1
OFFER TO PURCHASE
FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK
OF
XXXXXXX INVESTMENTS, INC.
AT
$7.50 NET PER SHARE IN CASH
BY
SW ACQUISITION, INC.
A WHOLLY-OWNED SUBSIDIARY OF XXXXXXXXX.XXX GROUP, INC.
--------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON MONDAY, JANUARY 10, 2000, UNLESS THE OFFER IS EXTENDED TO A LATER
DATE AND TIME (THE "EXPIRATION DATE"). SHARES THAT ARE TENDERED PURSUANT TO THE
OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
--------------------------------------------------------------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE THAT NUMBER OF
SHARES, WHICH, WHEN ADDED TO THE NUMBER OF SHARES BENEFICIALLY OWNED BY SW
ACQUISITION, INC. (THE "PURCHASER") AND ITS AFFILIATES, REPRESENTS A MAJORITY OF
THE TOTAL NUMBER OF OUTSTANDING SHARES OF XXXXXXX INVESTMENTS, INC. (THE
"COMPANY") ON A FULLY-DILUTED BASIS (THE "MINIMUM TENDER CONDITION"), (2) THE
PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE COMPANY HAS TAKEN
APPROPRIATE MEASURES SUCH THAT THE OFFER IS APPROVED IN ACCORDANCE WITH THE
MINNESOTA BUSINESS COMBINATION ACT (THE "BUSINESS COMBINATION CONDITION"), (3)
THE PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE COMPANY HAS NOT,
AMONG OTHER THINGS, ADOPTED A SHAREHOLDER RIGHTS PLAN OR OTHER PROTECTIVE
MEASURE OR VOTED TO INCREASE THE NUMBER OF OUTSTANDING SHARES OF CAPITAL STOCK
TO MORE THAN 5,626,115 SHARES OF COMMON STOCK (THE "ANTI-POISON PILL/DILUTION
CONDITION"), AND (4) THAT THE PURCHASER HAS OBTAINED SUFFICIENT FINANCING TO
ENABLE IT TO CONSUMMATE THE OFFER (THE "FINANCING CONDITION").
THERE ARE PROCEDURES AVAILABLE TO THE COMPANY'S BOARD OF DIRECTORS IN
THE COMPANY'S BYLAWS AND THE MINNESOTA BUSINESS CORPORATION ACT PURSUANT TO
WHICH IT CAN ACT PROMPTLY TO SATISFY THE BUSINESS COMBINATION CONDITION.
THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE THE
INTRODUCTION AND SECTIONS 14 AND 15 OF THE OFFER.
IMPORTANT
XXXXXXXXX.XXX GROUP, INC. ("STOCKWALK") AND THE PURCHASER ARE SEEKING
TO NEGOTIATE WITH THE COMPANY REGARDING THE ACQUISITION OF THE COMPANY BY THE
PURCHASER. THE PURCHASER RESERVES THE RIGHT TO AMEND THE OFFER (INCLUDING
AMENDING THE NUMBER OF SHARES TO BE PURCHASED AND THE PURCHASE PRICE) UPON,
AMONG OTHER THINGS, ENTERING INTO A MERGER AGREEMENT WITH THE COMPANY, OR TO
NEGOTIATE A MERGER AGREEMENT WITH THE COMPANY NOT INVOLVING A TENDER OFFER
PURSUANT TO WHICH THE PURCHASER WOULD TERMINATE THE OFFER AND THE SHARES WOULD,
UPON CONSUMMATION OF SUCH MERGER, BE CONVERTED INTO CASH, COMMON STOCK OF
STOCKWALK, AND/OR OTHER SECURITIES IN SUCH AMOUNTS AS ARE NEGOTIATED BY
STOCKWALK, THE PURCHASER AND THE COMPANY.
WE URGE THE BOARD TO COOPERATE WITH OUR EFFORTS TO CONSUMMATE THE OFFER
PROMPTLY.
------------------------
THE DEALER MANAGER FOR THE OFFER IS:
XX XXXXXXXX & CO
2
IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
Shares (as defined herein), should either: (a) 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 together with the certificate(s)
representing tendered Shares and any other required documents, to the Depositary
(as defined herein) or tender such Shares pursuant to the procedures for
book-entry transfer set forth in Section 3; or (b) 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 procedures for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective 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 other related materials may be obtained from the Information Agent or from
brokers, dealers, commercial banks and trust companies.
-ii-
3
TABLE OF CONTENTS
PAGE
----
INTRODUCTION............................................................... 2
THE TENDER OFFER........................................................... 5
1. TERMS OF THE OFFER................................................... 5
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR THE SHARES.................... 6
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES.............. 8
4. WITHDRAWAL RIGHTS.................................................... 10
5. CERTAIN UNITED STATES TAX CONSEQUENCES............................... 11
6. PRICE RANGE OF THE SHARES; DIVIDENDS................................. 12
7. POSSIBLE EFFECTS OF THE OFFER ON THE MARKET FOR THE SHARES;
NASDAQ/NMS LISTING; EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS.... 13
8. CERTAIN INFORMATION CONCERNING THE COMPANY........................... 14
9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND STOCKWALK........... 20
10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY................... 21
11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY.......................... 22
12. SOURCE AND AMOUNT OF FUNDS........................................... 24
13. DIVIDENDS AND DISTRIBUTIONS.......................................... 24
14. CERTAIN CONDITIONS OF THE OFFER...................................... 25
15. CERTAIN LEGAL MATTERS; REQUIRED REGULATORY APPROVALS................. 29
16. CERTAIN FEES AND EXPENSES............................................ 32
17. MISCELLANEOUS........................................................ 32
SCHEDULE I................................................................. 34
SCHEDULE II................................................................ 36
-1-
4
To the Holders of Shares of Common Stock of Xxxxxxx Investments, Inc.:
INTRODUCTION
SW Acquisition, Inc. (the "Purchaser") hereby offers to purchase all
outstanding shares of Common Stock, par value $.02 per share (the "Shares"), of
Xxxxxxx Investments, Inc., a Minnesota corporation (the "Company" or "Xxxxxxx"),
at a purchase price of $7.50 per share, net to the seller in cash, without
interest thereon, in each case 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").
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 the Purchaser
pursuant to the Offer. 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 backup federal income tax
withholding of 31% of the gross proceeds payable to such shareholder or other
payee pursuant to the Offer. See Section 3. The Purchaser will pay all charges
and expenses of XX Xxxxxxxx & Co, as Dealer Manager (the "Dealer Manager"),
Firstar Bank of Minnesota, N.A., which is serving as Depositary (the
"Depositary"), and Beacon Hill Partners, Inc., which is serving as Information
Agent (the "Information Agent"), incurred in connection with the Offer. See
Section 16.
The purpose of the Offer is to enable Stockwalk, through the Purchaser, to
acquire control of, and the entire equity interest in the Company. Assuming that
the Business Combination Condition has been satisfied, Stockwalk currently
intends, subject to certain conditions identified in Section 11, to consummate a
merger with the Purchaser or another direct or indirect wholly-owned subsidiary
of Stockwalk. The relevant events leading up to the Offer are set forth below.
In early 1999, Xxxxx X. Xxxxxxx ("Xxxxxxx"), Executive Vice-President of
Stockwalk, contacted the Company's President and CEO Xxxxxxx X. Xxxxxx
("Xxxxxx"), regarding a possible combination of the Company with MJK Holdings,
Inc., now a wholly-owned subsidiary of Stockwalk. While those early discussions
proved unfruitful, Xxxxxxx again contacted Xxxxxx in September 1999 regarding
the possible combination of the Company and Stockwalk in a stock for stock
exchange. These discussions did not proceed beyond explorations of interest.
On November 2, 1999, Xx. Xxxxxxx wrote to Xx. Xxxxxx expressing an interest
on behalf of Stockwalk to acquire the Company for $6.00 per share in cash,
contingent upon obtaining financing and completion of a due diligence review of
the Company. Xx. Xxxxxx responded by indicating that the Board was not
considering sale of the Company and that the offer was inadequate. Thereafter,
the Company's Board of Directors met on November 17 to consider Xx. Xxxxxxx'x
proposal. Following the Board meeting, Xx. Xxxxxx advised Xx. Xxxxxxx that the
Board concluded the $6.00 per share offer was inadequate, but would entertain an
offer that would "turn [our] heads" if Stockwalk provided assurance of
financing. In response, Xxxxxxx wrote to the Board and urged them to reconsider
the November 2, 1999 offer. The Board then publicly announced a plan for the
Company to repurchase up to 1,000,000 Shares from time to time in market
transactions. On November 23, 1999 Xx. Xxxxxx wrote to Xx. Xxxxxxx reiterating
that the Board was not considering sale of the Company and believed that the
offer made by Xx. Xxxxxxx was inadequate. In the letter, Xx. Xxxxxx also
communicated the Board's unwillingness to provide Stockwalk with information
relating to the Company beyond publicly available information unless Stockwalk
presented a transaction representing "substantially" greater value to the
shareholders, provided evidence that financing was reliably available and
entered into a confidentiality agreement with acceptable standstill and
non-solicitation covenants. No further discussions have occurred to date.
-2-
5
Under proper circumstances, Stockwalk and Purchaser intend to continue
efforts to negotiate with the Company with respect to the acquisition of the
Company. If such negotiations result in a definitive merger agreement between
the Company and Stockwalk, Purchaser or their affiliates, the consideration to
be received by holders of Shares could include or consist of Stockwalk's common
stock, other securities, cash, or any combination thereof. Accordingly, such
negotiations could result in, among other things, termination of the Offer (see
Section 14) and submission of a different acquisition proposal to the Company's
shareholders for their approval. In the event that Stockwalk and Purchaser are
unable to negotiate a definitive merger agreement with the Company, they will
make a determination whether to seek through a proxy contest sufficient
representation on the Company's Board of Directors to cause the Board to approve
the proposed merger and satisfy the Business Combination Condition (all as
hereinafter defined) and thereby permit the Offer and a merger to be
consummated. See Section 11.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF A PROXY, CONSENT OR
AUTHORIZATION FOR OR WITH RESPECT TO ANY ANNUAL MEETING OR ANY SPECIAL MEETING
OF THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH THE PURCHASER MAY
MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE SOLICITATION MATERIALS COMPLYING
WITH ALL APPLICABLE REQUIREMENTS OF SECTION 14(a) OF THE EXCHANGE ACT AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER.
