareholders. THE TENDER BY THE MANAGEMENT SHAREHOLDERS OF ALL OF
THEIR SHARES ALONE WILL CAUSE THE MINIMUM TENDER CONDITION TO BE SATISFIED.
The offer will expire at 5:00 p.m., New York City time, on Tuesday, May 25,
1999, unless extended.
Upon the terms and subject to the conditions of the Offer, the Purchaser
will purchase up to 1,600,000 shares, which Shares together with the Shares that
will be purchased by the Purchaser from the Company under the Stock Purchase
Agreement, will equal approximately forty-eight percent (48%) of the outstanding
shares (assuming that no other shares of Common Stock are issued). If more than
1,600,000 shares are validly tendered prior to the expiration of the Offer and
not properly withdrawn in accordance with Section 4, such Shares will be
accepted on a pro rata basis according to the number of Shares validly tendered
and not properly withdrawn by the expiration of the Offer (with appropriate
adjustments to avoid the purchase of fractional shares).
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Offer. For purposes hereof, the term "stock transfer taxes" does
not include any income tax that may be required to be paid by a tendering
shareholder due to such shareholder reporting the income from the contemplated
transaction. However, any tendering Shareholder or other payee who fails to
complete and sign the Substitute Form W-9 that is included in the Letter of
Transmittal may be subject to a required
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backup federal income tax withholding of thirty-one percent (31%) of the gross
proceeds payable to such shareholder or other payee pursuant to the Offer. See
Section 5. The Purchaser will pay all fees and expenses of Southwest Securities,
Inc., as Dealer Manager (in such capacity, the "Dealer Manager"), American Stock
Transfer & Trust Company, as Depositary (in such capacity, the "Depositary"),
and MacKenzie Partners, Inc., as Information Agent (in such capacity, the
"Information Agent"), incurred in connection with the Offer. For a description
of the fees and expenses to be paid by the Purchaser, see Section 16.
Pursuant to the terms of the Stock Purchase Agreement, the Purchaser has
purchased 566,038 shares (the "Initial Funding Shares") for an aggregate
purchase price of $1,200,000 and has agreed to commence the Offer. The Purchaser
has also agreed to purchase an additional 1,792,453 shares, subject to upward
adjustments not to exceed in the aggregate 140,000 shares (the "Second Funding
Shares" and together with the Initial Funding Shares, the "Common Stock
Acquisitions"), for an aggregate purchase price of $3,800,000. As a result of
its acquisition of the Initial Funding Shares, the Purchaser owns beneficially
and of record approximately nine percent (9%) of the outstanding Shares
(assuming that no other shares of Common Stock are issued).
The obligations of the Purchaser and the Company to consummate the sale of
the Second Funding Shares is subject to the satisfaction of certain conditions,
including approval by the Company's shareholders and the consummation of the
Offer, it being understood that the closing of the Second Funding Shares shall
occur simultaneously with and be conditioned upon the consummation of the Offer.
See Section 12.
In connection with the transactions contemplated by the Stock Purchase
Agreement, the Company, the Purchaser and the Management Shareholders have
entered into the Shareholders' and Voting Agreement dated as of April 15, 1999
(the "Shareholders' Agreement"), pursuant to which the Purchaser has a right of
first refusal with respect to sales of Shares by the Management Shareholders
under certain conditions, and the Management Shareholders have co-sale rights
with respect to sales of Shares by the Purchaser under certain conditions, among
other things. Pursuant to the terms of the Shareholders' Agreement, immediately
upon the closing of the sale of the Second Funding Shares (the "Second Closing")
and the consummation of the Offer, the Purchaser shall be entitled to designate
four (4) directors to serve on the Board of Directors of the Company.
Conditioned upon and effective as of the Second Closing, the parties to the
Shareholders' Agreement are required to vote the number of Shares they own for
the election of the individuals nominated by the Purchaser and the Management
Shareholders in accordance with the Shareholders' Agreement. In connection with
the Shareholders' Agreement, each of the Management Shareholders has executed an
irrevocable proxy that is conditioned upon and effective as of the Second
Closing appointing the Purchaser as proxy and authorizing the Purchaser to vote
such Management Shareholder's Shares for the election of directors and in all
other Company-related matters subject to a vote of shareholders, subject to
certain exceptions. In connection with the transactions contemplated by the
Stock Purchase Agreement, each of Messrs. Xxxxx X. Xxxxxx, Xxxxxxx X. Xxxxx,
Xxxx X. Xxxxxx, and Xxxxxxx X. Xxxxx will tender their resignations from the
Board of Directors of the Company effective as of the closing of the sale of the
Second Funding Shares.
The Company has informed the Purchaser that as of April 15, 1999, there
were 6,566,038 shares of Common Stock issued and outstanding. Upon consummation
of the Offer and the Common Stock Acquisitions, the Purchaser will beneficially
and of record own approximately forty-eight percent (48%) of the total number of
shares of the Common Stock then outstanding (assuming (i) there are upward
adjustments in the aggregate of 140,000 shares to the number of Second Funding
Shares, and (ii) no other Shares are issued), and the Purchaser's designees will
constitute a majority of the Company's Board of Directors. Xx. Xxxxxx is the
sole Manager, President and a controlling member of the Purchaser. Xx. Xxxxxx
currently beneficially and of record owns 140,000 shares. Upon consummation of
the transactions contemplated by the Stock Purchase Agreement, including the
Offer, Xx. Xxxxxx, through his control of the Purchaser, will beneficially own
fifty percent (50%) of the total number of Shares then outstanding (assuming (i)
there are upward adjustments in the aggregate of 140,000 shares to the number of
Second Funding Shares, and (ii) no other Shares are issued).
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In the event the Management Shareholders do not tender any Shares owned by
them into the Offer and the Minimum Tender Condition is otherwise met, there is
a possibility that, upon consummation of the transactions contemplated by the
Stock Purchase Agreement, including the Offer, the Purchaser will be the
beneficial owner of up to sixty-eight percent (68%), and Xxx Xxxxxx, through his
control of the Purchaser, will beneficially own up to seventy percent (70%), of
the total number of shares of Common Stock then outstanding (assuming (i) there
are upward adjustments in the aggregate of 140,000 shares to the number of
Second Funding Shares, and (ii) no other Shares are issued), by virtue of the
Purchaser's right to vote shares held by the Management Shareholders pursuant to
the Shareholders' Agreement and the irrevocable proxies. The Purchaser and Xx.
Xxxxxx have been advised by the Company that, to the best of the Company's
knowledge, all of the Management Shareholders currently intend to tender Shares
owned by them into the Offer.
The Purchaser, the Company, and the Management Shareholders have also
entered into a Registration Rights Agreement dated as of April 15, 1999 (the
"Registration Rights Agreement"), which grants the Purchaser certain demand, and
the Purchaser and the Management Shareholders certain incidental, registration
rights for the Shares owned by the Management Shareholders and acquired by the
Purchaser in the Common Stock Acquisitions. As a condition to the Purchaser's
obligation to purchase the Second Funding Shares, the Company and M. D. Xxxxx
("Xx. Xxxxx") will enter into a Consulting Agreement effective as of the date of
the Second Closing, pursuant to which Xx. Xxxxx shall cease to be an employee
and officer of the Company and shall provide consulting services to the Company
for a period ending on the third annual anniversary of the date of the Second
Closing.
Immediately following the consummation of the Offer and the closing of the
sale of the Second Funding Shares, the Company will remain a public company
subject to the informational requirements of the Exchange Act, and the Shares
are expected to continue to trade on the Nasdaq Small Cap Market ("Nasdaq").
Certain federal income tax consequences of the sale of the Shares pursuant
to the Offer are described in Section 5.
Chaffe & Associates, Inc., which was hired to provide financial advisory
services to the Company, has delivered to the Company's Board of Directors its
written opinion that the average price per share of Common Stock to be sold in
the Common Stock Acquisitions is fair to the Company's shareholders from a
financial point of view. Such opinion does not constitute a recommendation as to
whether or not any holder of Shares should tender such Shares in connection with
the Offer.
THIS OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING OF
THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WOULD BE MADE ONLY PURSUANT TO
SEPARATE PROXY MATERIALS COMPLYING WITH THE REQUIREMENTS OF SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
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THE OFFER
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and pay for up to 1,600,000
shares that are validly tendered on or prior to the Expiration Date and not
theretofore withdrawn as provided in Section 4. The term "Expiration Date" means
5:00 p.m., New York City time, on Tuesday, May 25, 1999, unless and until the
Purchaser, in its sole discretion (but subject to the terms of the Stock
Purchase Agreement), shall from time to time have extended the period of time
during which the Offer is open, in which event the term "Expiration Date" shall
mean the latest time and date at which the Offer, as so extended by the
Purchaser, shall expire.
If more than 1,600,000 shares are validly tendered prior to the Expiration
Date and not properly withdrawn, the Purchaser will, upon the terms and subject
to the conditions of the Offer, accept such Shares for payment on a pro rata
basis, with appropriate adjustments to avoid purchases of fractional Shares,
based upon the number of Shares validly tendered prior to the Expiration Date
and not properly withdrawn. If proration is required, because of the time
required to determine the precise number of Shares validly tendered and not
properly withdrawn, the Purchaser does not expect to announce the final results
of proration or to pay for any Shares immediately after the Expiration Date. The
Purchaser will announce the preliminary results of proration by press release as
soon as practicable following the Expiration Date, and expects to be able to
announce the final results of proration within eight (8) Nasdaq trading days
after the Expiration Date. Holders of Shares may obtain such preliminary
information from the Information Agent, and also may be able to obtain such
preliminary information from their brokers.
Pursuant to the Stock Purchase Agreement, the Purchaser has agreed that it
will not, except as otherwise required by law and as set forth in the Stock
Purchase Agreement, without the prior written consent of the Company, extend the
Offer, except that, without the consent of the Company, the Purchaser may extend
the Expiration Date of the Offer (i) in the event that at the Expiration Date
any condition to the Offer shall not have been satisfied or earlier waived; (ii)
as required by the Securities and Exchange Commission (the "Commission") rules
and regulations; or (iii) for any reason for up to twenty (20) business days
beyond the latest expiration date that would otherwise be permitted under (i) or
(ii). As used in this Offer to Purchase, "business day" has the meaning set
forth in Rule 14d-1 under the Exchange Act. The Purchaser confirms that its
right to delay payment for Shares that it has accepted for payment is limited to
Rule 14e-1(c) under the Exchange Act, which requires that a tender offeror pay
the consideration offered or return the tendered securities promptly after the
termination or withdrawal of a tender offer.
In addition, the Purchaser has agreed in the Stock Purchase Agreement that,
among other things, it will not, without the consent of the Company, (i) reduce
the number of Shares subject to the Offer, (ii) reduce the Offer Price or change
the form of consideration payable in the Offer, or (iii) impose conditions to
the Offer in addition to the conditions set forth in Section 14.
Subject to the terms of the Stock Purchase Agreement and the applicable
rules and regulations of the Commission, the Purchaser expressly reserves the
right, in its sole discretion, at any time and from time to time, and regardless
of whether or not any of the events or facts set forth in Section 14 hereof
shall have occurred or shall have been determined by the Purchaser to have
occurred, (i) to extend the period of time during which the Offer is open, and
thereby delay acceptance for payment of, and the payment for, any Shares, by
giving oral or written notice of such extension to the Depositary, and (ii) to
amend the Offer in any other respect by giving oral or written notice of such
amendment to the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE
OFFER PRICE FOR TENDERED SHARES, WHETHER OR NOT THE PURCHASER EXERCISES ITS
RIGHT TO EXTEND THE OFFER.
If, by 5:00 p.m., New York City time on Tuesday, May 25, 1999 (or any other
date or time then set as the Expiration Date), any or all conditions to the
Offer have not been satisfied or waived, the Purchaser reserves the right (but
shall not be obligated), subject to the terms and conditions contained in the
Stock Purchase Agreement and to the applicable rules and regulations of the
Commission, to (i) terminate the Offer and not
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accept for payment or pay for any Shares and return all tendered Shares to
tendering shareholders, (ii) waive all the unsatisfied conditions and, subject
to complying with the terms of the Stock Purchase Agreement and the applicable
rules and regulations of the Commission, accept for payment and pay for all
Shares validly tendered prior to the Expiration Date and not theretofore
properly withdrawn, (iii) extend the Offer and, subject to the right of
shareholders to withdraw Shares until the Expiration Date, retain the Shares
that have been tendered during the period or periods for which the Offer is
extended, or (iv) amend the Offer. In the event the Purchaser waives any of the
conditions set forth in Section 14, the Commission may, if the waiver is deemed
to constitute a material change to the information previously provided to the
shareholders, require that the Offer remain open for an additional period of
time and/or that the Purchaser disseminate information concerning such waiver.
There can be no assurance that the Purchaser will exercise its right to
extend the Offer. Any extension, waiver, amendment or termination will be
followed as promptly as practicable by public announcement. In the case of an
extension, Rule 14e-1(d) under the Exchange Act requires that the announcement
be issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date in accordance with the public
announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to
applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange
Act, which require that any material change in the information published, sent
or given to shareholders in connection with the Offer be promptly disseminated
to shareholders in a manner reasonably designed to inform shareholders of such
change) and without limiting the manner in which the Purchaser may choose to
make any public announcement, the Purchaser will not have any obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a press release to the Dow Xxxxx News Service.
If the Purchaser extends the Offer or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its acceptance for
payment of or payment for Shares or it is unable to pay for Shares pursuant to
the Offer for any reason, then, without prejudice to the Purchaser's rights
under the Offer, the Depositary may retain tendered Shares on behalf of the
Purchaser, and such Shares may not be withdrawn except to the extent tendering
shareholders are entitled to withdrawal rights as described in Section 4.
However, the ability of the Purchaser to delay the payment for Shares that the
Purchaser has accepted for payment is limited by Rule 14e-1(c) under the
Exchange Act.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including a waiver of the Minimum Tender Condition), the Purchaser will
disseminate additional tender offer materials and extend the Offer to the extent
required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. Such
rules generally provide that the minimum period during which a tender offer must
remain open following a material change in the terms of the tender offer or
information concerning the tender offer, other than a change in price or a
change in the percentage of securities sought, will depend upon the facts and
circumstances then existing, including the relative materiality of the changed
terms or information. In the Commission's view, an offer should generally remain
open for a minimum of ten (10) business days from the date a material change is
first published, sent or given to shareholders. With respect to a change in
price or a change in the percentage of securities sought, a minimum period of
ten (10) business days is generally required to allow for adequate dissemination
to shareholders.
Consummation of the Offer is conditioned upon satisfaction of the Minimum
Tender Condition, and other terms and conditions set forth in the Stock Purchase
Agreement, including the closing of the sale of the Second Funding Shares and
the expiration or termination of all waiting periods imposed by the Xxxx-Xxxxx-
Xxxxxx Antitrust Improvements Act of 1976, as amended, and the regulations
thereunder (the "HSR Act"). See Section 14. Subject to the terms and conditions
contained in the Stock Purchase Agreement, the Purchaser reserves the right (but
shall not be obligated) to waive any or all such conditions.
The Company has provided the Purchaser with the Company's shareholder list
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of Transmittal
and other relevant materials will be mailed by the Purchaser to record holders
of Shares, and will be furnished by the Purchaser to brokers, dealers,
commercial banks, trust companies and similar persons whose names, or the names
of whose nominees, appear on the shareholder lists or, if applicable, who
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are listed as participants in a clearing agency's security position listing, for
subsequent transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and will pay for up to
1,600,000 shares validly tendered prior to the Expiration Date and not properly
withdrawn in accordance with Section 4, as soon as practicable after the
Expiration Date. Any determination concerning the satisfaction or waiver of such
terms and conditions will be within the sole discretion of the Purchaser, and
such determination will be final and binding on all tendering shareholders. See
Sections 1 and 14. The Purchaser expressly reserves the right, in its sole
discretion, to delay acceptance for payment of, or payment for, Shares in order
to comply in whole or in part with any applicable law, including, without
limitation, the HSR Act. Any such delays will be effected in compliance with
Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's obligation to
pay for or return tendered Shares promptly after the termination or withdrawal
of the Offer).
Purchaser expects to file a Notification and Report Form with respect to
the Offer under the HSR Act as promptly as practicable following the
commencement of the Offer. The waiting period under the HSR Act with respect to
the Offer will expire at 11:59 p.m., New York City time, on the 15th day after
the date such form is filed (anticipated to be May 11, 1999, unless early
termination of the waiting period is granted). In addition, the Antitrust
Division of the Department of Justice (the "Antitrust Division") or the Federal
Trade Commission (the "FTC") may extend the waiting period by requesting
additional information or documentary material from the Purchaser. If such a
request is made, such waiting period will expire at 11:59 p.m., New York City
time, on the 10th day after substantial compliance by the Purchaser with such
request. See Section 15 hereof for additional information concerning the HSR Act
and the applicability of the antitrust laws to the Offer.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates for
such Shares or timely confirmation (a "Book-Entry Confirmation") of the
book-entry transfer of such Shares into the Depositary's account at The
Depository Trust Company (a "Book-Entry Transfer Facility") pursuant to the
procedures set forth in Section 3, (ii) a Letter of Transmittal (or manually
signed facsimile thereof), properly completed and duly executed, with any
required signature guarantees, or an Agent's Message (as defined below) in
connection with a book-entry transfer and (iii) any other documents required by
the Letter of Transmittal. The per Share consideration paid to any shareholder
pursuant to the Offer will be the highest per Share consideration paid to any
other shareholder pursuant to the Offer.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Purchaser may enforce such
agreement against such participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered to the Purchaser and
not withdrawn as, if and when the Purchaser gives oral or written notice to the
Depositary of the Purchaser's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering shareholders for the purpose of receiving payment from the Purchaser
and transmitting payment to tendering shareholders. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE
PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT.
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Upon the deposit of funds with the Depositary for the purpose of making
payments to tendering shareholders, the Purchaser's obligation to make such
payment shall be satisfied and tendering shareholders must thereafter look
solely to the Depositary for payment of amounts owed to them by reason of the
acceptance for payment of Shares pursuant to the Offer. The Purchaser will pay
any stock transfer taxes incident to the transfer to it of validly tendered
Shares, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, as well as any charges and expenses of the Depositary and the
Information Agent. For purposes hereof, the term "stock transfer taxes" does not
include any income tax that may be required to be paid by a tendering
shareholder due to such shareholder reporting the income from the contemplated
transaction.
If the Purchaser is delayed in its acceptance for payment of or payment for
Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer (but subject to compliance with Rule 14e-1(c) under the Exchange Act,
which requires that a tender offeror pay the consideration offered or return the
tendered securities promptly after the termination or withdrawal of a tender
offer), the Depositary may, nevertheless, on behalf of the Purchaser, retain
tendered Shares, and such Shares may not be withdrawn except to the extent
tendering shareholders are entitled to exercise, and duly exercise, withdrawal
rights as described in Section 4.
If any tendered Shares are not purchased pursuant to the Offer because of
an invalid tender, proration or otherwise, certificates for any such Shares will
be returned, without expense to the tendering shareholder (or, in the case of
Shares delivered by book-entry transfer of such Shares into the Depositary's
account at a Book-Entry Transfer Facility pursuant to the procedures set forth
in Section 3, such Shares will be credited to an account maintained at the
appropriate Book-Entry Transfer Facility), as promptly as practicable after the
expiration or termination of the Offer.
If, prior to the Expiration Date, the Purchaser increases the consideration
to be paid per Share pursuant to the Offer, the Purchaser will pay such
increased consideration for all such Shares purchased pursuant to the Offer,
whether or not such Shares were tendered prior to such increase in
consideration.
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to one or more direct or indirect wholly-owned
subsidiaries of the Purchaser, the right to purchase Shares tendered pursuant to
the Offer, but any such transfer or assignment will not relieve the Purchaser of
its obligations under the Offer and will in no way prejudice the rights of
tendering shareholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
3. PROCEDURE FOR TENDERING SHARES
Valid Tender. For Shares to be validly tendered pursuant to the Offer, a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof), together with any required signature guarantees, or an
Agent's Message in connection with a book-entry delivery of Shares, and any
other documents required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase prior to the Expiration Date. In addition, either (i) certificates for
tendered Shares must be received by the Depositary at one of such addresses
along with the Letter of Transmittal at one of such addresses or such Shares
must be tendered pursuant to the procedure for book-entry transfer set forth
below (and a Book-Entry Confirmation received by the Depositary), in each case
prior to the Expiration Date, or (ii) the tendering shareholder must comply with
the guaranteed delivery procedure set forth below.
Book-Entry Transfer. The Depositary will make a request to establish an
account with respect to the Shares at each Book-Entry Transfer Facility for
purposes of the Offer within two (2) business days after the date of this Offer
to Purchase. Any financial institution that is a participant in any of the
Book-Entry Transfer Facilities' systems may make book-entry delivery of Shares
by causing a Book-Entry Transfer Facility to transfer such Shares into the
Depositary's account at a Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for such transfer. However, although
delivery of Shares may be effected through book-entry at a Book-Entry Transfer
Facility, the Letter of Transmittal (or manually signed facsimile thereof),
properly completed and duly executed, with any required signature guarantees, or
an
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Agent's Message in connection with a book-entry transfer, and any other required
documents, must, in any case, be transmitted to, and received by, the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase
prior to the Expiration Date, or the tendering shareholder must comply with the
guaranteed delivery procedure described below. DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER
FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE
OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal if (i) the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this Section 3, includes any participant
in any of the Book-Entry Transfer Facilities' systems whose name appears on a
security position listing as the owner of the Shares) of Shares tendered
therewith and such registered holder has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal or (ii) such Shares are tendered for
the account of a bank, broker, dealer, credit union, savings association or
other entity that is a member in good standing of a recognized Medallion Program
approved by The Securities Transfer Association, Inc. or any other "Eligible
Guarantor Institution" as such term is defined in Rule 17Ad-15 under the
Exchange Act (such member, an "Eligible Institution"). In all other cases, all
signatures on the Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the
certificates for Shares are registered in the name of a person other than the
signer of the Letter of Transmittal, or if payment is to be made or certificates
for Shares not tendered or not accepted for payment are to be returned to a
person other than the registered holder of the certificates surrendered, the
tendered certificates must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name or names of the registered
holders or owners appear on the certificates, with the signatures on the
certificates or stock powers guaranteed as described above. See Instruction 5 to
the Letter of Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's certificates for Shares are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such shareholder's tender may be
effected if all the following conditions are met:
(1) such tender is made by or through an Eligible Institution;
(2) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser herewith, is
received by the Depositary, as provided below, prior to the Expiration
Date; and
(3) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation with respect to all such Shares),
together with a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees, or, in the
case of a book-entry transfer, an Agent's Message, and any other documents
required by the Letter of Transmittal, are received by the Depositary
within three (3) trading days after the date of execution of such Notice of
Guaranteed Delivery. A "trading day" is any day on which the Nasdaq Small
Cap Market operated by the National Association of Securities Dealers, Inc.
(the "NASD") is open for business.
Any Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by telegram, telex, facsimile transmission or mail to
the Depositary and must include a signature guarantee by an Eligible Institution
in the form set forth in such Notice of Guaranteed Delivery and a representation
that the
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shareholder on whose behalf the tender is being made is deemed to own the Shares
being tendered within the meaning of Rule 14e-4 under the Exchange Act.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for the Shares or a Book-Entry
Confirmation with respect to such Shares, (ii) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message and (iii) any other documents required by the Letter of Transmittal.
Accordingly, tendering shareholders may be paid at different times depending
upon when certificates for Shares or Book-Entry Confirmations with respect to
Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE
PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT.
The valid tender of Shares pursuant to one of the procedures described
above will constitute a binding agreement between the tendering shareholder and
the Purchaser upon the terms and subject to the conditions of the Offer,
including the tendering shareholder's representation and warranty that the
tender of such Shares complies with Rule 14e-4 under the Exchange Act.
Backup Federal Income Tax Withholding. In order to avoid "backup
withholding" of federal income tax on payments of cash pursuant to the Offer, a
shareholder surrendering Shares in the Offer must, unless an exemption applies,
provide the Depositary with such shareholder's correct taxpayer identification
number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury
that such TIN is correct and that such shareholder is not subject to backup
withholding. If a shareholder does not provide its correct TIN or fails to
provide the certifications described above, the Internal Revenue Service (the
"IRS") may impose a penalty on such shareholder and payment of cash to such
shareholder pursuant to the Offer may be subject to backup withholding of
thirty-one percent (31%). All shareholders surrendering Shares pursuant to the
Offer should complete and sign the main signature form and the Substitute Form
W-9 included as part of the Letter of Transmittal to provide the information and
certification necessary to avoid backup withholding (unless an applicable
exemption exists and is proved in a manner satisfactory to the Purchaser and the
Depositary). Certain shareholders (including, among others, all corporations and
certain foreign individuals and entities) are not subject to backup withholding.
Noncorporate foreign shareholders should complete and sign the main signature
form and a Form W-8, Certificate of Foreign Status, a copy of which may be
obtained from the Depositary, in order to avoid backup withholding. See
Instruction 10 to the Letter of Transmittal.
To prevent backup federal income tax withholding on payments made to
certain shareholders with respect to the purchase price of Shares purchased
pursuant to the Offer, each such shareholder must provide the Depositary with
his correct taxpayer identification number by completing the Substitute Form W-9
included in the Letter of Transmittal.
Appointment as Proxy. By executing the Letter of Transmittal as set forth
above, the tendering shareholder will irrevocably appoint designees of the
Purchaser as such shareholder's proxies in the manner set forth in the Letter of
Transmittal, each with full power of substitution, to the full extent of such
shareholder's rights with respect to the Shares tendered by such shareholder and
accepted for payment by the Purchaser and with respect to any and all other
Shares or other securities or rights issued or issuable in respect of such
Shares on or after April 21, 1999. All such proxies shall be considered coupled
with an interest in the tendered Shares. Such appointment will be effective
when, and only to the extent that, the Purchaser accepts for payment Shares
tendered by such shareholder as provided herein. Upon such acceptance for
payment, all prior proxies given by such shareholder with respect to such Shares
or other securities or rights will, without further action, be revoked and no
subsequent proxies may be given (and, if given, will not be deemed effective).
The designees of the Purchaser will thereby be empowered to exercise all voting
and other rights with respect to such Shares and other securities or rights in
respect of any annual, special or adjourned meeting of the Company's
shareholders, actions by written consent in lieu of any such meeting or
otherwise, as they in their sole discretion deem proper. The Purchaser reserves
the right to require that, in order for Shares to be deemed validly tendered,
immediately upon the Purchaser's acceptance for payment of such Shares, the
Purchaser
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must be able to exercise full voting and other rights with respect to such
Shares and other securities or rights, including voting at any meeting of
shareholders then scheduled.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Purchaser, in its sole discretion, which
determination will be final and binding. The Purchaser reserves the absolute
right to reject any or all tenders determined by it not to be in proper form or
the acceptance for payment of or payment for which may, in the opinion of the
Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right
to waive any defect or irregularity in any tender with respect to any particular
Shares, whether or not similar defects or irregularities are waived in the case
of other Shares. No tender of Shares will be deemed to have been validly made
until all defects or irregularities relating thereto have been cured or waived.
None of the Purchaser, the Dealer Manager, the Depositary, the Information Agent
or any other person will be under any duty to give notification of any defects
or irregularities in tenders or incur any liability for failure to give any such
notification. The Purchaser's interpretation of the terms and conditions of the
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding.
4. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 4, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to
the procedures set forth below at any time prior to the Expiration Date (which
is initially May 25, 1999) and, unless theretofore accepted for payment and paid
for by the Purchaser pursuant to the Offer, may also be withdrawn at any time on
or after Friday, June 18, 1999 (or such later date as may apply in case the
Offer is extended).
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
must specify the name of the person having tendered the Shares to be withdrawn,
the number of Shares to be withdrawn and the name of the registered holder of
the Shares to be withdrawn, if different from the name of the person who
tendered the Shares. If certificates for Shares have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted to
the Depositary and, unless such Shares have been tendered by an Eligible
Institution, the signatures on the notice of withdrawal must be guaranteed by an
Eligible Institution. If Shares have been delivered pursuant to the procedures
for book-entry transfer set forth in Section 3, any notice of withdrawal must
also specify the name and number of the account at the appropriate Book-Entry
Transfer Facility to be credited with the withdrawn Shares and otherwise comply
with such Book-Entry Transfer Facility's procedures. Withdrawals of tenders of
Shares may not be rescinded, and any Shares properly withdrawn will thereafter
be deemed not validly tendered for any purposes of the Offer. However, withdrawn
Shares may be tendered by again following one of the procedures described in
Section 3 at any time prior to the Expiration Date.