The Purchaser reserves the right to assign its right to purchase Shares
tendered pursuant to the Offer and its other rights under the Offer to one or
more of its affiliates. Any such assignment shall not relieve the Purchaser of
its obligations under the Offer and shall in no way prejudice the rights of
tendering shareholders to receive payment for Shares duly tendered.
CERTAIN CONDITIONS TO THE OFFER
The Offer is subject to the fulfillment of certain conditions, including
the following:
MINIMUM TENDER CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON
THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS
DEFINED IN SECTION 1) THAT NUMBER OF SHARES, WHICH WHEN ADDED TO THE NUMBER OF
SHARES OWNED BY THE PURCHASER AND ITS AFFILIATES, REPRESENTS A MAJORITY OF THE
TOTAL NUMBER OF OUTSTANDING SHARES ON A FULLY-DILUTED BASIS ON THE DATE OF
PURCHASE (THE "MINIMUM TENDER CONDITION").
According to the Company's Annual Report on Form 10-Q for the quarter ended
September 30, 1999, (the "10-Q"), the Company had 4,895,415 Shares issued and
outstanding as of September 30, 1999. According to the Company's Annual Report
on Form 10-K for the year ending December 31, 1998 (the "1998 10-K"), filed with
the Commission pursuant to the Exchange Act, there were options to purchase
730,700 Shares outstanding at December 31, 1998. The Purchaser and Stockwalk
beneficially owned 211,900 Shares on December 8, 1999. Based on the foregoing
and assuming that no options were granted after December 31, 1998, and no Shares
have otherwise been issued or repurchased by the Company, there would be
5,626,115 Shares outstanding on a fully-diluted basis and the Minimum Tender
Condition would be satisfied if 2,601,159 Shares are validly tendered pursuant
to the Offer and not properly withdrawn. However, the actual number of Shares
that must be validly tendered pursuant to the Offer and not properly withdrawn
in order to satisfy the Minimum Tender Condition will depend on the facts as
they exist on the date of purchase.
-3-
6
THE BUSINESS COMBINATION CONDITION. CONSUMMATION OF THE OFFER IS
CONDITIONED UPON THE PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT A
COMMITTEE OF THE COMPANY'S DISINTERESTED DIRECTORS HAS APPROVED THE OFFER IN
ACCORDANCE WITH SECTION 302A.673 OF MINNESOTA STATUTES (THE "MINNESOTA BUSINESS
COMBINATION ACT") (THE "BUSINESS COMBINATION CONDITION").
The Minnesota Business Combination Act prohibits any "business combination"
including any merger, for a period of four years following the date that a
person or entity first acquires beneficial ownership, directly or indirectly, of
10% or more of the outstanding Shares if the person or entity does not receive
approval of a special committee composed of all of the disinterested members of
the Company's Board of Directors prior to such acquisition. Thus, absent
compliance with the Minnesota Business Combination Act, the Purchaser would be
prohibited from consummating a merger with the Company for a period of four
years after the Purchaser acquired 10% of the outstanding Shares.
The Business Combination Condition will be satisfied if a committee of the
Company's disinterested directors approves the Purchaser's acquisition of Shares
prior to the Purchaser acquiring beneficial ownership, directly or indirectly,
of at least 10% of the Company's outstanding Shares in accordance with the
Minnesota Business Combination Act.
THE ANTI-POISON PILL/DILUTION CONDITION. CONSUMMATION OF THE OFFER IS
CONDITIONED UPON THE PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE
BOARD HAS NOT ADOPTED A SHAREHOLDER RIGHTS PLAN OR OTHER PROTECTIVE MEASURES
(ALSO KNOWN AS A "POISON PILL") OR VOTED TO INCREASE THE NUMBER OF OUTSTANDING
SHARES OF CAPITAL STOCK TO MORE THAN 5,626,115 SHARES OF COMMON STOCK. (THE
"ANTI-POISON PILL/DILUTION CONDITION").
The Anti-Poison Pill/Dilution Condition seeks to prevent the Board from
adopting a shareholder rights plan or other protective measures ("poison pill")
or issuing additional securities in order to impede the ability of the Company's
shareholders to consider the Offer. The Anti-Poison Pill/Dilution Condition will
be satisfied if the Purchaser in its sole discretion is otherwise satisfied that
the Board has not adopted a poison pill or issued new securities which could
increase the number of outstanding shares of capital stock to more than
5,626,115 shares of common stock, other than by reason of exercise of
outstanding stock options.
THE FINANCING CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON THE
PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT IT HAS OBTAINED
SUFFICIENT FINANCING TO CONSUMMATE THE OFFER (THE "FINANCING CONDITION").
There were 4,895,415 Shares outstanding as of September 30, 1999, of which
211,900 Shares are currently owned by the Purchaser or Stockwalk. Including
outstanding options to purchase 730,700 Shares as of December 31, 1998, there
are potentially 5,626,115 Shares outstanding on a fully diluted basis. In order
to satisfy the Minimum Tender Condition, 2,601,159 Shares (the "Purchased
Shares") would need to be tendered and purchased in the event that no options
are exercised following this tender offer. The total purchase price of these
Purchased Shares would be approximately $19,508,692.50. If all Shares, and
option Shares, other than those owned by the Purchaser were tendered, the total
purchase price would be approximately $40,606,612.50. The amount of funds
required to purchase pursuant to the Offer the number of Shares that are
outstanding (other than the Shares which are owned by Stockwalk) and to pay fees
and expenses related to the Offer are estimated to be approximately $41,000,000.
Stockwalk intends to secure approximately $15,000,000 from existing bank
lines of credit and has commenced a private placement of its equity securities
to raise the remainder of the necessary funds
-4-
7
totaling $4,510,192 if the minimum shares are tendered and $25,606,613 if all
shares were tendered. Stockwalk is reasonably confident that it will secure
sufficient funds through the private placement to complete the purchase.
CERTAIN OTHER CONDITIONS TO THE CONSUMMATION OF THE OFFER ARE DESCRIBED IN
SECTION 14. THE PURCHASER EXPRESSLY RESERVES THE RIGHT, IN ITS SOLE DISCRETION,
TO WAIVE ANY ONE OR MORE OF THE CONDITIONS TO THE OFFER. SEE SECTIONS 14 AND 15.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
THE TENDER 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 thereby purchase any
and all Shares validly tendered and not withdrawn in accordance with the
procedures set forth in Section 4 on or prior to the Expiration Date. The term
"Expiration Date" means 12:00 Midnight, New York City time, on Monday, January
10, 2000, unless and until the Purchaser, in its sole discretion, shall have
extended the period of time for which the Offer is open, in which event the term
"Expiration Date" shall mean the time and date at which the Offer, as so
extended by the Purchaser, shall expire.
The Purchaser expressly reserves the right, in its sole discretion, at any
time and from time to time, to extend the period during which the Offer is open
for any reason, including the occurrence of any of the events specified in
Section 14, by giving oral or written notice of such extension to the
Depositary. During any such extension, all Shares previously tendered and not
withdrawn will remain subject to the Offer and subject to the right of a
tendering shareholder to withdraw such shareholder's Shares. See Section 4.
Subject to the applicable regulations of the Commission, the Purchaser also
expressly reserves the right, in its sole discretion, at any time or from time
to time, to: (i) delay acceptance for payment of or, regardless of whether such
Shares were theretofore accepted for payment, payment for any Shares pending
receipt of any regulatory or governmental approvals specified in Section 15;
(ii) terminate the Offer (whether or not any Shares have theretofore been
accepted for payment) if any condition referred to in Section 14 has not been
satisfied or upon the occurrence of any event specified in Section 14; and (iii)
waive any condition or otherwise amend the Offer in any respect, in each case,
by giving oral or written notice of such delay, termination, waiver or amendment
to the Depositary and, other than in the case of any such waiver, by making a
public announcement thereof. The Purchaser acknowledges that: (i) Rule 14e-l(c)
under the Exchange Act requires the Purchaser to pay the consideration offered
or return the Shares tendered promptly after the termination or withdrawal of
the Offer; and (ii) the Purchaser may not delay acceptance for payment of, or
payment for (except as provided in clause (i) of the preceding sentence), any
Shares upon the occurrence of any event specified in Section 14 without
extending the period of time during which the Offer is open.
The rights reserved by the Purchaser in the preceding paragraph are in
addition to the Purchaser's rights pursuant to Section 14. Any such extension,
delay, termination or amendment will be followed as promptly as practicable by
public announcement thereof, and such announcement in the case of an extension
will be made no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date. Without limiting the manner
in which the Purchaser may choose
-5-
8
to make any public announcement, subject to applicable law (including Rules
14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act, which require that material
changes be promptly disseminated to holders of Shares), the Purchaser shall have
no obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a press release or other public announcement.
If the Purchaser makes a material change in the terms of the Offer, or if
it waives a material condition to the Offer, the Purchaser will extend the Offer
and disseminate additional tender offer materials to the extent required by
Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period
during which an offer must remain open following material changes in the terms
of the offer, other than a change in price or a change in percentage of
securities sought or a change in any dealer's soliciting fee, will depend upon
the facts and circumstances, including the relative materiality, of the changes.