If the Purchaser extends the Offer, is delayed in its acceptance for
payment of, or payment for, Shares, or is unable to accept or pay for Shares for
any reason, then, without prejudice to the Purchaser's rights under the Offer,
tendered Shares may be retained by the Depositary on behalf of the Purchaser and
such shares may not be withdrawn except to the extent that tendering
shareholders are entitled to withdrawal rights as set forth in this Section 4.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser in its reasonable
discretion, which determination will be final and binding. None of the
Purchaser, the Dealer Manager, the Depositary, the Information Agent, or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
retendered at any time prior to the Expiration Date by following the procedures
described in Section 3.
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5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS FOR
GENERAL INFORMATION ONLY AND IS BASED ON THE LAW AS CURRENTLY IN EFFECT. THE TAX
TREATMENT OF EACH SHAREHOLDER WILL DEPEND IN PART UPON SUCH SHAREHOLDER'S
PARTICULAR SITUATION. SPECIAL TAX CONSEQUENCES NOT DESCRIBED HEREIN MAY BE
APPLICABLE TO PARTICULAR CLASSES OF TAXPAYERS, SUCH AS FINANCIAL INSTITUTIONS,
TAX-EXEMPT ORGANIZATIONS, INSURANCE COMPANIES, BROKER-DEALERS, PERSONS WHO ARE
NOT CITIZENS OR RESIDENTS OF THE UNITED STATES AND SHAREHOLDERS WHO ACQUIRED
THEIR SHARES THROUGH THE EXERCISE OF ANY EMPLOYEE STOCK OPTION OR OTHERWISE AS
COMPENSATION. ALL SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO THEM, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX
LAWS.
U. S. Federal Income Tax Consequences. The receipt of cash for Shares
pursuant to the Offer will be a taxable transaction for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code"), and
may also be a taxable transaction under applicable state, local or foreign
income or other tax laws. Generally, for federal income tax purposes, a
tendering shareholder will recognize gain or loss in an amount equal to the
difference between the cash received and the shareholder's adjusted tax basis in
the Shares tendered by the shareholder and purchased pursuant to the Offer. Gain
or loss generally will be calculated separately for each block of Shares
tendered and purchased pursuant to the Offer. Such gain or loss generally will
be capital gain or loss if the Shares disposed of were held as capital assets by
the shareholder. Any net capital gain (i.e., generally, capital gain in excess
of capital loss) recognized by an individual upon a disposition of the Shares
pursuant to the Offer that have been held for more than 18 months will generally
be subject to tax at a rate not to exceed twenty percent (20%). Net capital gain
recognized by an individual upon such a disposition of Shares that have been
held for more than 12 months but for not more than 18 months will be subject to
tax at a rate not to exceed twenty-eight percent (28%) and net capital gain
recognized upon the sale of Shares that have been held for 12 months or less
will be subject to tax at ordinary income tax rates. In addition, any net
capital gain recognized by a corporation upon a disposition of Shares pursuant
to the Offer will be subject to tax at ordinary income tax rates.
In general, in order to prevent backup federal income tax withholding at a
rate of thirty-one percent (31%) on the cash consideration to be received in the
Offer, each shareholder who is not otherwise exempt from such requirements must
provide such shareholder's correct taxpayer identification number (and certain
other information) by completing the Substitute Form W-9 in the Letter of
Transmittal.
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6. PRICE RANGE OF THE SHARES; DIVIDENDS
The information set forth in this Section regarding the Company is entirely
taken from or based upon public information, including the Company's Annual
Report on Form 10-K for the fiscal year ending January 31, 1998 (the "Company
Form 10-K"), and information supplied to the Purchaser by the Company. The
Purchaser does not assume any responsibility for the accuracy or completeness of
the information concerning the Company contained in such documents and records
or for any failure by the Company to disclose events which may have occurred or
may affect the significance or accuracy of any such information to the
Purchaser. The Common Stock is listed for quotation on the Nasdaq Small Cap
Market under the trading symbol "DSIT." The Common Stock was traded on the
Nasdaq National Market under the symbol "DSIT" from the Company's initial public
offering on May 29, 1997, through August 17, 1998. The Common Stock was approved
for trading on the Nasdaq Small Cap Market on August 17, 1998. The Company has
not declared nor paid any cash dividends to holders of Shares since its initial
public offering on May 29, 1997. The following table sets forth, for the periods
indicated, the high and low bid prices per Share on the Nasdaq Small Cap Market
and the Nasdaq National Market, as applicable.
HIGH LOW
----------- -----------
FISCAL 1997:
Second Quarter (commencing May 29, 1997)(1)............... $8 1/16 $7 1/16
Third Quarter............................................. $9 7/8 $4 7/16
Fourth Quarter............................................ $4 9/16 $1 1/2
FISCAL 1998:
First Quarter............................................. $2 15/16 $1 5/8
Second Quarter............................................ $2 $ 15/16
Third Quarter............................................. $1 13/16 $ 13/16
Fourth Quarter............................................ $1 3/4 $1
FISCAL 1999:
First Quarter (through April 19, 1999).................... $2 7/8 $1 19/32
---------------
(1) The Company commenced trading pursuant to the initial public offering of its
Common Stock on May 29, 1997.
As of April 15, 1999, the approximate number of holders of record of the
Shares was 93.
On April 14, 1999, the last full trading day before the public announcement
of the execution of the Stock Purchase Agreement and the Purchaser's intention
to commence the Offer, the closing bid per Share on the Nasdaq Small Cap Market
was $2 1/32. On April 20, 1999, the last full trading day before the
commencement of the Offer, the closing bid per Share on the Nasdaq Small Cap
Market was $2 3/4. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE SHARES.
7. POSSIBLE EFFECTS OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK QUOTATION;
EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS
The purchase of Shares pursuant to the Offer may reduce the number of
holders of Shares and the number of Shares that might otherwise trade publicly.
However, approximately fifty percent (50%) of the outstanding Shares will
continue to be held by persons other than the Purchaser, and the Purchaser does
not believe that its purchase of 1,600,000 shares pursuant to the Offer is
likely to result in the Company's failure to meet the requirements of the NASD
for continued inclusion in the Nasdaq Small Cap Market or should have a material
adverse effect on the liquidity and market value of the remaining Shares held by
the public.
The Shares are currently registered under the Exchange Act and, according
to the Company, will continue to be registered thereunder after the Offer.
However, such registration may be terminated upon application by the Company to
the Commission if the Shares are not listed on a national securities exchange
and there are fewer than 300 record holders of the Shares. The termination of
registration of the Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to
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holders of Shares and to the Commission and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b), the requirement of furnishing a proxy statement in connection with
shareholders' meetings pursuant to Section 14(a), and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions, no
longer applicable to the Shares. In addition, "affiliates" of the Company and
persons holding "restricted securities" of the Company may be deprived of the
ability to dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
If registration of the Shares under the Exchange Act were terminated, the
Shares would no longer be eligible for quotation on the Nasdaq Small Cap Market.
The Shares are not currently "margin securities" under the regulations of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). Securities that are "margin securities" have the effect, among other
things, of allowing brokers to extend credit on the collateral of such
securities. It is unknown as to whether, following the Offer, the Shares will
become eligible to be "margin securities."
8. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company is a Texas corporation with its principal executive office
located at 0000 Xxxx Xxx Xxxxxxx Xxxxxxx Xxxxx, Xxxxxxx, Xxxxx 00000. The
telephone number of the Company at such office is (000) 000-0000.
The historical information concerning the Company contained in this Offer
to Purchase, including financial information, has been provided to the Purchaser
by the Company and is excerpted or derived from publicly available documents and
records on file with the Commission and other public sources. None of the
Purchaser, the Dealer Manager, the Depositary or the Information Agent assumes
any responsibility for the accuracy or completeness of the information
concerning the Company contained in such documents and records or for any
failure by the Company to disclose events which may have occurred or may affect
the significance or accuracy of any such information to the Purchaser.
According to the Company Form 10-K, the Company designs, develops, markets,
licenses, and distributes toys and children's consumer electronics. The
Company's core product categories are: (i) juvenile audio products, including
walkie-talkies, preschool audio products and musical toys; (ii) girls' toys,
including dolls, play sets and accessories; and (iii) boys' toys, including
radio-controlled vehicles, action figures and western and military action toys.
The Company sells primarily to retailers, including mass merchandising
discounters such as Wal-Mart, Kmart and Target, specialty toy stores such as
Toys "R" Us, Xxx-Bee Toy & Hobby and F.A.O. Xxxxxxx, and deep discount stores
such as Family Dollar Stores, Inc., Consolidated Stores Corporation and Value
City Department Stores, Inc.
The following table presents selected historical consolidated financial
information with respect to the Company and its subsidiaries and has been
provided to the Purchaser by the Company. Such information is excerpted or
derived from the information contained in the Company Form 10-K and from the
unaudited financial statements contained in the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 31, 1998. More comprehensive
financial information is included in such reports and other documents filed by
the Company with the Commission, and the following summary is qualified in its
entirety by reference to such reports and such other documents and all the
financial information (including any related notes) contained therein. Such
reports and other documents should be available for inspection and copies
thereof should be obtainable in the manner set forth below under "Available
Information."
Three-month and nine-month financial information in the following table is
derived from unaudited financial statements. Fiscal year-end financial
information is derived from audited financial statements.
15
16
DSI TOYS, INC.
SELECTED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net sales................................................... $24,563,262 $30,018,242 $48,014,196 $61,828,627
Costs of goods sold......................................... 18,948,648 22,643,185 37,376,724 44,531,494
----------- ----------- ----------- -----------
Gross profit................................................ 5,614,614 7,375,057 10,637,472 17,297,133
Selling, general and administrative expenses................ 3,148,296 13,434,338 8,340,922 20,779,001
----------- ----------- ----------- -----------
Operating income (loss)..................................... 2,466,318 (6,059,281) 2,296,550 (3,481,868)
Interest expense............................................ 276,916 286,124 710,103 1,158,138
Other income................................................ (26,963) (49,771) (64,185) (215,778)
----------- ----------- ----------- -----------
Income (loss) before income taxes........................... 2,216,365 (6,295,634) 1,650,632 (4,424,228)
Provision for (benefit from) income taxes................... 786,577 (2,266,428) 594,228 (1,592,721)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item..................... 1,429,788 (4,029,206) 1,056,404 (2,831,507)
Extraordinary item (net of tax)............................. -- -- -- (480,754)
----------- ----------- ----------- -----------
Net income (loss)........................................... $ 1,429,788 $(4,029,206) $ 1,056,404 $(3,312,261)
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE
Earnings (loss) per share before extraordinary item......... $ 0.24 $ (0.67) $ 0.18 $ (0.56)
=========== =========== =========== ===========
Earnings (loss) per share................................... $ 0.24 $ (0.67) $ 0.18 $ (0.66)
=========== =========== =========== ===========
Weighted average shares outstanding......................... 6,000,000 6,000,000 6,000,000 5,033,814
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE
Earnings (loss) per share before extraordinary item......... $ 0.24 $ (0.67) $ 0.18 $ (0.56)
=========== =========== =========== ===========
Earnings (loss) per share................................... $ 0.24 $ (0.67) $ 0.18 $ (0.66)
=========== =========== =========== ===========
Weighted average shares outstanding......................... 6,000,000 6,000,000 6,000,000 5,033,814
=========== =========== =========== ===========
FISCAL YEAR
---------------------------------------
1997 1996 1995
----------- ----------- -----------
Net sales................................................... $73,624,398 $63,219,212 $63,146,080
Costs of goods sold......................................... 55,285,501 42,023,044 43,428,075
----------- ----------- -----------
Gross profit................................................ 18,338,897 21,196,168 19,718,005
Selling, general and administrative expenses................ 24,245,064 15,569,422 14,624,519
Former sole shareholder bonus............................... -- -- 1,000,000
----------- ----------- -----------
Operating income (loss)..................................... (5,906,167) 5,626,746 4,093,486
Interest expense............................................ 1,360,067 2,599,942 700,986
Other income................................................ (231,968) (344,469) (383,801)
----------- ----------- -----------
Income (loss) before income taxes and extraordinary item.... (7,034,266) 3,371,273 3,776,301
Provision for (benefit from) income taxes................... (2,329,323) 1,220,000 1,449,677
----------- ----------- -----------
Income (loss) before extraordinary item..................... (4,704,943) 2,151,273 2,326,624
Extraordinary item (net of tax)............................. (480,754) -- --
----------- ----------- -----------
Net income (loss)........................................... $(5,185,697) $ 2,151,273 $ 2,326,624
=========== =========== ===========
BASIC EARNINGS PER SHARE
Earnings (loss) per share before extraordinary item......... $ (0.91) $ 0.61 $ 0.66
Extraordinary item.......................................... (0.09) -- --
----------- ----------- -----------
Earnings (loss) per share................................... $ (1.00) $ 0.61 $ 0.66
=========== =========== ===========
Weighted average shares outstanding......................... 5,205,479 3,500,000 3,500,000
=========== =========== ===========
DILUTED EARNINGS PER SHARE
Earnings (loss) per share before extraordinary item......... $ (0.91) $ 0.58 $ 0.66
Extraordinary item.......................................... (0.09) -- --
----------- ----------- -----------
Earnings (loss) per share................................... $ (1.00) $ 0.58 $ 0.66
=========== =========== ===========
Weighted average shares outstanding......................... 5,205,479 3,739,146 3,500,000
=========== =========== ===========
16
17
DSI TOYS, INC.
SELECTED CONSOLIDATED BALANCE SHEET
ASSETS
OCTOBER 31, OCTOBER 31,
1998 1997
------------ ------------
Current assets:
Cash...................................................... $ 1,213,621 $ 988,879
Restricted cash........................................... 150,000 150,000
Accounts receivable, net.................................. 6,893,518 10,646,447
Inventories............................................... 6,797,276 13,284,015
Income tax receivable..................................... 553,462 --
Prepaid expenses.......................................... 1,306,408 894,286
Deferred income taxes..................................... 499,000 370,000
------------ ------------
Total current assets.............................. 17,413,285 26,333,627
Property and equipment, net................................. 1,470,210 1,267,453
Advances to shareholder (life insurance premiums)........... 1,477,461 1,212,048
Deferred income taxes....................................... 667,790 404,027
Other assets................................................ 273,957 169,655
------------ ------------
$ 21,302,703 $ 29,386,810
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 10,745,675 $ 16,836,500
Current portion of long-term debt......................... 5,793,318 2,893,230
Income taxes payable...................................... 441,933 --
Deferred income taxes..................................... -- 100,225
------------ ------------
Total current liabilities......................... 16,980,926 19,829,955
Long term debt.............................................. -- 4,500,000
Deferred income taxes....................................... 119,000 --
------------ ------------
Total liabilities................................. 17,099,926 24,329,955
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued or outstanding................. -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 8,719,000 shares issued, 6,000,000 shares
outstanding............................................ 87,190 87,190
Additional paid-in capital................................ 21,162,568 21,171,277
Common stock warrants..................................... 102,500 102,500
Retained earnings......................................... 5,494,057 6,311,089
Cumulative translation adjustment......................... 17,054 45,391
------------ ------------
26,863,369 27,717,447
Less: treasury stock, 2,719,000 shares, at cost........... (22,660,592) (22,660,592)
------------ ------------
Total shareholders' equity........................ 4,202,777 5,056,855
------------ ------------
$ 21,302,703 $ 29,386,810
============ ============
17
18
DSI TOYS, INC.
SELECTED CONSOLIDATED BALANCE SHEET
ASSETS
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
------------ ------------ ------------
Current assets:
Cash............................................. $ 383,690 $ 1,501,992 $ 2,660,455
Restricted cash.................................. 150,000 150,000 150,000
Accounts receivable, net......................... 8,008,288 3,231,789 4,235,665
Due from shareholder............................. -- 151,667 819,283
Advances to shareholder (life insurance
premiums)..................................... -- 511,765 --
Inventories...................................... 6,437,418 4,615,087 3,409,962
Income tax receivable............................ 642,264 -- --
Prepaid expenses................................. 894,704 1,462,189 1,130,006
Deferred income taxes............................ 183,000 362,000 351,000
------------ ------------ ------------
Total current assets..................... 16,699,364 11,986,489 12,756,371
Property and equipment, net........................ 1,252,572 1,190,498 1,514,096
Advances to shareholder (life insurance
premiums)........................................ 1,278,401 920,987 1,143,076
Deferred income taxes.............................. 1,752,000 -- --
Deferred debt issuance costs....................... -- 679,906 842,963
Other assets....................................... 224,783 537,868 145,316
------------ ------------ ------------
$ 21,207,120 $ 15,315,748 $ 16,401,822
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities......... $ 9,740,201 $ 6,259,101 $ 5,492,704
Current portion of long-term debt................ 585,783 2,755,789 3,359,210
Income taxes payable............................. 108,630 193,211 314,874
Deferred income taxes............................ -- 158,000 79,408
------------ ------------ ------------
Total current liabilities................ 10,434,614 9,366,101 9,246,196
Long-term debt..................................... 7,495,000 8,203,108 11,187,702
Notes payable -- shareholder....................... -- 6,000,000 7,000,000
Deferred income taxes.............................. 119,000 1,169,000 549,987
------------ ------------ ------------
Total liabilities........................ 18,048,614 24,738,209 27,983,885
Shareholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued or outstanding........ -- -- --
Common stock, $.01 par value 1998 and 1997,
$.0001 par value 1996, 20,000,000 shares
authorized, 8,719,000 shares issued 1998,
6,219,000 shares issued 1997 and 1996,
6,000,000 shares outstanding 1998, 3,500,000
shares outstanding 1997 and 1996.............. 87,190 62,190 622
Additional paid-in capital....................... 21,162,568 3,443,093 3,504,661
Common stock warrants............................ 102,500 100,000 100,000
Cumulative translation adjustment................ 29,187 9,498 1,169
Retained earnings................................ 4,437,653 9,623,350 7,472,077
------------ ------------ ------------
25,819,098 13,238,131 11,078,529
Less: treasury stock, 2,719,000 shares, at
cost.......................................... (22,660,592) (22,660,592) (22,660,592)
------------ ------------ ------------
Total shareholders' equity (deficit)..... 3,158,506 (9,422,461) (11,582,063)
$ 21,207,120 $ 15,315,748 $ 16,401,822
============ ============ ============
18
19
Available Information. The Company is subject to the reporting requirements
of the Exchange Act and, in accordance therewith, is required to file reports
and other information with the Commission relating to its business, financial
condition and other matters. Information, as of particular dates, concerning the
Company's directors and officers, their remuneration, options granted to them,
the principal holders of the Company's securities, any material interest of such
persons in transactions with the Company and other matters is required to be
disclosed in proxy statements distributed to the Company's shareholders and
filed with the Commission. Such reports and other information should be
available for inspection at the public reference facilities of the Commission
located at 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000, and at the regional
offices of the Commission located in the Citicorp Center, 000 Xxxx Xxxxxxx
Street (Suite 1400), Xxxxxxx, Xxxxxxxx 00000 and Seven Xxxxx Xxxxx Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000. Copies should be obtainable, by mail, upon
payment of the Commission's customary charges, by writing to the Commission's
principal office at 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000. The
Commission also maintains an Internet website at xxxx://xxx.xxx.xxx that
contains reports, proxy statements and other information. Such information
should also be available for inspection at the offices of the NASD, Reports
Section, 0000 X Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000. Although the Purchaser has
no knowledge that any such information is untrue, the Purchaser takes no
responsibility for the accuracy or completeness of information contained in this
Offer to Purchase with respect to the Company or for any failure by the Company
to disclose events which may have occurred or may affect the significance or
accuracy of any such information.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND XX. XXXXXX
The Purchaser is a newly formed California limited liability company
organized in connection with the transactions contemplated by the Stock Purchase
Agreement, including the Offer, and has not carried on any activities other than
in connection with such transactions. The Purchaser does not have any
significant assets or liabilities or engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Stock Purchase Agreement, including the Offer. Prior to the execution of
the Stock Purchase Agreement, the Purchaser beneficially owned no Shares. Upon
the Initial Closing, the Purchaser acquired 566,038 Shares. Pursuant to the
terms of the Stock Purchase Agreement, the Purchaser agreed to commence the
Offer for 1,600,000 Shares and agreed to purchase 1,792,453 Shares (subject to
upward adjustments not to exceed in the aggregate 140,000 Shares). By virtue of
its current ownership of the Company's Common Stock and its rights to acquire
additional Shares pursuant to the Stock Purchase Agreement, the Purchaser
currently beneficially owns 4,098,491 Shares.
The Purchaser is wholly owned by Xx. Xxxxxx and his wife, Xxxxxx Xxxxxx
(collectively, the "Martins"), who own ninety-nine percent (99%) of the
membership interests of the Purchaser, as community property, and Xxxxxx X.
Xxxxxxxx and his wife, Xxxxxxxx Xxxxxxxx (collectively, the "Whitakers"), as
community property, who own one percent (1%) of the membership interests of the
Purchaser. Xxx Xxxxxxx are the record owners of 140,000 shares of Common Stock,
3,500 of which were purchased on February 23, 1999, in an open market
transaction at a price of $2.44 per Share. Xxx Xxxxxxx, through their control of
the Purchaser, currently beneficially own 4,238,491 shares of Common Stock. The
Whitakers beneficially own 2,000 shares of Common Stock.
Xx. Xxxxxx is the sole Manager and President of the Purchaser. While the
Purchaser does not have a board of directors, it has executive officers
responsible for its day-to-day operations. Xxxxxx X. Xxxxxxxx serves as the Vice
President of the Purchaser. There are no executive officers of the Purchaser
other than Messrs. Xxxxxx and Xxxxxxxx. The citizenship, business address,
present principal occupation or employment and five-year employment history of
Xxx Xxxxxx and Xxxxxx X. Xxxxxxxx are set forth on Annex A hereto.
Upon consummation of the transactions contemplated by the Stock Purchase
Agreement, including the Offer, the Purchaser will be the record and beneficial
owner of forty-eight percent (48%), and Xxx Xxxxxx, through his control of the
Purchaser, will be the beneficial owner of fifty percent (50%), of the total
number of Shares then outstanding (assuming (i) there are upward adjustments in
the aggregate of 140,000 shares to the number or Second Funding Shares, and (ii)
no other Shares are issued). In the event the Management Shareholders do not
tender any Shares owned by them into the Offer and the Minimum Tender Condition
is otherwise met, there is a possibility that, upon consummation of the
transactions contemplated by the Stock
19
20
Purchase Agreement, including the Offer, the Purchaser will beneficially own up
to 5,820,184 (sixty-eight percent (68%)), and Xxx Xxxxxx, through his control of
the Purchaser, will beneficially own up to 5,960,184 (seventy percent (70%)), of
the shares of Common Stock then outstanding (assuming (i) there are upward
adjustments in the aggregate of 140,000 shares to the number of Second Funding
Shares, and (ii) no other Shares are issued), by virtue of the Purchaser's power
to vote Shares held by the Management Shareholders pursuant to the Shareholders'
Agreement and the irrevocable proxies. The Purchaser and Xxx Xxxxxx have been
advised by the Company that, to the best of the Company's knowledge, all of the
Management Shareholders currently intend to tender Shares owned by them into the
Offer.
Except as described in this Offer to Purchase and Annex A hereto, (i) none
of the Purchaser, Xxx Xxxxxx, nor, to the best knowledge of the Purchaser and
Xxx Xxxxxx, any of the persons listed in Annex A hereto, beneficially owns any
security of the Company or has any contract, arrangement, understanding or
relationship with any other person with respect 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 securities of the
Company, joint ventures, loan or option arrangements, puts or calls, guaranties
of loans, guaranties against loss, or the giving or withholding of proxies, and
(ii) none of the Purchaser, Xxx Xxxxxx, nor, to the best knowledge of the
Purchaser and Xxx Xxxxxx, any of the other persons referred to above, has
effected any transaction in any security of the Company during the past 60 days.
The following tables present certain unaudited financial information with
respect to the Purchaser and Xxx Xxxxxx.
MVII, LLC -- BALANCE SHEET
AS OF APRIL 19, 1999
ASSETS
------
Cash............................ $ 300,000
Stock(1)........................ 1,200,000
Contributions Receivable........
Xxxxxx........................ 8,500,000
Xxxxxxxx...................... 100,000
-----------
Total Assets.................... $10,100,000
===========
LIABILITIES
-----------
Accounts Payable................ $ 214,400
Members Equity.................. $ 9,885,600
-----------
Total Liabilities............... $10,100,000
===========
---------------
(1) Consists of 566,038 shares of Common Stock of the Company at $2.12 per share
(based upon cost).
E. XXXXXX XXXXXX -- STATEMENT OF FINANCIAL CONDITION
AS OF OCTOBER 31, 1998
ASSETS
------
Cash........................... $ 13,675,947
Stocks(1)...................... 91,339,893
Bonds.......................... 7,552,796
Note Receivable................ 60,000
Real Estate.................... 1,910,263
Other Assets................... 245,000
------------
Total Assets................... $114,783,899
============
LIABILITIES
-----------
Bank Note Payable.................. $225,266
--------
Total Liabilities.................. $225,266
========
Net Worth (Total Assets less
Total Liabilities)........... $114,558,633
============
---------------
(1) Includes holdings of publicly traded common stock and private investments
made through limited partnerships and limited liability companies.
20
21
10. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Purchaser to purchase the Shares
tendered pursuant to the Offer, the Initial Funding Shares and the Second
Funding Shares, and to pay related fees and expenses will be approximately
$12,750,000. The Purchaser will provide such funds from working capital obtained
from capital contributions made by its members. The Purchaser has not
conditioned the Offer or the closing of the sale of the Second Funding Shares on
obtaining financing.
11. BACKGROUND OF THE OFFER
As part of an on-going strategic effort to acquire a significant equity
position in a mid-sized toy company, in late 1998, Mr. Xxx Xxxxxx identified
several toy companies of some interest, based upon their size, product lines and
histories. On December 18, 1998, Xxx Xxxxxx met with Xx. Xxxxxxx Xxxxxx, of
Gerard, Klauer, Xxxxxxxx & Co, Inc. The purpose of this meeting was to review
background information on various toy companies and to identify potential
acquisition targets. One of the companies identified at this meeting was the
Company.
On January 19, 1999, a meeting was arranged among representatives of the
Company, Xx. Xxxxxx and Xx. Xxxxxx. The meeting was held at the Dallas, Texas
showroom of the Company and was attended by Xx. Xxxxxx, Xx. Xxxxxx, Xx. Xxxxxx
Xxxxxxxx (a consultant to Xx. Xxxxxx), Mr. M. D. Xxxxx (the Chairman of the
Board of the Company), and Xx. Xxxxxxx Xxxxxx (the then Chief Financial Officer
of the Company). At the meeting, Xx. Xxxxxx and Xx. Xxxxxxxx reviewed the
Company's 1999 product lines, discussed the Company's financial condition with
Messrs. Xxxxx and Xxxxxx, and expressed an interest in acquiring a controlling
interest in the Company. Xx. Xxxxx indicated the Company's interest in
discussing the merits of a possible acquisition by Xx. Xxxxxx and indicated a
general willingness to explore the possibilities of an acquisition in more
detail.
During late January 1999, Xx. Xxxxxx and Xx. Xxxxxx held numerous phone
discussions with Messrs. Xxxxx and Xxxxxx regarding the possible acquisition of
a controlling interest in the Company by Xx. Xxxxxx.
On February 1, 1999, a meeting was held in Houston, Texas between Xx.
Xxxxxx, Xx. Xxxxxx, Xx. Xxxxx and Mr. J. Xxxx Xxxxxxx, counsel for Xx. Xxxxxx.
During this meeting, Xx. Xxxxxx and Xx. Xxxxx discussed various possibilities
for the structure of a proposed transaction. Xx. Xxxxxx presented a term sheet
to Xx. Xxxxx outlining a proposed merger between the Company and a new
corporation to be formed by Xx. Xxxxxx. The parties also discussed the basis for
Xx. Xxxxxx'x proposed transaction terms.
During early February 1999, numerous conversations were held between
Messrs. Xxxxxx, Xxxxxx and Xxxxx regarding the value of the Company and the
Company's response to the term sheet presented by Xx. Xxxxxx at the meeting on
February 1, 1999. As a result of these conversations, on February 14, 1999, Xx.