With respect to a change in price or a change in the percentage of securities
sought, a minimum period of 10 business days is generally required to allow for
adequate dissemination and investor response. For purposes of the Offer, a
"business day" means any day other than a Saturday, Sunday or a federal holiday
and consists of the time period from 12:01 a.m. through 12:00 Midnight, New York
City time.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OF THE
MINIMUM TENDER CONDITION, THE BUSINESS COMBINATION CONDITION, THE ANTI-POISON
PILL/DILUTION CONDITION, THE FINANCING CONDITION 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"), AND THE SATISFACTION OF THE OTHER CONDITIONS SET FORTH IN SECTION 14.
The Purchaser reserves the right (but shall not be obligated), in
accordance with applicable rules and regulations of the Commission, to waive any
or all of such conditions. If, by the Expiration Date, any or all of such
conditions have not been satisfied, the Purchaser may, in its sole discretion,
elect to (i) extend the Offer and, subject to applicable withdrawal rights,
retain all tendered Shares until the expiration of the Offer, as extended,
subject to the terms of the Offer, (ii) waive all of the unsatisfied conditions
and, subject to complying with applicable rules and regulations of the
Commission, accept for payment all Shares so tendered and not extend the Offer
or (iii) terminate the Offer and not accept for payment any Shares and return
all tendered Shares to tendering shareholders. In the event that the Purchaser
waives any condition 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.
A request has been made to the Company pursuant to Section 302A.461 of the
Minnesota Business Corporation Act and Rule 14d-5 for the use of the Company's
shareholder lists and security position listings for the purpose of
communicating with other shareholders of the Company. This Offer and the related
Letter of Transmittal and other relevant materials will be mailed 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
list or who 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 THE 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 the Offer as so
extended or amended), the Purchaser will purchase, by accepting for payment, and
will pay for, all Shares validly tendered and not withdrawn (as permitted by
Section 4) prior to the Expiration Date promptly after the later to occur of (i)
the Expiration Date and
-6-
9
(ii) the satisfaction or waiver of the conditions to the Offer set forth in
Section 14. In addition, subject to applicable rules of the Commission, the
Purchaser expressly reserves the right to delay acceptance for payment of, or
payment for, Shares pending receipt of any regulatory or governmental approvals
specified in Section 15.
FOR INFORMATION WITH RESPECT TO APPROVALS REQUIRED TO BE OBTAINED PRIOR TO
THE CONSUMMATION OF THE OFFER, INCLUDING UNDER THE HSR ACT, SEE SECTION 15.
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) certificates evidencing
such Shares ("Share Certificates") 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 (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in Section 3, (ii) the Letter of
Transmittal (or a 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 term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares 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 and not withdrawn,
if and when the Purchaser gives oral or written notice to the Depositary of the
Purchaser's acceptance of such Shares for payment pursuant to the Offer. In all
cases, upon the terms and subject to the conditions of the Offer, payment for
Shares purchased 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 validly tendering shareholders. UNDER NO CIRCUMSTANCES
WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID BY THE PURCHASER. If, for
any reason whatsoever, acceptance for payment of or payment for any Shares
tendered pursuant to the Offer is delayed, or the Purchaser is unable to accept
for payment or pay for Shares tendered pursuant to the Offer, then, without
prejudice to the Purchaser's rights set forth herein, the Depositary may,
nevertheless, on behalf of the Purchaser and subject to Rule 14e-l(c) under the
Exchange Act, retain tendered Shares and such Shares may not be withdrawn except
to the extent that the tendering shareholder is entitled to and duly exercises
withdrawal rights as described in Section 4.
If any tendered Shares are not accepted for payment for any reason, or if
Share Certificates are submitted representing more Shares than are tendered,
Share Certificates representing unpurchased or untendered Shares will be
returned, without expense to the tendering shareholder (or, in the case of
Shares delivered by book-entry transfer into the Depositary's account at the
Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3,
such Shares will be credited to an account maintained within the Book-Entry
Transfer Facility) as promptly as practicable following the expiration,
termination or withdrawal of the Offer.
IF, PRIOR TO THE EXPIRATION DATE, THE PURCHASER SHALL INCREASE THE
CONSIDERATION OFFERED TO HOLDERS OF SHARES PURSUANT TO THE OFFER, SUCH INCREASED
CONSIDERATION SHALL BE PAID TO ALL HOLDERS OF SHARES THAT ARE
-7-
10
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 of the Purchaser's subsidiaries or
affiliates the right to purchase all or any portion of the Shares tendered
pursuant to the Offer, but any such transfer or assignment will not relieve the
Purchaser of its obligations under the Offer or prejudice the rights of
tendering shareholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES.
Valid Tender of Shares. Except as set forth below, in order for Shares to
be validly tendered pursuant to the Offer, the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, 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, on or prior to the Expiration Date,
and either (i) Share Certificates representing tendered Shares must be received
by the Depositary, or such Shares must be tendered pursuant to the procedure for
book-entry transfer set forth below and Book-Entry Confirmation must be received
by the Depositary, in each case on or prior to the Expiration Date, or (ii) the
guaranteed delivery procedures set forth below must be complied with.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY
THE DEPOSITARY. 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.
Book-Entry Transfer The Depositary will make a request to establish
accounts with respect to the Shares at the Book-Entry Transfer Facility for
purposes of the Offer within two business days after the date of this Offer to
Purchase. Any financial institution that is a participant in the system of the
Book-Entry Transfer Facility may make Book-Entry delivery of Shares by causing
the Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. However, although delivery of
Shares may be effected through book-entry transfer into the Depositary's account
at the Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an 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 on or prior to the Expiration Date, or the guaranteed delivery
procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the Securities
Transfer Agents Medallion Program (an "Eligible Institution"), unless the Shares
tendered thereby are tendered (i) by a registered holder of Shares who has not
completed either the box
-8-
11
labeled "Special Payment Instructions" or the box labeled "Special Delivery
Instructions" on the Letter of Transmittal, or (ii) for the account of an
Eligible Institution. See Instruction 1 of the Letter of Transmittal.
If the Share Certificates are registered in the name of a person other
than the signer of the Letter of Transmittal, or if payment is to be made to, or
Share Certificates for unpurchased Shares are to be issued or returned to, a
person other than the registered holder, then the tendered certificates must be
endorsed or accompanied by appropriate stock powers, signed exactly as the name
or names of the registered holder or holders appear on such certificates, with
the signatures on the certificates or stock powers guaranteed by an Eligible
Institution as provided in the appropriate Letter of Transmittal. See
Instructions 1 and 5 of the Letter of Transmittal.
If the Share Certificates are forwarded separately to the Depositary, a
properly completed and duly executed appropriate Letter of Transmittal (or
facsimile thereof) must accompany each such delivery.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder"s Share Certificates are not immediately
available or time will not permit all required documents to reach the Depositary
on or prior to the Expiration Date, or, in the case of Shares, the procedures
for book-entry transfer cannot be completed on a timely basis, such Shares may
nevertheless be tendered if all of the following guaranteed delivery procedures
are duly complied with:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Purchaser, is
received by the Depositary, as provided below, on or prior to the
Expiration Date; and
(iii) the Share Certificates (or a Book-Entry Confirmation) representing
all tendered Shares, proper form for transfer 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 New
York Stock Exchange, Inc. ("NYSE") trading days after the date of
execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by facsimile transmission to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery.
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 Share Certificates for, or of Book-Entry
Confirmation with respect to, such Shares and a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), together 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.
Accordingly, payment might not be made to all tendering shareholders at the same
time, and will depend upon when Share Certificates are received by the
Depositary or Book-Entry Confirmations of the Shares are received into the
Depositary's account at the Book-Entry Transfer Facility.
Backup Federal Income Tax Withholding. Under the backup federal income tax
withholding applicable to certain shareholders (other than certain exempt
shareholders, including, among others, all corporations and certain foreign
individuals), the Depositary may be required to withhold 31% of the amount of
any payments made to such shareholders pursuant to the Offer. To prevent backup
federal
-9-
12
income tax withholding, each such shareholder must provide the Depositary with
such shareholder's correct taxpayer identification number and certify that such
shareholder is not subject to backup federal income tax withholding by
completing the substitute Form W-9 included in the Letter of Transmittal. See
Instruction 9 of the Letter of Transmittal.
Appointment as Proxy. By executing the Letter of Transmittal, a tendering
shareholder will also irrevocably appoint designees of the Purchaser, and each
of them, as such shareholder's attorneys-in-fact and proxies, with full power of
substitution, in the manner set forth in the Letter of Transmittal, 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 and other securities or rights issued or issuable in
respect of such Shares on or after the date of this Offer to Purchase. All such
powers of attorney and proxies shall be considered irrevocable and coupled, with
an interest in the tendered Shares. Such appointment will be effective upon the
acceptance for payment of such Shares by the Purchaser in accordance with the
terms of the Offer. Upon such acceptance for payment, all other powers of
attorney and proxies given by such shareholder with respect to such Shares, and
such other securities or rights prior to such payment will be revoked, without
further action, and no subsequent powers of attorney and proxies may be given by
such shareholder (and, if given, will not be deemed effective). The designees of
the Purchaser will, with respect, to the Shares and such other securities and
rights for which such, appointment is effective, be empowered to exercise all
voting and other rights of such shareholder as they in their sole discretion may
deem proper, at any annual or special meeting, of the Company's shareholders, or
any adjournment or postponement thereof, or by consent in lieu of any such
meeting or otherwise. In order, for Shares to be deemed validly tendered,
immediately upon the acceptance for payment of such Shares, the Purchaser or its
designee must be able to exercise full voting rights with respect to such
Shares, and other securities, including voting at any meeting of shareholders.