Xxxxxx presented a revised offer to the Company. This offer abandoned the
concept of a merger and proposed a direct acquisition of 2 million shares of
Common Stock for $5 million, along with the acquisition of 1.6 million shares of
the Company's issued and outstanding Common Stock pursuant to a tender offer at
$4.38 per share. The revised offer contemplated a voting trust agreement between
Xx. Xxxxxx and existing members of the Board of Directors of the Company and a
no-shop agreement. On February 17, 1999, in response to Xx. Xxxxxx'x revised
offer, a meeting was held in Austin, Texas between representatives of Xx. Xxxxxx
and the Board of Directors of the Company. In attendance at this meeting were
Xx. Xxxxxx, Xx. Xxxxxx, Xx. Xxxxxxx, Xx. Xxxxx, Xx. Xxxxxxx X. Xxxxx, Xx. Xxxxxx
X. Xxxxxxx, Xx. Xxxx X. Xxxxxx, Xx. Xxxxx X. Xxxxxx and Xx. Xxxxxxx Xxxxxxxx,
counsel for the Company. During the meeting, Xx. Xxxxxx and the Company
exchanged proposals regarding the amount of investment that would be made by Xx.
Xxxxxx and certain terms of the investment. Throughout these discussions, Xx.
Xxxxxx indicated that he would require a super-majority representation on the
Board of Directors of the Company, and that his acquisition of a significant
number of shares of Common Stock would require that the proceeds from the
acquisition of stock from the Company remain in the Company to reduce debt and
provide the Company with capital for future operations and acquisitions. Xx.
Xxxxxx also indicated that an express condition of his willingness to move
forward in negotiations would be the execution of a no-shop agreement by the
Company
21
22
and each of the individual members of the Company Board of Directors. The
members of the Board of Directors of the Company indicated their willingness to
execute no-shop agreements, provided that such agreements were subject to
appropriate fiduciary outs, and to commit to tender a portion of their Shares
(and with respect to Xxxx X. Xxxxxx, Shares held by a limited partnership over
which he has control) in connection with any tender offer proposed by Xx.
Xxxxxx.
On or about February 26, 1999, the Company, the individual members of the
Board of Directors of the Company and Xx. Xxxxxx executed no-shop agreements
containing fiduciary outs and agreed to proceed with negotiations based upon an
agreed upon but non-binding term sheet. The terms of the offer involved the
acquisition by Xx. Xxxxxx or an entity to be formed by Xx. Xxxxxx of 2 million
shares of common stock from the Company for an aggregate purchase price of $5
million, as well as a tender offer by Xx. Xxxxxx for 1.6 million shares of
Common Stock, based upon a tender price of $4.38 per share. Xx. Xxxxxx and the
Company, together with their representatives (including legal counsel) proceeded
to negotiate the definitive terms of the Stock Purchase Agreement. During this
process, Xx. Xxxxxx and his representatives conducted due diligence on the
Company and its assets.
On March 16, 1999, a meeting was held in Dallas, Texas, between
representatives of Xx. Xxxxxx and representatives of the Company. In attendance
were Xx. Xxxxxx, Xx. Xxxxxxx, Xx. Xxxxx Xxxxxxx (counsel for Xx. Xxxxxx), Xx.
Xxxxxx Xxxxx (counsel for Xx. Xxxxxx), Mr. Xxxxx Xxxx, CPA (Xx. Xxxxxx'x
certified public accountant), Xx. Xxxxx, Xx. Xxxxxxxx, Xx. Xxxx Xxxxxx (counsel
for the Company) and Xx. Xxxxx Xxxxxx. Following extensive negotiations, the
parties agreed on revised terms and conditions for Xx. Xxxxxx'x acquisition of
between 2,358,491 and 2,498,491 shares, depending upon whether certain
conditions are met, from the Company for an aggregate purchase price of $5
million and for the tender offer by Xx. Xxxxxx for 1.6 million shares of Common
Stock, based upon a tender price of $4.38 per share. In addition, the parties
negotiated certain terms of the Stock Purchase Agreement.
On April 9, 1999, the Company's Board of Directors approved the Stock
Purchase Agreement and the transactions contemplated thereby. On April 15, 1999,
the Company, the Purchaser, and the Management Shareholders executed and
delivered the transaction agreements, including the Stock Purchase Agreement,
the Shareholders' Agreement, the Registration Rights Agreement, and the Side
Letter Agreements. At that time the Purchaser acquired 566,038 shares of Common
Stock from the Company at $2.12 per Share for an aggregate purchase price of
$1.2 million. Also, on April 15, 1999, the Company and the Purchaser issued a
joint press release announcing the transaction. The Management Shareholders are:
M. D. Xxxxx, Rust Capital, Ltd., a Texas limited partnership controlled by Xxxx
X. Xxxxxx, Xxxxxxx X. Xxxxx, Xxxxxx X. Xxxxxxx, and Xxxxx X. Xxxxxx.
12. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; THE STOCK PURCHASE AGREEMENT;
THE SIDE LETTER AGREEMENTS; THE SHAREHOLDERS' AND VOTING AGREEMENT; THE
REGISTRATION RIGHTS AGREEMENT; AND THE CONSULTING AGREEMENT
Purpose of the Offer; Plans for the Company
Except as otherwise described in this Offer to Purchase, the Purchaser has
no current plans or proposals that would relate to, or result in, any
extraordinary corporate transaction involving the Company, such as a merger,
reorganization or liquidation involving the Company or any of its subsidiaries,
a sale or transfer of a material amount of assets of the Company or any of its
subsidiaries, any change in the Company's capitalization or dividend policy or
any other material change in the Company's business, corporate structure or
personnel. The Purchaser and its affiliates reserve the right to purchase,
following consummation or termination of this Offer, additional Shares from the
Company, in the open market or otherwise. Any additional purchases of Shares
could be at a price greater or less than the price to be paid for Shares in the
Offer.
The Stock Purchase Agreement
The following is a summary of the material terms of the Stock Purchase
Agreement. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the
22
23
complete text of the Stock Purchase Agreement, which is filed as an exhibit to
the Schedule 14D-1 and incorporated herein by reference. Capitalized terms used
herein and not otherwise defined shall have the meaning ascribed to them in the
Stock Purchase Agreement. The Stock Purchase Agreement may be examined, and
copies thereof may be obtained, as set forth in Section 8 above. YOU ARE URGED
TO READ THE STOCK PURCHASE AGREEMENT IN ITS ENTIRETY.
The Common Stock Acquisitions. The Company has agreed to sell to the
Purchaser, and the Purchaser has agreed to purchase from the Company, an
aggregate of 2,358,491 shares (subject to upward adjustments not to exceed in
the aggregate 140,000 shares) for an aggregate purchase price of $5,000,000, in
two separate sales transactions of 566,038 shares and 1,792,453 shares (subject
to upward adjustments not to exceed in the aggregate 140,000 shares),
respectively. The closing of the sale of the Initial Funding Shares (the
"Initial Closing") was consummated concurrently with the execution of the Stock
Purchase Agreement on April 15, 1999. Simultaneously with the Initial Closing,
the Company, the Purchaser, and the Management Shareholders entered into the
Shareholders' Agreement and the Registration Rights Agreement, and the Purchaser
and the Management Shareholders entered into the Side Letter Agreements.
The upward adjustments to the number of Second Funding Shares are not to
exceed in the aggregate 140,000 shares and are dependent upon two issues: (i)
the Company meeting certain working capital requirements as of the date of the
Second Closing, and (ii) the consummation of certain transactions resolving a
dispute with the estate of the Company's former controlling shareholder. The
Stock Purchase Agreement provides that, if as of the date of the Second Closing,
the working capital of the Company is less than $1,000,000, then the number of
Second Funding Shares shall be increased by the excess of $1,000,000 over such
amount of working capital, based upon a per Share price of $2.00, not to exceed
40,000 shares in the aggregate. The Stock Purchase Agreement further provides
that if the Company and the Management Shareholders shall not have consummated a
transaction with all necessary parties to resolve any disputes with the estate
of the Company's former controlling shareholder and related parties on or prior
to June 30, 1999, then the Company shall issue to the Purchaser an additional
100,000 shares on the date of the Second Closing or on July 1, 1999, if the
Second Closing occurs prior to June 30, 1999.
The Second Closing is to occur on or before July 1, 1999, or such date as
the Company and the Purchaser shall agree in writing. The Second Closing is
conditioned upon the consummation of the Offer, it being the understanding of
the parties that the Second Closing shall occur simultaneously with the
consummation of the Offer. The conditions to the Second Closing also include:
(i) the prior approval of the Company's shareholders, at a shareholder's meeting
to be called by the Company (the "Shareholders Meeting"), of the sale of the
Second Funding Shares; (ii) the expiration or termination of any waiting period
applicable to the transactions contemplated by the Stock Purchase Agreement
under the HSR Act; (iii) the truth and accuracy at the Second Closing of the
representations and warranties made by the parties in the Stock Purchase
Agreement, subject to certain qualifications; (iv) the performance by the
parties of their respective obligations under the Stock Purchase Agreement,
subject to certain qualifications; and (v) other conditions, including those
customary to transactions similar to those contemplated by the Stock Purchase
Agreement.
The Offer. Pursuant to the terms of the Stock Purchase Agreement, the
Purchaser was required to commence the Offer no later than five (5) business
days after the date of the Agreement. The obligations of the Purchaser to accept
for payment, and pay for, any Shares tendered pursuant to the Offer are subject
only to the conditions set forth in Section 14 (the "Offer Conditions") (any of
which may be waived in whole or in part by the Purchaser in its sole
discretion). The Purchaser may increase the Offer Price and may make any other
changes in the terms and conditions of the Offer; except that the Purchaser may
not without the Company's prior written consent: (i) reduce the number of Shares
subject to the Offer; (ii) reduce the Offer Price; (iii) add to the Offer
Conditions; (iv) except as provided in the next sentence, extend the Offer; or
(v) change the form of consideration payable in the Offer. The Purchaser may,
without the consent of the Company, (i) extend the Offer, if at the scheduled or
extended expiration date of the Offer any of the Offer Conditions shall not be
satisfied or waived, until such time as such conditions are satisfied or waived,
(ii) extend the Offer for any period required by any rule, regulation,
interpretation or position of the Commission or the staff thereof applicable to
the Offer, and (iii) extend the Offer for any reason on one or more occasions
for an aggregate period of not more than 20 business days beyond the latest
expiration date
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that would otherwise be permitted under clause (i) or (ii) of this sentence, in
each case subject to the right of the Purchaser or the Company to terminate the
Stock Purchase Agreement pursuant to the terms thereof. The Purchaser is not
obligated to keep the Offer open until the Shareholders Meeting occurs. In the
event the parties' obligations to close the sale of the Second Funding Shares
are terminated as discussed below, the Purchaser may elect, in its sole
discretion, to continue to conduct the Offer.
Subject to the Offer Conditions, the Purchaser is required to accept for
payment, purchase, and pay for, in accordance with the terms of the Offer,
Shares validly tendered and not properly withdrawn pursuant to the Offer at the
earliest time following expiration of the Offer that all conditions to the Offer
and its consummation have been satisfied or waived by the Purchaser. The Offer
Conditions are for the sole benefit of the Purchaser and may be asserted by the
Purchaser regardless of the circumstances giving rise to any such condition
(including without limitation, any action or inaction by the Purchaser) or may
be waived by the Purchaser, in whole or in part at any time and from time to
time, in the Purchaser's sole discretion.
Pursuant to the Stock Purchase Agreement, the Company has agreed that, not
later than the first business day after the date the Schedule 14D-1 is filed by
the Purchaser, it will file with the Commission and mail to its shareholders, a
Solicitation/Recommendation Statement on Schedule 14D-9 containing the
recommendation of the Board of Directors that the Company's shareholders accept
the Offer and tender their shares in the Offer.
The Shareholders Meeting. The Stock Purchase Agreement requires the Company
to call and hold, as soon as practicable, the Shareholders Meeting for the
purpose of voting on the approval of the sale of the Second Funding Shares and
the adoption and approval of the Stock Purchase Agreement and the Articles of
Amendment to the Company's Amended and Restated Articles of Amendment described
in further detail below. The Company has agreed that the proxy materials for the
Shareholders Meeting will contain the recommendation of the Board of Directors
that the shareholders approve the sale of the Second Funding Shares and will
state that the Board recommends the Offer.
Amendment to Articles of Incorporation. The Company's Board of Directors
has approved an amendment to the Amended and Restated Articles of Incorporation
of the Company, pursuant to which the number of authorized shares of capital
stock of the Company shall be increased from twenty-five million (25,000,000) to
forty million (40,000,000) as embodied in the Articles of Amendment attached as
an exhibit to the Stock Purchase Agreement (the "Articles of Amendment"). The
Company's Board of Directors has resolved to recommend the approval of the
Articles of Amendment by the shareholders and has directed that such Articles of
Amendment be submitted to the shareholders for their approval at the
Shareholders Meeting. At the Second Closing, the Company shall file the Articles
of Amendment with the Secretary of State of the State of Texas if such Articles
of Amendment have been approved by the shareholders at the Shareholders Meeting,
in accordance with the Company's governing instruments and applicable law.
Representations and Warranties. The Stock Purchase Agreement contains
various customary representations and warranties of the parties, including
representations by the Company as to the Company's organization and
qualification, capital structure, authority to enter into the Stock Purchase
Agreement and to consummate the transactions contemplated thereby, required
consents and approvals, filings made by the Company with the Commission
(including financial statements included in the documents filed by the Company
with the Commission), absence of material adverse changes, absence of
litigation, employee benefit plans, environmental laws and regulations,
intellectual property, tax matters and the inapplicability of certain state
takeover statutes.
The Purchaser has also made customary representations and warranties to the
Company, including, but not limited to, representations and warranties as to
organization, authority to enter into the Stock Purchase Agreement and to
consummate the transactions contemplated thereby, required consents and
approvals and financing.
Conduct of Business of the Company. The Stock Purchase Agreement provides
that until the Second Closing, the business of the Company and each of its
subsidiaries will be conducted in the ordinary and usual course of business.
Accordingly, without the Purchaser's approval, neither the Company nor any of
its
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subsidiaries may, prior to the Second Closing, engage or agree to engage in an
enumerated list of actions generally characterized as being outside the ordinary
and usual course of business. Such actions requiring the Purchaser's approval
include, among other things (but subject to certain exceptions stated in the
Stock Purchase Agreement): (i) issuing equity securities other than under
specified circumstances; (ii) making any new grants or awards under any employee
benefit plans; (iii) compromising any claims or litigation, or entering into any
agreements for indebtedness or other agreements; or (iv) making new commitments
for capital expenditures in excess of specified levels.
Other Potential Bidders and Transactions. Pursuant to the terms of the
Stock Purchase Agreement, the Company may not, and the Company is required to
use its best efforts to not permit any of its subsidiaries and their respective
directors, officers, employees, attorneys, financial advisors, agents or other
representatives to, directly or indirectly, solicit, initiate or knowingly
encourage (including by way of furnishing information) any bona fide proposal or
offer (other than a proposal or offer by the Purchaser or any of the Purchaser's
affiliates), or any expression of interest relating to any actual or potential
merger, consolidation or other business combination involving the Company or any
of its subsidiaries or any acquisition in any manner (including, without
limitation, by tender or exchange offer) of a substantial equity interest in, or
a substantial portion of the assets of, the Company or any of its subsidiaries
(individually, a "Takeover Proposal" and collectively the "Takeover Proposals").
Notwithstanding the foregoing, the Stock Purchase Agreement permits the
Company to engage in discussions or negotiations with, and furnish information
to, any person that makes a written Takeover Proposal in respect of which the
Board of Directors of the Company concludes in good faith if consummated would
constitute a Superior Proposal (as defined herein), but only if the Board of
Directors of the Company concludes in good faith on the basis of the advice of
its outside counsel that the failure to take such action would be inconsistent
with the fiduciary obligations of the Board under applicable law. A "Superior
Proposal" is defined as a Takeover Proposal, on terms which a majority of the
members of the Board of Directors of the Company determines in good faith, and
based on the advice of outside counsel, to be more favorable to the Company and
its shareholders than the transactions contemplated by the Stock Purchase
Agreement and any revised transaction proposed by the Purchaser in response to a
Superior Proposal being made. The Purchaser has the right to be notified of the
material terms of any Takeover Proposal, including the identity of the person
making such Takeover Proposal, as soon as practicable but no later than the date
on which such Takeover Proposal is presented to the Board of Directors. In the
event the Company's Board of Directors determines in good faith that a Takeover
Proposal constitutes a Superior Proposal, the Company may not terminate the
Stock Purchase Agreement until a period of at least five (5) business days has
elapsed after delivery to the Purchaser of such determination by the Board of
Directors, during which time the Company is required to provide the Purchaser a
reasonable opportunity to propose a modification of the terms and conditions of
the Stock Purchase Agreement so that a business combination between the Company
and the Purchaser may be effected. If, after such period, the Company's Board of
Directors continues to believe in good faith that such Takeover Proposal
constitutes a Superior Proposal and simultaneously therewith or not later than
90 business days thereafter the Company enters into a definitive acquisition,
merger or similar agreement to effect such Superior Proposal, then the Company
may terminate the Stock Purchase Agreement, in which event the Company would be
required to pay Purchaser $1 million in cash (the "Termination Fee").
The Purchaser has the right to terminate the Stock Purchase Agreement in
the event, among other things the Board of the Directors of the Company shall
have recommended to the shareholders any Takeover Proposal (other than by the
Purchaser or any of Purchaser's affiliates) or shall have resolved to do so, in
which event, upon the acceptance of any such proposal, the Company would be
required to pay the Termination Fee.
Termination. The Stock Purchase Agreement may be terminated upon the mutual
written consent of the Company and the Purchaser, or by either the Company or
the Purchaser if: (i) there has been a breach by the other party of any
representation or warranty made as of the date of the Stock Purchase Agreement
that is not qualified by reference to a Material Adverse Effect (as defined
below), the effect of which has a Company Material Adverse Effect or a Buyer
Material Adverse Effect, as the case may be; (ii) there has been a breach by the
other party of any representation or warranty made as of the date of the Stock
Purchase Agreement that is qualified by reference to a Material Adverse Effect,
in each case, which breach has not been cured (if
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capable of being cured) within fifteen (15) business days after receipt by the
breaching party of written notice of the breach; (iii) as a result of the
failure of any of the Offer Conditions, the Offer shall have terminated or
expired in accordance with its terms without the Purchaser having accepted for
payment any Shares pursuant to the Offer; (iv) the Purchaser shall not have
accepted for payment any Shares pursuant to the Offer prior to July 1, 1999;
provided, however, that with respect to Subsections (iii) and (iv) hereof, the
right to terminate the Stock Purchase Agreement shall not be available to any
party whose failure to perform any of its obligations under the Stock Purchase
Agreement results in the failure of any such condition or if the failure of such
condition results from facts or circumstances that constitute a breach of a
representation or warranty under the Stock Purchase Agreement by such party; (v)
the Second Closing and the consummation of the Offer have not been effected on
or prior to the close of business on July 1, 1999, whether such date is before
or after the date of approval of the Company's shareholders; provided, however,
that the right to terminate the Stock Purchase Agreement pursuant to this part
(v) of this paragraph shall not be available to any party whose failure to
fulfill any obligation of the Stock Purchase Agreement has been the cause of, or
resulted in, the failure of the Second Closing to have occurred on or prior to
such date; (vi) any court or other government or an agency, bureau, board,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state, or local,
domestic or foreign (a "Governmental Entity"), having jurisdiction over a party
to the Stock Purchase Agreement shall have issued an order, decree or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the transactions contemplated by the Stock Purchase Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable; or (vii) ten (10) business days elapse after all the conditions
to the Company's and the Purchaser's obligations to close the sale of the Second
Funding Shares shall have been satisfied or waived and the Second Closing shall
not have occurred through no fault of the terminating party.
The Company may terminate the Stock Purchase Agreement if: (i) the
Purchaser shall have failed to comply in any material respect with any of its
respective covenants or agreements contained in the Stock Purchase Agreement
required to be complied with prior to the date of such termination, which
failure to comply has not been cured within fifteen (15) business days after
written notice of such failure; (ii) the Company's shareholders shall not
approve the Stock Purchase Agreement and the transactions contemplated thereby
at a duly called and noticed special shareholders meeting at which a quorum is
present in person or by proxy, or any adjournment thereof prior to June 21,
1999; or (iii) the Board of Directors of the Company shall determine in good
faith that a Takeover Proposal constitutes a Superior Proposal; provided,
however, that the Company may not terminate the Stock Purchase Agreement
pursuant to part (iii) of this paragraph, unless (A) five (5) business days
shall have elapsed after delivery to the Purchaser of a written notice of such
determination by such Board of Directors and at all reasonable times during such
five (5) business-day period the Company shall have provided the Purchaser a
reasonable opportunity, to propose a modification of the terms and conditions of
the Stock Purchase Agreement so that a business combination between the Company
and the Purchaser may be effected, and (B) at the end of such five (5)
business-day period such Board of Directors shall continue to believe in good
faith that such Takeover Proposal constitutes a Superior Proposal and
simultaneously therewith or not later than ninety (90) business days thereafter
the Company shall enter into a definitive acquisition, merger or similar
agreement to effect such Superior Proposal.
The Purchaser may terminate the Stock Purchase Agreement if: (i) the
Company shall have failed to comply in any material respect with any of its
covenants or agreements contained in the Stock Purchase Agreement required to be
complied with prior to the date of such termination, which failure to comply has
not been cured within fifteen (15) business days after written notice of such
failure; (ii) the Company shall not have duly called and noticed a special
shareholders meeting to be held no later than June 4, 1999 (subject to
adjournment) within the notice period required by the Company's governing
instruments and applicable law; (iii) the shareholders shall not approve the
Stock Purchase Agreement and the transactions contemplated by the Stock Purchase
Agreement at a duly called and noticed shareholders meeting at which a quorum is
present in person or by proxy, or any adjournment thereof prior to June 21,
1999; (iv) the Board of Directors of the Company shall not have recommended the
Stock Purchase Agreement and the transactions contemplated thereby to the
Company's shareholders as contemplated by the Stock Purchase Agreement, or shall
have resolved not to make such recommendations, or shall have modified in a
manner adverse to the Purchaser or rescinded its recommendations to the
shareholders, or shall have modified or rescinded its
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approval of the Stock Purchase Agreement or the transactions contemplated
thereby, or shall have resolved to do any of the foregoing; (v) the Board of
Directors of the Company shall have recommended to the shareholders any Takeover
Proposal (other than by the Purchaser or any of its affiliates) or shall have
resolved to do so; (vi) a tender offer or exchange offer for twenty percent
(20%) or more of the outstanding shares of capital stock of the Company is
commenced, and the Board of Directors of the Company fails to recommend against
acceptance of such tender offer or exchange offer by its shareholders within the
ten (10) business day period (or such shorter period) required by Section 14e-2
of the Exchange Act (the taking of no position by the expiration of such ten
business day period (or such shorter period) with respect to the acceptance of
such tender offer or exchange offer by its shareholders constituting such a
failure); or (vii) the Company or any of its subsidiaries, without having
received prior written consent from the Purchaser, shall have entered into,
authorized, recommended, proposed, or publicly announced its intention to enter
into, authorize, recommend or propose to its shareholders an agreement,
arrangement, understanding or letter of intent with any person (other than the
Purchaser or any of its affiliates) to (A) effect a merger or consolidation or
similar transaction involving the Company or any of its subsidiaries, (B)
purchase, lease, or otherwise acquire all or a substantial portion of the assets
of the Company or any of its subsidiaries, or (C) purchase or otherwise acquire
(including by way of merger, consolidation, share exchange or similar
transaction) beneficial ownership of securities representing twenty percent
(20%) or more of the voting power of the Company (in each case other than any
such merger, consolidation, purchase, lease or other transaction involving only
the Company and one (1) or more of its subsidiaries or involving only any two
(2) or more of its subsidiaries).
"Material Adverse Effect" as defined in the Stock Purchase Agreement means,
when used in connection with the Company or the Purchaser, any change or effect
that: (i) has had, or is reasonably likely to have a materially adverse impact
on the business, operations, or results of operations, assets or condition
(financial or otherwise) of such party or any of its subsidiaries; or (ii)
substantially impairs or delays the consummation of the transactions
contemplated by the Stock Purchase Agreement, but, in either such event, shall
not include (A) any change or effect that results from conditions, events or
circumstances generally affecting the industries in which the Company or the
Purchaser operate or the economy in general, (B) any action or change
specifically permitted or required by the provisions of the Stock Purchase
Agreement, or (C) the transactions contemplated by this Agreement or the
announcement hereof, provided, however, a Material Adverse Effect will be deemed
to include the circumstances set forth in (i) or (ii) above if those
circumstances are caused by any suit, action, cause or proceeding brought by any
third party seeking injunctive relief, damages, or any other relief concerning
the transactions contemplated by the Stock Purchase Agreement.
Transaction Expenses. Pursuant to the terms of the Stock Purchase
Agreement, except for the Termination Fee which shall be borne by the Company,
all costs and expenses incurred in connection with the Stock Purchase Agreement
and the transactions contemplated thereby shall be paid by the party incurring
such costs and expenses; provided, however, that: (i) all expenses incurred in
connection with the filing fees and printing and mailing costs of the Schedule
14D-1 and the other documents required to be filed with the Commission in
connection with the Stock Purchase Agreement, including the Offer, are to be
shared equally be the Purchaser and the Company, and (ii) all filing fees and
other costs incurred by any of the parties in connection with the HSR Act are to
be borne by the Company.
The Side Letter Agreements
The following is a summary of the material terms of the Side Letter
Agreements between the Purchaser and each of the Management Shareholders. This
summary is not a complete description of the terms and conditions thereof and is
qualified in its entirety by reference to the full text thereof, which is
incorporated herein by reference and a copy of the form of which has been filed
as an exhibit to the Schedule 14D-1 containing this Offer to Purchase. The form
of Side Letter Agreement may be examined and copies thereof may be obtained, as
set forth in Section 8 above.
Under the Side Letter Agreements, each of the Management Shareholders
agrees, in the event the Minimum Tender Condition is not met as of the initial
scheduled expiration date of the Offer, to tender such number of the Management
Shareholder's Shares pursuant to the terms of the Offer, except where such sales
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in response to the Offer might result in liability under Section 16(b) of the
Exchange Act, so that the number of shares tendered by such Management
Shareholder and all other shareholders of the Company shall meet the Minimum
Tender Condition. Each Management Shareholder may tender up to the full amount
of such person's Shares in the Offer, even if the Minimum Condition is otherwise
met, subject to the pro rata reduction as described in Section 1 of this Offer
to Purchase. Because the Management Shareholders own in the aggregate more than
1,600,000 Shares, the tender by the Management Shareholders of all of their
Shares alone will cause the Minimum Tender Condition to be satisfied. Each of
the Management Shareholders further agrees that he shall not, directly or
indirectly, solicit, initiate or knowingly encourage (including by way of
furnishing information), entertain or consider any Takeover Proposal from any
person other than the Purchaser or engage in or continue discussions or
negotiations relating to any Takeover Proposal, except that such Management
Shareholder shall not be restricted from acting in his capacity as a director in
responding to a Takeover Proposal as permitted in the Stock Purchase Agreement.
The Shareholders' and Voting Agreement
The following is a summary of the material terms of the Shareholders'
Agreement by and among the Company, the Purchaser and the Management
Shareholders. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the full
text thereof, which is incorporated herein by reference and a copy of which has
been filed as an exhibit to the Schedule 14D-1 containing this Offer to
Purchase. The Shareholders' Agreement may be examined and copies thereof may be
obtained, as set forth in Section 8 above.
Voting Agreement. Under the Shareholders' Agreement, which is conditioned
and effective upon the Second Closing, the Management Shareholders shall have
the right to nominate two (2) of the total number of directors of the Company
and the Purchaser shall have the right to nominate the remaining number of
directors. The initial nominees of the Management Shareholders under the
Shareholders' Agreement are Xxxxxx X. Xxxxxxx and M. D. Xxxxx and the initial
nominees of the Purchaser under the Shareholders' Agreement are E. Xxxxxx
Xxxxxx, Xxxxxx X. Xxxxx, Xxxxxx X. Xxxxxxxx and Xxxx XxXxxxxx. The parties to
the Shareholders' Agreement are required to vote the number of Shares they own
for the election of the individuals nominated by the Purchaser and the
Management Shareholders in accordance with the Shareholders' Agreement.