Determination of Validity. All questions as to the form of documents and
the validity, eligibility (including time of receipt) and acceptance for payment
of any tender of Shares will be determined by the Purchaser, in its sole
discretion, whose determination shall be final and binding on all parties. The
Purchaser reserves the absolute right to reject any or all tenders determined by
it not to be in proper form or the acceptance of or payment for which may, in
the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the absolute right, in its sole discretion, to waive any of the conditions of
the Offer or any defect or irregularity in any tender of Shares of any
particular shareholder whether or not similar defects or irregularities are
waived in the case of other shareholders.
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. No tender of Shares will be deemed to have been validly made until
all defects and irregularities with respect to such tender have been cured or
waived by the Purchaser. None of the Purchaser or any of its affiliates or
assigns, the Dealer Manager, the Depositary, the Information Agent or any other
person or entity will be under any duty to give any notification of any defects
or irregularities in tenders or incur any liability for failure to give any such
notification.
The Purchaser's acceptance for payment of Shares tendered pursuant to any
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.
4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4, tenders of Shares made
pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may
be withdrawn at any time on or prior to the
-10-
13
Expiration Date and, unless theretofore accepted for payment as provided herein,
may also be withdrawn at any time after February 7, 2000, (or such later date as
may apply in case the Offer is extended).
If, for any reason whatsoever, acceptance for payment of any Shares
tendered pursuant to the Offer is delayed, or the Purchaser is unable to accept
for payment or pay for Shares tendered pursuant to the Offer, then, without
prejudice to the Purchaser's rights set forth herein, the Depositary may,
nevertheless, on behalf of the Purchaser and subject to Rule 14e-l(c) under the
Exchange Act, retain tendered Shares and such Shares may not be withdrawn except
to the extent that the tendering shareholder is entitled to and duly exercises
withdrawal rights as described in this Section 4. Any such delay will be by an
extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written 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. Any such notice
of withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn, and (if Share Certificates have
been tendered) the name of the registered holder of the Shares as set forth in
the Share Certificate, if different from that of the person who tendered such
Shares. If Share Certificates have been delivered or otherwise identified to the
Depositary, then prior to the physical release of such Certificates, the
tendering shareholder must submit the serial numbers shown on the particular
Certificates evidencing the Shares to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Shares tendered for the account of an Eligible Institution. If
Shares have been tendered pursuant to the procedures for book-entry transfer set
forth in Section 3, the notice of withdrawal must specify the name and number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Shares, in which case a notice of withdrawal will be effective if
delivered to the Depositary by any method of delivery described in the first
sentence of this paragraph. Withdrawals of Shares may not be rescinded. Any
Shares properly withdrawn will be deemed not validly tendered for purposes of
the Offer, but may be retendered at any subsequent time prior to the Expiration
Date by following any of the procedures described in Section 3.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination shall be final and binding. None of the
Purchaser or any of its affiliates or assigns, the Dealer Manager, the
Depositary, the Information Agent or any other person or entity will be under
any duty to give any notification of any defects or irregularities in any notice
of withdrawal or incur any liability for failure to give any such notification.
5. CERTAIN UNITED STATES TAX CONSEQUENCES.
The receipt of cash for Shares pursuant to the Offer or a merger will be a
taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local, foreign and other tax laws. For
federal income tax purposes, each selling shareholder would generally recognize
gain or loss equal to the difference between the amount of cash received and
such shareholder's adjusted tax basis for the sold Shares. Such gain or loss
will be capital gain or loss (assuming the Shares are held as a capital asset)
and any such capital gain or loss will be long term if, as of the date of sale,
the Shares were held for more than one year or will be short term if, as of such
date, the Shares were held for one year or less.
The foregoing discussion may not be applicable to certain shareholders of
the Company, including persons who acquired Shares pursuant to the exercise of
employee stock options or otherwise as compensation, individuals who are not
citizens or residents of the United States and foreign corporations, persons
holding Shares in a straddle, hedging, or conversion transaction, and entities
that are otherwise
-11-
14
subject to special tax treatment (such as broker-dealers, insurance companies,
tax-exempt organizations, financial institutions and passthrough entities).
Unless a shareholder complies with certain reporting and/or certification
procedures or is an exempt recipient under applicable provisions of the Internal
Revenue Code and applicable Treasury regulations, such shareholder may be
subject to withholding tax of 31% with respect to any cash payments received
pursuant to the Offer. Shareholders should consult their brokers or the
Depositary to ensure compliance with such procedures. Foreign shareholders
should consult with their own tax advisors regarding withholding taxes in
general.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND IS BASED ON THE CODE AND TREASURY REGULATIONS
CURRENTLY IN FORCE WHICH MAY BE AMENDED AT ANY TIME, POSSIBLY WITH RETROACTIVE
EFFECT. EACH SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES TO SUCH SHAREHOLDER OF THE OFFER, INCLUDING
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES.
6. PRICE RANGE OF THE SHARES; DIVIDENDS.
The Shares are listed and traded on the NASDAQ National Market System under
the symbol "XXXX." The following table sets forth, according to the Company's
1998 10-K, for the periods indicated, the reported high and low sales prices for
the Shares on the NASDAQ. Information for 1999 was derived from published last
reported sale prices.
YEAR HIGH LOW
1997
First Quarter............................................. $6.00 $4.50
Second Quarter............................................ $6.25 $5.00
Third Quarter............................................. $7.75 $5.63
Fourth Quarter............................................ $8.25 $5.69
1998
First Quarter............................................. $7.00 $5.88
Second Quarter............................................ $7.00 $6.00
Third Quarter............................................. $6.50 $4.13
Fourth Quarter............................................ $4.75 $2.63
1999
First Quarter............................................. $5.75 $3.88
Second Quarter............................................ $5.03 $3.94
Third Quarter............................................. $4.50 $3.69
Fourth Quarter (through December 2, 1999)................. $5.94 $4.31
According to the Company's 1998 10-K, the Company does not currently pay a
dividend. The payment of future dividends, if any, rests within the discretion
of the Company's Board of Directors.
On November 1, 1999, the last trading day prior to the date on which
Stockwalk delivered its acquisition proposal to the Company's Board of
Directors, the last reported sale price on the NASDAQ/NMS for the Shares was
$5.00. The Offer represents a 50% premium over the closing price on
-12-
15
November 1, 1999; a 73% premium over the closing price of $4.33 per share on
October 13, 1999, which was the day on which Stockwalk first purchased the
Company's Common Stock; and a 68% premium over the average daily closing price
of $4.46 for the first three quarters of calendar year 1999. SHAREHOLDERS ARE
URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
7. POSSIBLE EFFECTS OF THE OFFER ON THE MARKET FOR THE SHARES; NASDAQ/NMS
LISTING; EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS.
Possible Effects of The Offer on The Market For The Shares. The purchase of
Shares pursuant to the Offer will reduce the number of Shares that might
otherwise trade publicly and could adversely affect the liquidity and market
value of the remaining Shares held by the public. The purchase of Shares
pursuant to the Offer can also be expected to reduce the number of holders of
Shares. The Purchaser cannot predict whether the reduction in the number of
Shares that might otherwise trade publicly would have an adverse or beneficial
effect on the market price for or marketability of the Shares or whether it
would cause future market prices to be greater or less than the Offer price
therefor.
NASDAQ Listing. The Shares are currently listed and traded in the NASDAQ
National Market System, which constitutes the principal trading market for the
Shares. Depending upon the aggregate market value and the number of Shares not
purchased pursuant to the Offer, the Shares may no longer meet the quantitative
maintenance criteria of the National Association of Securities Dealers, Inc.
(the "NASD") for continued listing on the NASDAQ National Market System and may
cease to be authorized for quotation on such markets. The NASDAQ National
Market's System published guidelines require that an issuer have at least
200,000 publicly held shares (exclusive of holdings of officers, directors or
beneficial owners of more than 10%), held either by at least 400 beneficial
shareholders or 300 beneficial shareholders of round lots, with a market value
of at least $1 million and must have net tangible assets of at least either $1
million, $2 million or $4 million depending on profitability levels during the
issuer's four most recent fiscal years. If these standards are not met, shares
of an issuer might nevertheless continue to be included in the NASDAQ Stock
Market System with quotations published in the NASDAQ Stock Market's System
"additional list" or in one of the local lists, but if the number of beneficial
owners were to fall below 300, or if the number of publicly-held shares were to
fall below 100,000 or there were not at least two registered and active market
makers for the Shares, the NASD's rules provide that such shares would no longer
be "qualified for reporting" by the NASDAQ Stock Market System.
It cannot be presently determined if consummation of the Offer will result
in a reduction of the Company's publicly held shares below the required minimum
amount. However, it is possible that the number of beneficial holders of the
Shares may significantly decrease if the Purchaser acquires a majority of the
Shares pursuant to the Offer. According to the Company's 1998 10-K, as of March
19, 1999, there were approximately 212 holders of record of Shares, not
including an additional about 1,000 shareholders whose shares were held in
street name. If as a result of the purchase of Shares pursuant to the Offer or
otherwise, the Shares no longer meet the requirements of the NASD for continued
inclusion in the NASDAQ NMS or in any other tier or the NASDAQ Stock Market, the
market for the Shares could be adversely affected. In the event that the Shares
no longer meet the requirements of the NASD for continued inclusion in any tier
of the NASDAQ Stock Market, it is possible that Shares would continue to trade
in the over-the-counter market and that price quotations would be reported by
other sources. The extent of the public market for the Shares and the
availability of such quotations would, however, depend upon the number of
holders of Shares remaining at such time, the interest in maintaining a market
in Shares on the part of securities firms, the possible termination of
registration of the Shares under the Exchange Act, as described below, and other
factors.
-13-
16
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. The purchase of Shares pursuant to the Offer is likely to result
in the Shares becoming eligible for de-registration under the Exchange Act.