In connection with the Shareholders' Agreement, each of the Management
Shareholders has executed an irrevocable proxy appointing the Purchaser as proxy
and authorizing the Purchaser to vote such Management Shareholder's Shares for
the election of the directors to the Board of Directors in accordance with the
Shareholders' Agreement. Such irrevocable proxies further designate the
Purchaser as a proxy for each Management Shareholder with respect to all other
matters of the Company subject to a vote of the Company's shareholders;
provided, however, that each Management Shareholder has retained the right to
vote his Shares with respect to matters concerning (i) a dissolution of the
Company, or (ii) the sale of all or substantially all of the assets of the
Company which requires a vote of shareholders under applicable law, the issuance
by the Company of Common Stock in such amount that the rules of the exchange on
which the Company's stock is listed requires shareholder approval, or a merger
of the Company with another entity which requires a vote of shareholders under
applicable law. The irrevocable proxies are conditioned upon and are to become
effective upon the Second Closing.
Rights of First Refusal. Pursuant to the terms of the Shareholders'
Agreement, effective as of April 15, 1999, the Purchaser has a right of first
refusal with respect to the sale, transfer or other disposition (a "Transfer")
of Shares owned by each of the Management Shareholders. In the event a
Management Shareholder wishes to Transfer Shares other than in a transaction
effected on the Nasdaq Stock Market or any stock exchange or over-the-counter
trading system on which the Shares are traded (a "Public Transfer"), the
Purchaser will have an option for five (5) business days after receiving notice
of the proposed Transfer and the terms thereof (a "Seller Notice") to purchase
the Shares at the same price and on the same terms as specified in the Seller
Notice. In the event the Purchaser does not exercise its option with respect to
one hundred percent (100%) of the Shares specified in the Seller Notice (or less
than 100% if permitted under the terms of the Seller Notice), then the
Management Shareholder may transfer such Shares (or remaining Shares in the
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event the Purchaser exercises its option to purchase less than 100% of the
Shares as permitted in the Seller Notice) free of the right of first refusal and
voting agreement on the terms specified in the Seller Notice (or at a higher
price with no material change in the other terms), provided such Transfer is
consummated within 180 days of the date of the Seller Notice.
In the event a Management Shareholder wishes to make a Public Transfer of
Shares, the Purchaser will have an option to purchase such Shares on the same
terms specified in the Public Transfer Notice (defined below) for three (3)
business days after receiving notice of such proposed transfer, which notice
shall contain the maximum number of Shares the Management Shareholder intends to
sell during the following sixty (60) days, and the minimum price at such Shares
may be sold (the "Public Transfer Notice"). In the event the Purchaser does not
purchase 100% of the Shares subject to the Public Transfer Notice, then the
Management Shareholder may sell the balance of the Shares specified in the
Public Transfer Notice at a price not less than the price specified in the
Public Transfer Notice free of the right of first refusal and voting agreement,
provided than any such Shares not Transferred within sixty (60) days of the date
of the Public Seller Notice shall again be subject to the Purchaser's right of
first refusal under the Shareholders' Agreement.
Notwithstanding the foregoing, under the Shareholders' Agreement, each
Management Shareholder may pledge Shares held by it as collateral for
indebtedness provided that the pledgee party agrees to be bound by all of the
terms and conditions of the Purchaser's rights of first refusal under the
Shareholders' Agreement. In addition, pursuant to the terms of the Shareholders'
Agreement, the Purchaser grants to the Management Shareholders a right of
participation with respect to future sales by the Purchaser of Shares where such
sales occur in any one transaction or series of related transactions in which
more than forty percent (40%) of the total number of Shares standing in the
Purchaser's name as of the date of the Second Closing are Transferred.
The Shareholders' Agreement and the irrevocable proxies executed in
connection therewith will be terminated upon the earlier of: (i) the termination
of the Stock Purchase Agreement in the event the Second Closing does not occur;
(ii) the fifth anniversary of the date of the Second Closing; (iii) the written
consent of the Company, the Purchaser and a majority in interest of the
Management Shareholders; or (iv) the dissolution of the Company.
In the event the Management Shareholders do not tender any Shares owned by
them into the Offer and the Minimum Tender Condition is otherwise met, there is
a possibility that, upon consummation of the transactions contemplated by the
Stock Purchase Agreement, including the Offer, the Purchaser will be the
beneficial owner of up to sixty-eight percent (68%), and Xxx Xxxxxx, through his
control of the Purchaser, will beneficially own up to seventy percent (70%), of
the total number of Shares then outstanding (assuming (i) there are upward
adjustments in the aggregate of 140,000 shares to the number of Second Funding
Shares, and (ii) no other Shares are issued), by virtue of the Purchaser's right
to vote shares held by the Management Shareholders pursuant to the Shareholders'
Agreement and the irrevocable proxies. The Purchaser and Xx. Xxxxxx have been
advised by the Company that, to the best of the Company's knowledge, all of the
Management Shareholders currently intend to tender Shares owned by them into the
Offer.
The Registration Rights Agreement
The following is a summary of the material terms of the Registration Rights
Agreement by and among the Company, the Purchaser and the Management
Shareholders. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the full
text thereof, which is incorporated herein by reference and a copy of which has
been filed with the Commission as an exhibit to the Schedule 14D-1 containing
this Offer to Purchase. The Registration Rights Agreement may be examined, and
copies thereof may be obtained, as set forth in Section 8 above.
The Registration Rights Agreement was entered into concurrently with the
Stock Purchase Agreement. The Registration Rights Agreement provides, among
other things, that the Purchaser (and certain of its transferees) has the right
by written notice (a "Demand Notice") to require the company to file a
Registration Statement under the Securities Act where such Demand Notice covers
the registration of at least
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250,000 shares purchased by the Purchaser from the Company under the Stock
Purchase Agreement; provided, however, this right may not be exercised on more
than two (2) occasions.
Pursuant to the Registration Rights Agreement, if the Company proposes to
register any of its securities under the Securities Act (other than a
registration on Form S-4 or Form S-8, or any other form not available for
registering the Registrable Securities (as defined herein) for sale to the
public) and the registration form may be used for the registration of the
Registrable Securities (a "Piggyback Registration"), then the Company is
required to give prompt notice to the Purchaser and the Management Shareholders
of its intention to effect such a registration and include in such registration
all Registrable Securities which the Purchaser and the Management Shareholders
request to be included in such registration by written notice to the Company.
Notwithstanding the foregoing, if in a Piggyback Registration the underwriter
advises the Company that the number of securities requested to be included in
such registration exceeds the number which can be sold in an orderly manner in
such offer within a price range acceptable to the Company, then the Company will
include in such registration: (i) if an offering of equity securities by the
Company, first, the securities to be sold by the Company, second, the MVII
Shares (defined below), third, the DSI Group Shares (defined below), and fourth,
other securities requested to be included in such registration; and (ii) if an
offering of equity securities by holders of the Company's securities, first, the
securities requested to be included therein by the holders requesting such
registration, second, the MVII Shares, and third, the DSI Group Shares.
For purposes of the Registration Rights Agreement the term "Registrable
Securities" means: (i) the Initial Funding Shares and the Second Funding Shares,
together with any shares of Common Stock issued or issuable with respect to such
shares by way of a share dividend or share split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization (the "MVII Shares"), and (ii) only with respect to a Piggyback
Registration, shares of Common Stock over which a Management Shareholder has
dispositive power as of the date of the Registration Rights Agreement, together
with any shares of Common Stock issued or issuable with respect to such shares
by way of a share dividend or share split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization (the
"DSI Group Shares").
The rights of the parties under the Registration Rights Agreement may not
be transferred, except that the rights of the Purchaser under such agreement may
be transferred at any time without the consent of the Company to any person
acquiring at least 250,000 of the Registrable Securities from the Purchaser or
any of its affiliates. The Registration Rights Agreement provides that expenses
relating to the registration of shares (other than underwriting expenses
relating to Registrable Securities and the selling shareholder's legal expenses)
will be paid by the Company and otherwise contains terms that are customary to
registration rights agreements of its type, including, but not limited to,
rights of indemnification and contribution.
The Consulting Agreement
The following is a summary of the material terms of the Consulting
Agreement to be entered into between the Company and Xx. Xxxxx prior to the
Second Closing. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the full
text thereof, which is incorporated herein by reference and a copy of the form
of which has been filed as an exhibit to the Schedule 14D-1 containing this
Offer to Purchase. The form of Consulting Agreement may be examined and copies
thereof may be obtained, as set forth in Section 8 above.
As a condition to the Purchaser's obligation to purchase the Second Funding
Shares, the Company and Xx. Xxxxx will enter into the Consulting Agreement which
shall be effective as of the date of the Second Closing, pursuant to which Xx.
Xxxxx shall cease to be an employee and officer of the Company and shall provide
consulting services to the Company for a period ending on the third annual
anniversary of the date of the Second Closing. As compensation for his services
under the Consulting Agreement, Xx. Xxxxx shall be entitled to compensation in
the amount of $450,000, payable in equal monthly installments of $12,500. Xx.
Xxxxx shall be entitled to such compensation irrespective of a termination of
the Consulting Agreement, unless such termination is by Xx. Xxxxx for reasons
other than a breach by the Company of its obligations
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under the Consulting Agreement. The Consulting Agreement contains a
non-disclosure covenant similar to the non-disclosure covenant contained in Xx.
Xxxxx' previous employment agreement with the Company, a copy of which is filed
as a part of the Company's Registration Statement on Form S-1 filed with the
Commission on May 29, 1997.
13. DIVIDENDS AND DISTRIBUTIONS
According to the Company Form 10-K, the Company has not paid any dividends
to date. Pursuant to the terms of the Stock Purchase Agreement, the Company and
its subsidiaries are prohibited from declaring, setting aside, or paying any
dividends payable in cash, stock or property in respect of any capital stock
other than dividends from their direct or indirect wholly-owned subsidiaries
until after the Second Closing.
14. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer or the Stock Purchase
Agreement, and in addition to (and not in limitation of) the Purchaser's rights
to extend and amend the Offer at any time in its sole discretion (subject to the
provisions of the Stock Purchase Agreement), and subject to any applicable rules
and regulations of the Commission, including Rule 14e-1(c) relating to the
Purchaser's obligation to pay for or return tendered Shares after termination of
the Offer, the Purchaser is not required to accept for payment or pay for any
Shares tendered pursuant to the Offer unless the following conditions shall have
been satisfied: (i) there shall have been validly tendered and not withdrawn
prior to the expiration of the Offer one million six hundred thousand
(1,600,000) Shares; (ii) any waiting period under the HSR Act applicable to the
purchase of Shares pursuant to the Offer shall have expired or been terminated;
(iii) there shall have been full compliance with Article 13.03 of the Texas
Business Corporation Act (the "TBCA"), including the approval of the acquisition
of the Initial Funding Shares and Second Funding Shares by the Purchaser as
contemplated by the Stock Purchase Agreement by the Company's Board of
Directors; (iv) the conditions to the Purchaser's obligations to purchase the
Second Funding Shares set forth in the Stock Purchase Agreement shall have been
satisfied or waived; and (v) the closing of the sale of the Second Funding
Shares shall have occurred pursuant to the Stock Purchase Agreement, it being
understood that the closing of the Offer shall occur simultaneously with and be
conditioned upon the closing of the sale of the Second Funding Shares.
Furthermore, notwithstanding any other term of the Offer or the Stock Purchase
Agreement, the Purchaser shall not be required to accept for payment or, subject
as aforesaid, to pay for any Shares not theretofore accepted for payment or paid
for, and may terminate the Offer if, at any time on or after the date of the
Stock Purchase Agreement and before the acceptance of such Shares for payment or
the payment therefor, any of the following conditions exists and with respect to
(a), (b), (c), (e) and (f) only, such condition has not been cured within ten
(10) days of receipt of notice thereof by the Purchaser (other than as a result
of any action or inaction of the Purchaser or any of its subsidiaries that
constitutes a breach of the Stock Purchase Agreement):
(a) there shall be threatened or pending by any Governmental Entity
any suit, action or proceeding (i) challenging the acquisition by the
Purchaser of any Shares under the Offer or the Stock Purchase Agreement,
seeking to restrain or prohibit the making or consummation of the Offer or
the performance of any of the other transactions contemplated by the Offer,
the Stock Purchase Agreement or the Shareholders' Agreement or the
Registration Rights Agreement (the "Other Agreements"), or seeking to
obtain from the Company or the Purchaser (in the case of the Purchaser in a
suit, action, or proceeding related to the Stock Purchase Agreement) any
damages that are material in relation to the Company or any of its
subsidiaries; (ii) seeking to prohibit or materially limit the ownership or
operation by the Company or any of its subsidiaries of a material portion
of the business or assets of the Company or any of its subsidiaries or to
compel the Company or the Purchaser to dispose of or hold separate any
material portion of the business or assets of the Company or any of its
subsidiaries, or the Purchaser or any of its subsidiaries, in each case as
a result of the Offer or any of the other transactions contemplated by the
Stock Purchase Agreement or the Other Agreements; (iii) seeking to impose
material limitations on the ability of the Purchaser to acquire or hold, or
exercise full rights of ownership of, any Shares to be accepted for payment
pursuant to the Offer or the Stock Purchase Agreement including, without
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limitation, the right to vote such Shares on all matters properly presented
to the shareholders; or (iv) which otherwise is reasonably likely to have a
Material Adverse Effect on the business of the Company or any of its
subsidiaries or the Purchaser or any of its subsidiaries, or there shall be
pending by any other person any suit, action or proceeding which is
reasonably likely to have a Material Adverse Effect on the business of the
Company or any of its subsidiaries or the Purchaser or any of its
subsidiaries;
(b) there shall be enacted, entered, enforced, promulgated or deemed
applicable to the Offer by any Governmental Entity, any statute, rule,
regulation, judgment, order or injunction, other than the application to
the Offer of applicable waiting periods under the HSR Act, that is
reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (iv) of paragraph (a)
above;
(c) there shall have occurred any Material Adverse Effect on the
business of the Company or any of its subsidiaries;
(d) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to the Purchaser its
approval or recommendation of the Offer, the sale of the Initial Funding
Shares or the Second Funding Shares, the Stock Purchase Agreement, the
Articles of Amendment or any of the Other Agreements or recommendation to
the shareholders of the Offer; (ii) the Board of Directors of the Company
or any committee thereof shall have resolved to take any of the foregoing
actions; (iii) the Company shall have approved or recommended any Takeover
Proposal; or (iv) the Company shall have entered into any agreement with
respect to any Superior Proposal in accordance with the Stock Purchase
Agreement;
(e) any of the representations and warranties of the Company set forth
in the Stock Purchase Agreement shall not be true and correct in each case:
(i) at the date of the Stock Purchase Agreement; and (ii) at the scheduled
or extended expiration of the Offer, except for such matters that, either
individually or when combined with any breach of any other representation
or warranty of the Company or any fact, circumstance, occurrence, breach or
default, or any failure to perform any covenant or obligation all as set
forth in Sections 6.2(b) and 6.2(c) of the Stock Purchase Agreement, are
not reasonably likely to have a Material Impact (as defined below);
(f) the Company shall have failed to perform any obligation or to
comply with any agreement or covenant of the Company to be performed or
complied with by it under the Stock Purchase Agreement, except for such
matters that, either individually or when combined with any breach of any
representation or warranty of the Company set forth in the Stock Purchase
Agreement as of the times set forth in Section (e) above, or any fact,
circumstance, occurrence, breach or default, or any failure to perform any
covenant or obligation all as set forth in Sections 6.2(b) and 6.2(c) of
the Stock Purchase Agreement, are not reasonably likely to have a Material
Impact;
(g) there shall have occurred and continued to exist for not less than
three (3) business days (i) any general suspension of trading in, or
limitation on prices for, securities on a national securities exchange in
the United States (excluding any coordinated trading halt triggered solely
as a result of a specified decrease in a market index); (ii) a declaration
of a banking moratorium or any suspension of payments in respect of banks
in the United States; (iii) any limitation (whether or not mandatory) by
any Governmental Entity on, or other event that materially adversely
affects, the extension of credit by banks or other lending institutions;
(iv) a commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United States
which in any case is reasonably expected to have a Material Adverse Effect
on the Company or the Purchaser's ability to complete the Offer or
materially delay the consummation of the Offer; or
(h) the Stock Purchase Agreement shall have been terminated in
accordance with its terms.