Registration of the Shares 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 Shares. Termination of
registration of the Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to its shareholders and the
Commission and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) and the requirements of
furnishing a proxy statement in connection with shareholders" meetings pursuant
to Section 14(a) or 14(c) and the related requirement of an annual report, no
longer applicable to the Company. If the Shares are no longer registered under
the Exchange Act, the requirements of Rule 13e-3 under the Exchange Act with
respect to "going private" transactions would no longer be applicable to the
Company. Furthermore, the ability of "affiliates" of the Company and persons
holding "restricted securities" of the Company to dispose of such securities
pursuant to Rule 144 promulgated under the Securities Act of 1933 may be
impaired or, with respect to certain persons, eliminated. If registration of the
Shares under the Exchange Act were terminated, the Shares would no longer be
"margin securities" or eligible for stock exchange listing or NASDAQ reporting.
Margin Regulations. The Shares are currently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System, which has
the effect, among other things, of allowing brokers to extend credit on the
collateral of such Shares. Depending upon factors similar to those described
above regarding listing and market quotations, it is possible that, following
the Offer, the Shares would no longer constitute "margin securities" for the
purposes of the margin regulations of the Federal Reserve Board and therefore
could no longer be used as collateral for loans made by brokers.
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
The Company is a Minnesota corporation with its principal executive offices
located at 000 Xxxxxx Xxxxxx Xxxxx, Xxxxxxxxxxx, Xxxxxxxxx 00000. The following
description of the Company's business has been quoted from the Company's Form
10-K for the year ended December 31, 1998 (the "Form 10-K"). On November 10,
1999, the Company filed a Form 10-Q for the quarter and nine months ended
September 30, 1999 (the "Form 10-Q"), which may contain additional information
concerning the Company not contained in the 1998 Form 10-K:
Xxxxxxx Investments, Inc. is a holding company that has been providing
financial products and services for over 50 years. The primary
subsidiary, Xxxx X. Xxxxxxx and Company, Incorporated ("Xxxx X.
Xxxxxxx" or "JGK"), is a regional broker-dealer headquartered in
Minneapolis. The Registrant and Xxxx X. Xxxxxxx are hereinafter
collectively referred to as the "Company.
Xxxx X. Xxxxxxx is a full-service broker-dealer engaged in securities
brokerage, trading, investment banking, asset management and related
financial services to both retail and institutional customers. The
focus of the Capital Markets group is on emerging growth companies
with market capitalizations of up to $250 million. Through the Fixed
Income Originations group, the Company raises capital for
municipalities and other business entities. Other products and
services include mutual funds, insurance products, investment
management, IRA services, and fixed income securities. Nodak Bonds,
Inc., a wholly-owned subsidiary of Xxxx X. Xxxxxxx, acts as a fiscal
agent in the state of North Dakota. Xxxx X. Xxxxxxx is a member of the
Chicago Stock Exchange and the National Association of Securities
Dealers, Inc. and is registered as an investment adviser under the
Investment Advisers Act of 1940.
-14-
17
The following selected consolidated financial information of the Company
and its subsidiaries set forth below has been excerpted and derived from the
Company's Form 10-K and the Form 10-Q. More comprehensive financial and other
information is included in such reports (including the Company's audited
financial statements for the fiscal year ended December 31, 1998, as well as
management's discussion and analysis of results of operations and financial
position for fiscal 1998) and in other reports and documents filed by the
Company with the Commission. The financial information set forth below is
qualified in its entirety by reference to such reports and documents filed with
the Commission and all of the financial statements and related notes contained
therein.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL INFORMATION OF THE COMPANY
(In thousands, except per share data)
Years Ended December 31
Nine months Nine months 1998 1997 1996 1995 1994
------------ ----------- ---- ---- ---- ---- ----
ended ended
Sept. 30, Sept. 30,
1999 1998
(unaudited) (unaudited)
Financial Condition:
Cash and cash equivalents $ 2,189 $1,876 $ 2,689 $ 3,886 $14,031 $ 5,766 $ 2,750
Total assets 34,661 35,676 36,364 43,972 47,141 45,897 31,617
Total liabilities 7,633 5,619 6,868 8,400 11,112 20,592 10,542
Shareholders' equity 27,028 30,057 29,506 35,572 36,029 25,305 21,075
Operating Results:
Total revenues 35,951 30,082 40,944 49,846 99,977 75,333 55,667
Total operating expenses 35,439 35,333 46,573 49,310 80,311 69,647 61,174
Income (loss) before income 512 5,251 (5,629) 536 19,666 5,686 (5,507)
taxes 310 3,149 (3,376) 308 11,698 3,376 (3,210)
Net income (loss)
Per Share Data:
Earnings (loss) - Basic .06 (.53) (0.58) 0.05 1.93 0.54 (0.54)
Earnings (loss) - Diluted .06 (.53) (0.58) 0.05 1.92 0.54 (0.54)
Dividends declared .00 .00 0.00 0.00 0.00 0.00 0.10
Book value N/A N/A 5.38 5.97 5.98 4.04 3.58
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations has been excerpted and quoted from the Company's Form
10-Q:
RESULTS OF OPERATIONS
Quarterly and nine-month operating revenues improved compared to last year
due to increased retail sales force productivity, continued strong fixed income
underwriting activity and continued market interest in smaller market
capitalization companies in which the Company makes a market. Higher volume
partially offset by lower clearing costs contributed to increased operating
expenses compared to last year's third quarter.
A net investment portfolio loss of $90 thousand for the quarter compares to
a net loss of $1,545 thousand in the prior year's third quarter. A year-to-date
net investment portfolio gain of $782 thousand compares to a net loss of $782
thousand for the same period last year. The Company's investment account gains
and losses may fluctuate significantly from period to period as they have in the
past.
RETAIL SALES. The Retail Sales business segment consists of various branch
locations and the financial services division. Revenue is generated primarily on
commissions generated by the sale of financial products and services to
individual investors.
-15-
18
The improvement in retail revenues continued during the third quarter due
to increased transaction levels, improved investment executive productivity and
continued high levels of retail investor interest. Products that recorded
significant revenue increases included OTC principal, OTC agency, municipals,
unit trusts, cash management and interest income. This strong third quarter
activity contributed to an overall 11.6% increase in revenues for the nine month
period.
The operating profit of Retail Sales in the current quarter was $1.3
million, compared to $675 thousand for the prior year quarter and $3.7 million
for the current nine month period compared to $1.7 million for the same nine
month period last year. The improvement was due to the revenue increase, the
closing of unprofitable offices and implementation of operating efficiencies.
EQUITY CAPITAL MARKETS. Equity Capital Markets consists of equity trading,
institutional sales, research and investment banking. Investment banking
includes the fees earned on public equity underwritings, private placements and
merger and acquisition transactions.
Increased Equity Capital Markets revenue for the current quarter compared
to the same quarter last year resulted from higher trading volumes, continued
investor interest in the small-cap equity market in which the Company
specializes, and increased investment banking activity. The Company completed
two public financings in the current quarter, compared to one private placement
in the third quarter of 1998. Increased trading volumes and the third quarter
public financings also contributed to nine month revenue increases over the
prior year's nine month period. The timing of investment banking activity can
vary significantly from period to period based on market conditions and other
factors contributing to fluctuations in revenues and operating profits.
FIXED INCOME. Fixed income includes the origination, trading and
institutional sale of fixed income securities. The Fixed Income group results
are driven largely by activity of the originations department which raises
capital for municipal and corporate clients located primarily in the Upper
Midwest.
Fixed Income operating revenues decreased by $400 thousand for the quarter,
and increased by $586 for the nine month period versus the same periods in the
prior year. Origination activity decreased significantly in the third quarter of
1999 from the third quarter of 1998. The nine month increase over last year is
due to record second quarter 1999 activity, which included the Company's largest
ever public finance transaction. Other revenue changes included an increase in
municipal bond sales.
CORPORATE. Corporate consists of various administrative functions required
to support the revenue generating business units such as Operations, Client
Services, Accounting, Human Resources and Marketing.
The Company has continued to benefit, overall, from improved operating
efficiencies. However, increased professional services expenditures contributed
to higher Corporate operating losses in the current three and nine month periods
compared to the same periods in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
A large portion of the Company's assets are cash and assets readily
convertible to cash. The liquid portions of the Company's trading and investment
securities are stated at quoted market values and are readily marketable. The
less liquid portions of trading and investment securities, which totaled $1.8
million at September 30, 1999, are stated at fair value, which is determined by
management's best estimate.
-16-
19
Between December 31, 1998 and September 30, 1999, trading securities
decreased $1.7 million, and securities sold but not yet purchased increased by
$9 thousand. Both long and short inventories are generally maintained to
facilitate customer transactions rather than for market speculation.
Based on the Company's current liquidity positions, available bank lines
and operating plans, it is anticipated that the Company has sufficient resources
to meet the cash requirements of its operations in the foreseeable future.
INVESTING ACTIVITIES
The Company's investment account is invested in fixed income securities,
publicly traded equity securities and privately placed equity securities. Equity
securities are frequently held as a result of past investment banking activities
performed by the Company. In addition, the Company may utilize outside advisors
to manage a portion of the investment portfolio.
The value of certain securities held in the investment account can
fluctuate significantly, with the resulting valuation changes being reported as
net gains or losses on the investment account. These fluctuations in value can
have a material impact on reported earnings.
FINANCING ACTIVITIES
Xxxx X. Xxxxxxx maintains a credit facility in order to meet short-term
operating needs. At December 31, 1998 and September 30, 1999 there were no
outstanding balances under this facility.
During the first nine months of 1999, the Company repurchased 605,000
shares of its common stock at a total cost of $2.8 million. For the full year of
1998, a total of 566,000 shares were repurchased at a cost of $3.1 million. To
date, the Board of Directors has authorized the repurchase of up to 2.6 million
shares of the Company's common stock, of which a total of 2,224,000 shares have
been repurchased as of September 30, 1999.