The term "Material Impact" is defined in the Stock Purchase Agreement as any
matter or matters having an adverse impact or economic consequence that exceeds
$360,000.
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The Stock Purchase Agreement provides that the foregoing conditions are for
the sole benefit of the Purchaser and may, subject to the terms of the Stock
Purchase Agreement, be waived by the Purchaser in whole or in part at any time
and from time to time in its sole discretion. The failure by the Purchaser at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right, the waiver of any such right with respect to particular facts
and circumstances shall not be deemed a waiver with respect to any other facts
and circumstances and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
15. CERTAIN LEGAL MATTERS
Except as described in this Section 15, based on a review of publicly
available filings made by the Company with the Commission and other publicly
available information concerning the Company, as well as certain representations
made to the Purchaser in the Stock Purchase Agreement by the Company, the
Purchaser is not aware of any regulatory license or regulatory permit that
appears to be material to the business of the Company and its subsidiaries,
taken as a whole, that might be adversely affected by the Purchaser's
acquisition or ownership of Shares as contemplated herein or of any approval or
other action by any governmental entity that would be required or desirable for
the acquisition or ownership of Shares by the Purchaser as contemplated herein.
Should any such approval or other action be required or desirable, the Purchaser
currently contemplates that such approval or other action will be sought, except
as described below under "State Takeover Laws." Although, except as otherwise
expressly described in this Section 15, the Purchaser does not presently intend
to delay the acceptance for payment of or payment for Shares tendered pursuant
to the Offer pending the outcome of any such matter, there can be no assurance
that any such approval or other action, if needed, would be obtained or would be
obtained without substantial conditions or that failure to obtain any such
approval or other action might not result in consequences adverse to the
Company's business or that certain parts of the Company's business might not
have to be disposed of if such approvals were not obtained or such other actions
were not taken or in order to obtain any such approval or other action. If
certain types of adverse action are taken with respect to the matters discussed
below, the Purchaser could decline to accept for payment or pay for any Shares
tendered. See Section 14 for Certain Conditions to the Offer.
State Takeover Laws. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, shareholders, executive offices or places of business in such states. In
Xxxxx x. MITE Corp., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws that made
the takeover of certain corporations more difficult, imposed a substantial
burden on interstate commerce and therefore was unconstitutional. However, in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without prior
approval of the remaining shareholders, provided that such laws were applicable
only under certain conditions. Subsequently, a number of federal courts ruled
that various state takeover statutes were unconstitutional insofar as they apply
to corporations incorporated outside of the state of enactment.
The Company is incorporated under the laws of the State of Texas. In
general, Article 13.03 of the TBCA prevents an "issuing public corporation"
(generally, a domestic corporation that has any class of voting shares
registered under the Exchange Act) from, directly or indirectly, entering into
or engaging in any "business combination" (defined to include the issuance or
transfer in one transaction or series of transactions, shares of the issuing
public corporation) with an "affiliated shareholder" (generally, a person who
beneficially owns twenty percent (20%) or more of the then outstanding voting
shares of the issuing public corporation) for a period of three (3) years
following the date such person first became an affiliated shareholder unless,
among other things, prior to such date the board of directors of the corporation
approved either the business combination or the purchase or acquisition which
resulted in the shareholder becoming an affiliated shareholder.
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Upon consummation of the sale of the Second Funding Shares and the Offer,
the Purchaser will become an affiliated shareholder within the meaning of
Article 13.03 of the TBCA pursuant to the Stock Purchase Agreement. The Board of
Directors of the Company approved the Stock Purchase Agreement and the
transactions contemplated thereby on April 9, 1999, and, as a result, has
approved the purchase or acquisition of shares by the Purchaser prior to the
time the Purchaser will become an affiliated shareholder under Article 13.03 of
the TBCA. Accordingly, Article 13.03 is inapplicable to the Offer, and the
Common Stock Acquisitions.
Neither the Company nor the Purchaser has determined whether any other
state takeover laws and regulations will by their terms apply to the Offer or
the Common Stock Acquisitions, and, except as set forth above, neither the
Company nor the Purchaser has presently sought to comply with any other state
takeover statute or regulation. The Company and the Purchaser reserve the right
to challenge the applicability or validity of any state law or regulation
purporting to apply to the Offer or the Common Stock Acquisitions, and neither
anything in this Offer nor any action taken in connection herewith is intended
as a waiver of such right. In the event it is asserted that one or more state
takeover statutes is applicable to the Offer or the Common Stock Acquisitions
and an appropriate court does not determine that such statue is inapplicable or
invalid as applied to the Offer, the Company or the Purchaser might be required
to file certain information with, or to receive approval from the relevant state
authorities, and the Purchaser might be unable to accept for payment or pay for
Shares tendered pursuant to the Offer, or be delayed in consummating the Offer.
Antitrust. Under the provisions of the HSR Act and the rules promulgated
thereunder, the transactions contemplated by the Stock Purchase Agreement,
including the acquisition of Shares under the Offer, may be consummated
following the expiration of a thirty (30)-calendar day waiting period following
the filing by the Purchaser of a Notification and Report Form with respect to
such transactions, unless the Purchaser receives a request for additional
information or documentary material from the Antitrust Division or the FTC or
unless early termination of the waiting period is granted. Under the HSR Act and
the rules promulgated thereunder, while a fifteen (15)-calendar day waiting
period applies to the acquisition of shares in a cash tender offer, a longer,
thirty (30)-calendar day waiting period applies to the acquisition of shares in
non-public transactions. As a result, both waiting periods apply to the
transactions contemplated by the Stock Purchase Agreement, including the Offer.
The Purchaser will make such filing as promptly as practicable after the
commencement of the Offer. If, within the initial thirty (30)-day waiting
period, either the Antitrust Division or the FTC requests additional information
or documentary material from the Purchaser concerning such transactions, the
waiting period will be extended and would expire at 11:59 p.m., New York City
time, on the tenth calendar day after the date of substantial compliance by the
Purchaser with such request. Only one extension of the waiting period pursuant
to a request for additional information is authorized by the HSR Act.
Thereafter, such waiting period may be extended only by court order or with the
consent of the Purchaser. In practice, complying with a request for additional
information or material can take a significant amount of time. In addition, if
the Antitrust Division or the FTC raises substantive issues in connection with a
proposed transaction, the parties frequently engage in negotiations with the
relevant governmental agency concerning possible means of addressing those
issues and may agree to delay consummation of the transaction while such
negotiations continue. Expiration or termination of the applicable waiting
periods under the HSR Act is a condition to the Purchaser's obligation to accept
for payment and pay for Shares tendered pursuant to the Offer.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's proposed purchase of
the Second Funding Shares and Shares tendered pursuant to the Offer by the
Purchaser. At any time before or after such purchases, the Antitrust Division or
the FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the transactions
or seeking the divestiture of Shares acquired by the Purchaser or the
divestiture of substantial assets of the Company or its subsidiaries or the
Purchaser or its subsidiaries. Private parties may also bring legal action under
the antitrust laws under certain circumstances. There can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if such a
challenge is made, of the results thereof.
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16. FEES AND EXPENSES
Southwest Securities, Inc. is acting as Dealer Manager in connection with
the Offer. The Purchaser has agreed to pay the Dealer Manager reasonable
compensation for such services. In addition, the Purchaser has agreed to
reimburse the Dealer Manager for its out-of-pocket expenses, related to its
engagement, including the reasonable fees and expenses of its counsel, and to
indemnify the Dealer Manager and certain related persons against certain
liabilities and expenses, including certain liabilities under the federal
securities laws.
The Purchaser has retained MacKenzie Partners, Inc. to act as the
Information Agent and American Stock Transfer & Trust Company to serve as the
Depositary in connection with the Offer. The Information Agent and the
Depositary each will receive reasonable compensation for their services, be
reimbursed for certain reasonable out-of-pocket expenses and be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under the federal securities laws. The Purchaser will not
pay any fees or commissions to any broker or dealer or any other person (other
than the Dealer Manager and the Information Agent) for soliciting tenders of
Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust
companies will be reimbursed by the Purchaser upon request for customary mailing
and handling expenses incurred by them in forwarding material to their
customers.
17. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the Offer or the
acceptance thereof would not be in compliance with the securities, blue sky or
other laws of such jurisdiction. The Purchaser is not aware of any jurisdiction
in which the making of the Offer or the tender of Shares in connection therewith
would not be in compliance with the laws of such jurisdiction. If the Purchaser
becomes aware of any state law prohibiting the making of the Offer or the
acceptance of Shares pursuant thereto in such state, the Purchaser will make a
good faith effort to comply with any such state statute or seek to have such
state statute declared inapplicable to the Offer. If, after such good faith
effort, the Purchaser cannot comply with any such state statute or have such
state statute declared inapplicable to the Offer, the Offer will not be made to
(nor will tenders be accepted from or on behalf of) the holders of Shares in
such state. In these jurisdictions where securities laws require the Offer to be
made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of the Purchaser by the Dealer Manager or one or more registered brokers
or dealers that are licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED HEREIN OR IN THE LETTER
OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser has filed with the Commission the Schedule 14D-1 pursuant to
Rule 14d-3 under the Exchange Act, together with exhibits, furnishing certain
additional information with respect to the Offer, and may file amendments
thereto. In addition, the Company shall file with the Commission the Schedule
14D-9 pursuant to Rule 14d-9 under the Exchange Act, together with exhibits,
setting forth its recommendation with respect to the Offer and the reasons for
such recommendation and furnishing certain additional related information. Such
Schedules and any amendments thereto, including exhibits, should be available
for inspection and copies should be obtainable in the manner set forth in
Section 8 (except that such material will not be available at the regional
offices of the Commission).
April 21, 1999 MVII, LLC
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ANNEX A
INFORMATION CONCERNING THE SOLE MANAGER AND THE EXECUTIVE
OFFICERS OF THE PURCHASER (INCLUDING XX. XXXXXX)
The following table sets forth the name, business address, and principal
occupation or employment at the present time and during the past five years of
the sole manager and executive officers of the Purchaser. In addition, unless
otherwise noted, each such person's business address is 000 Xxxx Xxxxxx, Xxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000. All of the persons listed below are citizens of
the United States.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT,
MATERIAL OCCUPATIONS, OFFICES OR EMPLOYMENT
NAME HELD DURING PAST FIVE YEARS
---- -------------------------------------------
E. Xxxxxx Xxxxxx..................... Xxx Xxxxxx is the sole Manager and President of the
Purchaser. Xx. Xxxxxx is also currently the President of
Xxxxxx Resorts, Inc., a corporation engaged in the business
of owning and managing resort properties, the business
address of which is X.X. Xxx 00000, 000 Xxxx Xxxxxx, Xxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000. Xx. Xxxxxx has held such
position from January 1999 through the present. From October
1991 through July 1998, Xx. Xxxxxx served as President of MW
Sign Corp., a corporation engaged in the outdoor advertising
business, the address of which is 0000 Xxxx Xxxxxx, Xxxx
Xxxxxx, Xxxxxxxxxx 00000. In addition, from February 1976 to
July 1998, Xx. Xxxxxx served as President of Xxxxxx &
MacFarlane, also an outdoor advertising business, the
address of which is 0000 Xxxx Xxxxxx, Xxxx Xxxxxx,
Xxxxxxxxxx 00000.
Xxxxxx X. Xxxxxxxx................... Xx. Xxxxxxxx currently serves as a Vice President of the
Purchaser. For the past five years, Xx. Xxxxxxxx has
operated a consulting business as a sole proprietorship,
providing services related to marketing, licensing and
product development, located at 0000 Xxxxxxxx Xxxx, Xx
Xxxxx, Xxxxxxxxxx 00000.
On February 23, 1999, xxx Xxxxxxx purchased 3,500 shares in an open market
transaction at a price of $2.44 per Share.
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Manually signed facsimile copies of the Letter of Transmittal will be accepted.
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each shareholder of the Company or such
shareholder's broker, dealer, commercial bank, trust company or other nominee to
the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
00 Xxxx Xxxxxx (for Eligible Institutions 00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Only) 46th Floor
(Attention: Corporate (000) 000-0000 Xxx Xxxx, Xxx Xxxx 00000
Trust Department) (Attention: Corporate
Confirm by Telephone: Trust Department)
(000) 000-0000
0-000-000-0000
To Confirm Receipt of Facsimile
and for General Information
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Dealer Manager and the Information Agent at
their respective telephone numbers and locations listed below. You may also
contact your broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
[MACKENZIE PARTNERS LOGO]
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000 (call collect)
or
(000) 000-0000 (call toll free)
The Dealer Manager for the Offer is:
[SOUTHWEST SECURITIES LOGO]
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
0-000-000-0000 (call toll free)