The Company announced on August 6, 1999 that it had notified MI Acquisition
Corporation of the exercise of its right to terminate the Merger Agreement
between the two companies. Capitalized costs of $68,000 recorded as of June 30,
1999 in contemplation of the merger were expensed during the third quarter.
Additional costs of $317,000 were also expensed during the third quarter.
-----------------------
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations has been excerpted and quoted from the Form 10-K.
FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
For the twelve months ended December 31, 1998, the Company incurred a net
loss of $3.4 million, or 58 cents per diluted share, on revenues of $40.9
million. This compares to net earnings of $308,000, or five cents per diluted
share, on revenues of $49.8 million for the same period in 1997. Lower revenues
were the result of fewer retail transactions, a difficult equity trading
environment, and a slowdown of public equity offerings in the latter half of the
year.
Commissions decreased by $61,000, or 0% in calendar 1998. Record sales of
mutual funds and options were offset by declines in listed equity securities and
insurance products.
-17-
20
Revenues from principal transactions decreased by $9.5 million, or 37%. The
Company experienced a difficult equity trading environment due in part to
volatile markets - particularly small-cap issues in which the Company focuses
its market making activities - and new trading rules and regulatory changes. The
Company responded by decreasing the number of stocks in which it makes a market
to under 200 from approximately 350 at December 31, 1997.
The net loss on securities held in the investment account was $187,000 in
1998, which compares to a net gain of $455,000 in 1997. The investment account
has historically been a volatile source of income for the Company.
Investment banking revenue increased by $1.7 million or 42% from the prior
year. During 1998 the Company completed three public equity offerings and two
private financings, which compares to one public offering and nine private
placements in the prior year. Also during the current year, the mergers,
acquisitions and advisory group participated in 15 transactions. The fixed
income originations group had a record year, raising over $190 million in
capital for its municipal and corporate clients.
Interest income decreased by 38% primarily as a result of declines in fixed
income trading and investment securities, margin balances, and interest rates.
Other income increased by 19% due primarily to an increase in managed
accounts and cash management fees.
The expense for employee compensation and benefits decreased by $2.5 million
or 7% from the prior year. Variable compensation, such as commissions paid to
investment executives and incentive compensation, declined as a result of lower
revenues and profitability. Compensation and benefits were also favorably
impacted by a decline in the number of full-time employees to 297 at December
31, 1998 from 338 at year-end 1997.
Floor brokerage and clearance expense declined by 18%, which was greater
than the decline in associated transactions. The Company benefited from lower
clearing fees as a result of converting its clearing business to NationsBank
Xxxxxxxxxx Securities in June 1998.
The increase in communications expense in 1998 reflects the cost of
enhancing and expanding the Company's internal communication and information
systems.
Occupancy and equipment expense increased by 4% due in part to the
implementation of new technologies and services, some of which were associated
with the clearing conversion. Other expenses increased by 4% from the prior year
as a result of consulting fees associated with system conversions.
FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996
For the twelve months ended December 31, 1997, the Company earned $308,000,
or 5 cents per diluted share, on revenues of $49.8 million. This compares to
$11.7 million, or $1.92 per diluted share, on revenues of $100.0 million for the
same period in 1996. Included in the prior year are results from former Xxxxxxx
subsidiary PRIMEVEST Financial Services, Inc. ("PRIMEVEST"), which was sold in
October 1996. Excluding the results of PRIMEVEST and gain on sale, 1996
revenues, net income and diluted earnings per share would have been $61.7
million, $4.0 million and 66 cents, respectively.
The decline in revenue was primarily due to a weak market for securities
held in the Company's investment account and volatility in small cap securities
in which the Company makes a market. All subsequent comparisons to prior years
below exclude the results of PRIMEVEST.
-18-
21
Commissions increased by $942,000 on the strength of record sales of mutual
fund products, annuities and over-the-counter equity securities executed on an
agency basis. Investors continued to invest new money into equity securities and
products during 1997 as major market indices achieved new record highs.
Revenues from principal transactions decreased by $8.2 million as the
Company experienced volatility in the stocks in which it makes a market.
Revenues earned trading over-the-counter equity securities were also negatively
impacted in 1997 by new order-handling regulations and smaller fractions used in
share pricing.
Partially offsetting the decline in equity principal transactions was a 34%
increase in fixed income principal transactions revenues. A favorable interest
rate environment combined with a record level of fixed income underwritings
contributed to the increase.
Net gains on the investment account were $455,000 in 1997, down from $4.8
million in 1996. In the first half of 1996, the Company realized significant
gains on certain securities held in the portfolio. The investment account has
historically been a volatile source of income for the Company.
Revenues from investment banking declined by $975,000 from the prior year.
Equity investment banking revenues declined as the Company transitioned to a new
corporate finance team. Fixed income investment banking revenues rose with the
placement of a record $135 million of capital raised during the year.
Interest income increased by 27% primarily as a result of earnings on the
proceeds of the sale of PRIMEVEST. Other income increased by 12% due to an
increase in fee based income.
Employee compensation expenses decreased by 10% from the prior year.
Variable compensation, such as commissions paid to investment executives and
incentive compensation, declined as a result of lower revenues and
profitability. Salary expense increased modestly as the Company added key senior
executives.
Bank commissions, which relate solely to the operation of PRIMEVEST, were
zero in the current period. Floor brokerage and clearance declined by 6%, which
was less than the decline in associated revenues due to an increase in execution
costs relating to the Company's equity trading operation. Communications expense
declined by 11% during 1997 as a result of decreased activity and cost reduction
efforts. Occupancy expense increased by 15% due to an increase in real estate
taxes at the Company's headquarters location and the opening of two retail
branch offices.
Other expenses increased by 16% from the prior year due in part to costs
associated with recruiting new employees and the resolution of certain
litigation matters.
LIQUIDITY AND CAPITAL RESOURCES
A large portion of the Company's assets are cash and assets readily
convertible to cash. The portion of the Company's security investments and
inventory that are readily marketable are stated at quoted market values. The
less liquid portion of inventories and investments, which totaled $129,000 at
December 31, 1998, are stated at fair value, which is determined by management's
best estimate.
Inventories are generally maintained to facilitate customer transactions
rather than for market speculation. For 1998, investment securities decreased
$5.8 million. Based on the Company's current
-19-
22
liquidity position, available bank line, and operating plans, it is anticipated
that the Company has sufficient resources to meet the cash requirements of its
operations in the foreseeable future.
As a securities broker-dealer, Xxxx X. Xxxxxxx is required by SEC
regulations to meet certain liquidity and capital standards. It has been in
compliance with these regulations at all times.
The Management's Discussion and Analysis of Financial Condition and Results
of Operation (the "MD&A") set forth above is excerpted and quoted from the
Company's 1998 Form 10-K and Form 10-Q. Neither the Purchaser nor any of its
affiliates have conducted any independent verification of the statements made
therein or of the Company's financial information contained in this Section. The
Purchaser and Stockwalk would like to remind the offerees that the MD&A contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that are subject to certain risks and uncertainties, as set forth in
the Company's 1998 Form 10-K and Form 10-Q. The inclusion of this
forward-looking information should not be regarded as fact or an indication that
Purchaser or Stockwalk considered it as a reliable prediction of future results,
and this information should not be relied upon as such.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND STOCKWALK.
The Purchaser. The Purchaser is a Minnesota corporation. Its principal
executive offices are located at 0000 Xxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxxxxx,
Xxxxxxxxx 00000, and its telephone number is (000) 000-0000. The Purchaser was
formed for the sole purpose of acquiring and holding shares of the Company's
Common Stock. The Purchaser has not conducted any unrelated activities since its
organization on December 1, 1999. The Purchaser's sole shareholder is Stockwalk.
The Directors of the Purchaser are Xxxxx X. Xxxxxx, Xxxx X. Xxxxx, Xxxxx X.
Xxxxxxx, and Xxxxxxx X. Xxxx. The executive officers of the Purchaser are Xxxxx
X. Xxxxxx (Chief Executive Officer), Xxxxx X. Xxxxxxx (Executive Vice
President), Xxxx X. Xxxxx (President) and Xxxxxxx X. Xxxx (Senior Vice
President). Schedule I hereto sets forth additional background information
relating to the directors and executive officers of the Purchaser.
Stockwalk. Stockwalk, a Minnesota corporation, f/k/a NM Holdings, Inc.
merged with MJK Holdings, Inc. on July 7, 1999. Based in Minneapolis, Minnesota,
Xxxxxxxxx.xxx Group, Inc.'s principal assets are Miller, Johnson, & Xxxxx,
Incorporated ("MJKI"), a full service regional securities brokerage and
investment banking firm, Xxxxxxxxx.xxx Inc., an on-line securities brokerage
company, and Xxxxxx Securities, Inc., a discount securities brokerage company.
The subsidiary companies are members of the National Association of Securities
Dealers, Inc. (NASD) and the Securities Investors Protection Corporation (SIPC).
The Common Stock of Stockwalk is listed for trading on the NASDAQ/NMS under the
symbol ("STOK"). Stockwalk files annual and periodic reports; proxy statements
and other information with the Commission pursuant to the Exchange Act. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities of the Commission at Room 1024, 000 Xxxxx
Xxxxxx, X.X., Xxxxxxxxx Xxxxx, Xxxxxxxxxx, X.X. 00000 and at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, Suite
1300 , New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 000
Xxxx Xxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx 00000. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxx Xxxxx, Xxxxxxxxxx, X.X.
00000. The Commission maintains a Web site (located at xxxx://xxx.xxx.xxx) which
includes reports, proxy statements and other information filed electronically by
registrants with the Commission.
Prior to the formation of Stockwalk, MJKI operated as a full service
regional securities and investment banking firm that now serves as a clearing
agent for approximately 47 brokerage firms located
-20-
23
throughout the United States. In the fiscal year ended March 31, 1999, MJKI
generated $55.5 million in revenues, which represents a 31% compounded annual
growth rate since 1997.
Since the formation of Stockwalk in July 1999, management of Stockwalk has
executed on its online strategy. In July 1999, Stockwalk announced an agreement
to purchase the customer accounts of X.Xxx Investment Securities, Inc.
("X.Xxx"), a San Francisco, California-based online brokerage company with 3,200
active accounts. X.Xxx specializes in the investing needs of Asian-Americans by
offering online services in English, Mandarin, and Cantonese. Stockwalk also
announced the acquisition of Xxxxxx Securities, Inc. ("Xxxxxx") of Minneapolis,
Minnesota on August 26, 1999. Xxxxxx, founded in 1976, is a discount brokerage
company that offers online trading to its 18,000 clients. Approximately 40% of
Xxxxxx'x clients trade online. The X.Xxx transaction closed in November 1999 and
the Xxxxxx transaction closed in October 1999.
As of the date of the Offer, the Purchaser and Stockwalk together
beneficially own 211,900 Shares, representing approximately 4.3% of the Shares
outstanding as of November 10, 1999 as reported in the Company's most recent
Form 10-Q. All such Shares were acquired in open market transactions on the
NASDAQ National Market System.
Schedule II hereto sets forth transactions in the Shares effected during
the past three fiscal years by the Purchaser and Stockwalk. Except as set forth
in this Offer and Schedule II hereto, neither of the Purchaser or Stockwalk,
their executive officers and directors, nor to the best knowledge of the
Purchaser or Stockwalk, any associate or majority-owned subsidiary of such
persons beneficially owns any equity security of the Company, and neither of the
Purchaser or Stockwalk nor, to the best of their knowledge, any other persons
referred to above, or any of the respective directors, executive officers or
subsidiaries of any of the foregoing has effected any transaction in any equity
security of the Company during the past 60 days.
Except as set forth in this Offer, the Purchaser or Stockwalk: (a) do not
have 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, guarantees of loans, guarantees against
loss, or the giving or withholding of proxies; (b) has not been engaged in
contracts, negotiations or transactions with the Company or its affiliates
concerning a merger, consolidation, acquisition, tender offer or other
acquisitions of securities, election of directors or a sale or other transfer of
a material amount of assets; and (c) has not had any other transaction with the
Company or any of its executive officers, directors or affiliates that would
require disclosure under the rules and regulations of the Commission applicable
to the Offer.
10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY.
In early 1999, Xxxxx X. Xxxxxxx ("Xxxxxxx"), Executive Vice-President of
Stockwalk, contacted the Company's President and CEO Xxxxxxx X. Xxxxxx
("Xxxxxx"), regarding a possible combination of the Company with MJK Holdings,
Inc., now a wholly-owned subsidiary of Stockwalk. While those early discussions
proved unfruitful, Xxxxxxx again contacted Xxxxxx in September, 1999 regarding
the possible combination of the Company and Stockwalk in a stock for stock
exchange. These discussions did not proceed beyond explorations of interest.
On November 2, 1999, Xx. Xxxxxxx wrote to Xx. Xxxxxx expressing an interest
on behalf of Stockwalk to acquire the Company for $6.00 per share in cash,
contingent on obtaining financing and completion of a due diligence review of
the Company. Xx. Xxxxxx responded by indicating that the Board was not
considering sale of the Company and that the offer was inadequate. Thereafter,
the Company's
-21-
24
Board met on November 17 to consider the offer. Following the Board meeting, Xx.
Xxxxxx advised Xx. Xxxxxxx that the Board concluded that the $6.00 per share
offer was inadequate, but would entertain an offer that would "turn [our] heads"
if Stockwalk provided assurance of financing. In response, Xxxxxxx wrote to the
Board and urged them to reconsider the November 2, 1999 offer. The Board then
publicly announced a plan for the Company to repurchase up to 1,000,000 Shares
from time to time in market transactions. On November 23, 1999 Xx. Xxxxxx wrote
to Xx. Xxxxxxx reiterating that the Board was not considering sale of the
Company and believed that the offer made by Xx. Xxxxxxx was inadequate. In the
letter Xx. Xxxxxx also communicated the Board's unwillingness to provide
Stockwalk with information relating to the Company beyond publicly available
information unless Stockwalk presented a transaction representing
"substantially" greater value to the shareholders, provided evidence that
financing was reliably available and entered into a confidentiality agreement
with acceptable standstill and non-solicitation covenants. No further
discussions have occurred to date.
11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY.
Purpose of the Offer. The purpose of the Offer, as described in the
Introduction, is to enable Stockwalk through the Purchaser to acquire control
of, and the entire equity interest in, the Company. If the Offer is consummated
and the Business Combination Condition is satisfied, then, Stockwalk and
Purchaser will consider a merger of the Company with Stockwalk, Purchaser, or an
affiliate. The purpose of a merger is to acquire all Shares not tendered and
purchased pursuant to the Offer or otherwise. The Offer, as the first step in
the acquisition of the Company, is intended to facilitate the acquisition of all
of the Shares. The timing of consummation of the Offer and a merger will depend
on a variety of factors and legal requirements, the actions of the Company's
Board, the number of Shares (if any) acquired by the Purchaser pursuant to the
Offer, and whether the conditions to the Offer have been satisfied.
Except in the case of a "short-form" merger as described below, under
Minnesota law, the approval of the Company's Board of Directors and the
affirmative vote of holders of a majority of the outstanding Shares (including
Shares owned by the Purchaser or its affiliates) would be required to approve a
merger. If the Purchaser acquired through the Offer or otherwise voting power
with respect to at least a majority of the outstanding Shares, which would be
the case if the Minimum Tender Condition, and Business Combination Condition
were satisfied and the Purchaser were to accept for payment Shares tendered
pursuant to the Offer, it would have sufficient voting power to effect a merger
without the vote of any other shareholder of the Company. If following
consummation of the Offer, the current members of the Board of Directors of the
Company do not resign or approve a merger, then the Purchaser may call a special
meeting of shareholders to seek to remove members of the Board and to cause
nominees of the Purchaser to be elected to fill the resulting vacancies who,
subject to the fiduciary duties they would have as directors of the Company,
intend to approve a merger and take any other action to permit a merger to be
consummated.
Minnesota law provides that if a parent company owns at least 90% of each
class of stock of a subsidiary, the Parent can effect a "short-form" merger with
that subsidiary without a shareholder vote. Accordingly, if as a result of the
Offer or otherwise, the Purchaser acquired or controls the voting power of at
least 90% of the outstanding Shares, the Purchaser could, and intends to, effect
a merger without prior notice to, or any action by, any other shareholder of the
Company.
If a merger has not been consummated, Stockwalk, the Purchaser or an
affiliate may, either immediately following consummation or termination of the
Offer (whether or not the Purchaser purchases Shares pursuant to the Offer) or
from time to time thereafter, seek to acquire additional Shares through
open-market purchases, privately negotiated transactions, a tender offer or
exchange offer or otherwise, upon such terms and at such prices as it may
determine, which may be more or less than the price to be paid pursuant to the
Offer. Alternatively, Stockwalk, the Purchaser and its affiliates reserve the
right to
-22-
25
sell or otherwise dispose of any or all of the Shares acquired by them pursuant
to the Offer or otherwise, upon such terms and at such prices as they shall
determine.
The precise timing and other details of any merger or other business
combination transaction will depend on a variety of factors such as general
economic conditions and prospects, the future prospects, asset value and
earnings of the Company, the number of Shares acquired by the Purchaser pursuant
to the Offer or otherwise and the statutory requirements described above. The
Purchaser can give no assurance that a merger or other business combination will
be proposed or that, if it is proposed, it will not be delayed or abandoned. The
Purchaser expressly reserves the right not to propose any merger or similar
business combination on terms other than those set forth herein, and its
ultimate decision could be affected by information hereafter obtained by the
Purchaser, changes in economic or market conditions or in the business of the
Company or other factors.
The making of the Offer will enable Stockwalk and the Purchaser to commence
the process of seeking regulatory approvals for its acquisition of the Company.
See Section 15. In addition, by tendering Shares pursuant to the Offer, the
Company's shareholders effectively will be given the opportunity to express to
the Company's Board that they wish to be able to accept the Offer.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF A PROXY, CONSENT OR
AUTHORIZATION FOR OR WITH RESPECT TO ANY ANNUAL MEETING OR ANY SPECIAL MEETING
OF THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH THE PURCHASER MAY
MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE SOLICITATION MATERIALS COMPLYING
WITH ALL APPLICABLE REQUIREMENTS OF SECTION 14(a) OF THE EXCHANGE ACT AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER.
Plans for the Company. Upon consummation of the Offer, the Purchaser
intends to conduct a review of the Company and its assets, corporate structure,
capitalization, operations, properties and policies and to consider what, if
any, changes would be desirable in light of the circumstances then existing, and
reserves the right to take such actions or effect such changes as it deems
desirable. See Section 10. If the Offer is completed, the Purchaser does intend
to consider management consolidation, replacement of a majority of the Board of
Directors and the substitution of MJKI as the clearing agent for the Company's
existing clearing agent. The Purchaser will also consider other operational
changes that could result in cost saving synergies and more efficient use of
resources. Such management changes likely would include the replacement of Xx.
Xxxxxx as Chief Executive Officer of the Company which could require the Company
to make substantial termination payments to Xx. Xxxxxx under his existing
agreements with the Company.
Except as otherwise described in this Offer to Purchase, the Purchaser has
no present plans or proposals that would relate to or would result in (i) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Company or any of its subsidiaries, (ii) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries, (iii) any change in the present Board of Directors or management
of the Company, (iv) any material changes in the present capitalization or
dividend policy of the Company, (v) any other material change in the Company's
corporate structure or business, (vi) causing a class of securities of the
Company to be delisted from a national securities exchange or to cease to be
authorized to be quoted in an inter-dealer quotation system of a registered
national securities association or (vii) a class of equity securities of the
Company becoming eligible for termination of registration pursuant to Section
12(g)(4) of the Exchange Act.
Dissenter's Rights and Going Private Transactions. Under the Minnesota
Business Corporation Act, the Purchaser has been advised that shareholders will
have the right to dissent from a merger, and receive
-23-
26
in lieu of a merger consideration, assuming compliance with appropriate
statutory procedures, the per share amount determined in accordance with
Sections 302A.471 and 473 of the Minnesota Business Corporation Act.
The SEC has adopted Rule 13e-3 under the Exchange Act, which is applicable
to certain "going private" transactions and which may under certain
circumstances be applicable to a merger. However, Rule 13e-3 would not be
applicable to a merger if: (a) the Shares are deregistered under the Exchange
Act prior to a merger; or (b) a merger is consummated within one year after the
purchase of the Shares pursuant to the Offer and a merger provided for
shareholders to receive cash for their Shares in an amount at least equal to the
amount paid per Share in the Offer. However, in the event that the Purchaser is
deemed to have acquired control of the Company pursuant to the Offer and if a
merger is consummated more than one year after completion of the Offer or an
alternative acquisition transaction is effected whereby shareholders of the
Company receive consideration less than that paid pursuant to the Offer, in
either case at a time when the Shares are still registered under the Exchange
Act, the Purchaser may be required to comply with Rule 13e-3 under the Exchange
Act. If applicable, Rule 13e-3 requires, among other things, that certain
financial information concerning the fairness of the proposed transaction be
filed with the Security Exchange Commission and disclosed to shareholders prior
to the consummation of the transaction. The purchase of a substantial number of
Shares pursuant to the Offer may result in the Company being able to terminate
its Exchange Act registration.
12. SOURCE AND AMOUNT OF FUNDS.
According to The Company's Form 10-Q, there were 4,895,415 Shares
outstanding as of November 4, 1999, of which 211,900 Shares are currently owned
by t he Purchaser or Stockwalk. Including outstanding options for 730,700 Shares
as of December 31, 1998, there are potentially 5,626,115 Shares outstanding on a
fully diluted basis. In order to satisfy the Minimum Offer Condition,
approximately 2,601,159 Shares (the "Purchased Shares") would need to be
tendered and purchased. The total purchase price of these Purchased Shares would
be $19,508,693.
The Purchaser plans to secure approximately $15,000,000 in bank financing
from existing credit lines. The balance of the funds necessary to consummate the
Offer would be approximately $4,510,192 if the minimum Shares were tendered and
$25,605,613 if all Shares were tendered. The Purchaser has initiated a private
placement of equity securities to provide such financing and for other corporate
purposes. The Purchaser believes that such placement can be successfully
completed on a timely basis.
13. DIVIDENDS AND DISTRIBUTIONS.
If, on or after December 8, 1999, the Company should (a) split, combine or
otherwise change the Shares or its capitalization, (b) acquire or otherwise
cause a reduction in the number of outstanding Shares or other securities or (c)
issue or sell additional Shares of any other class of capital stock, other
voting securities or any securities convertible into, or rights, warrants or
options, conditional or otherwise, to acquire, any of the foregoing, then,
subject to the provisions of Section 14, the Purchaser, in its sole discretion,
may make such adjustments as it deems appropriate in the purchase price and
other terms of the Offer, including, without limitation, the number or type of
securities offered to be purchased or the number of securities required to
satisfy the Minimum Tender Condition.
If, on or after December 8, 1999, the Company should declare or pay any
cash dividend on the Shares or other distribution on the Shares, or issue with
respect to the Shares any additional Shares, shares of any other class of
capital stock, other voting securities or any securities convertible into, or
rights, warrants or options, conditional or otherwise, to acquire, any of the
foregoing, payable or distributable to shareholders of record on a record date
prior to the transfer of the Shares purchased pursuant to the Offer
-24-
27
to the Purchaser or its nominee or transferee on the Company's stock transfer
records, then, subject to the provisions of Section 14, (a) the purchase price
of the Offer may, in the sole discretion of the Purchaser, be reduced by the
amount of any such cash dividend or cash distribution and (b) the whole of any
such non-cash dividend, distribution or issuance to be received by the tendering
shareholders will (i) be received and held by the tendering shareholders for the
account of the Purchaser and will be required to be promptly remitted and
transferred by each tendering shareholder to the Depositary for the account of
the Purchaser, accompanied by appropriate documentation of transfer, or (ii) at
the direction of the Purchaser, be exercised for the benefit of the Purchaser,
in which case the proceeds of such exercise will promptly be remitted to the
Purchaser. Pending such remittance and subject to applicable law, the Purchaser
will be entitled to all rights and privileges as owner of any such non-cash
dividend, distribution, issuance or proceeds and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof, as
determined by the Purchaser in its sole discretion.
14. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other term or provision of the Offer, the Purchaser
will not be required to accept for payment or, subject to any applicable rules
and regulations of the Commission, including Rule 14e-l(c) under the Exchange
Act (relating to a bidder's obligation to pay for or return tendered securities
promptly after the termination or withdrawal of such bidder's offer), to pay for
any Shares not theretofore accepted for payment or paid for unless the following
conditions have been satisfied, among others, (1) the Minimum Tender Condition,
(2) the Business Combination Condition, (3) the Poison Pill/Anti-Dilution
Condition, (4) the Financing Condition, and (5) any waiting period under the HSR
Act applicable to the purchase of Shares pursuant to the Offer shall have
expired or been terminated. Furthermore, notwithstanding any other term or
provision of the Offer, the Purchaser will 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 or amend the Offer if, at any time on or
after Wednesday, December 8, 1999, and before the acceptance of such Shares for
payment or the payment therefor, any of the following events or facts shall have
occurred:
(a) there shall be threatened, instituted or pending any action,
proceeding, application or counterclaim by any government or
governmental, regulatory or administrative authority or agency,
domestic, foreign or supranational (each, a "Governmental Entity"), or
by any other person, domestic or foreign, before any court or
Governmental Entity, (i) (A) challenging or seeking to, or which is
reasonably likely to, make illegal, delay or otherwise directly or
indirectly restrain or prohibit, or seeking to or which is reasonably
likely to, impose voting, procedural, price or other requirements in
connection with, the making of the Offer, the acceptance for payment
of, or payment for, some of or all the Shares by the Purchaser, or any
other affiliate of the Purchaser or the consummation by the Purchaser,
or any other affiliate of the Purchaser of a merger or other similar
business combination with the Company, (B) seeking to obtain material
damages, or (C) otherwise directly or indirectly relating to the
transactions contemplated by the Offer or any merger or business
combination between the Purchaser or its affiliates on the one hand and
the Company and its affiliates on the other hand, (ii) seeking to
prohibit the ownership or operation by the Purchaser or any other
affiliate of the Purchaser of all or any portion of the business or
assets of the Company and its subsidiaries or of the Purchaser or any
other affiliate of the Purchaser or to compel the Purchaser or any
other affiliate of the Purchaser or the Company or any subsidiary
thereof to dispose of or hold separate all or any portion of the
business or assets of the Company or any of its subsidiaries or of the
Purchaser or any other affiliate of the Purchaser or the Company or any
subsidiary thereof or seeking to impose any limitations on the ability
of the Purchaser or any other affiliate of the Purchaser to conduct
such business or own such assets, (iii) seeking to
-25-
28
impose or confirm limitation on the ability of the Purchaser or any
other affiliate of the Purchaser effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to
vote any Shares acquired or owned by the Purchaser or any other
affiliate of the Purchaser on all matters properly presented to the
Company's shareholders, (iv) seeking to require divestiture by the
Purchaser or any other affiliate of the Purchaser of any Shares, (v)
seeking any material diminution in the benefits expected to be derived
by the Purchaser or any other affiliate of the Purchaser as a result of
the transactions contemplated by the Offer or any merger or other
similar business combination with the Company, (vi) otherwise directly
or indirectly relating to the Offer or which otherwise, in the sole
judgment of the Purchaser, might materially adversely affect the
Company or any of its subsidiaries or the Purchaser or any other
affiliate of the Purchaser or the value of the Shares, or (vii) in the
sole judgment of the Purchaser, materially adversely affecting the
business, properties, assets, liabilities, capitalization,
shareholders' equity, condition (financial or otherwise), operations,
licenses or franchises, results of operations or prospects of the
Company or any of its subsidiaries;
(b) there shall be any action taken or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
proposed, enacted, enforced, promulgated, amended, issued or deemed
applicable to (i) the Purchaser or any other affiliate of the Purchaser
or the Company or any of its subsidiaries or (ii) the Offer or any
merger or other similar business combination by the Purchaser or any
other affiliate of the Purchaser with the Company, by any government,
legislative body or court, domestic, foreign or supranational, or
Governmental Entity, other than the routine application of the waiting
period provisions of the HSR Act to the Offer, that, in the sole
judgment of the Purchaser, might, directly or indirectly, result in any
of the consequences referred to in clauses (i) through (vii) of
paragraph (a) above;
(c) any change shall have occurred or been threatened (or any
condition, event or development shall have occurred or been threatened
involving a prospective change) in the business, properties, assets,
liabilities, capitalization, shareholders' equity, condition (financial
or otherwise), operations, licenses or franchises, results of
operations or prospects of the Company or any of its subsidiaries that,
in the sole judgment of the Purchaser, is or may be materially adverse
to the Company or any of its subsidiaries, or the Purchaser shall have
become aware of any facts that, in the sole judgment of the Purchaser,
have or may have material adverse significance with respect to either
the value of the Company or any of its subsidiaries or the value of the
Shares to the Purchaser or any other affiliate of the Purchaser;
(d) there shall have occurred or been threatened (i) any general
suspension of trading in, or limitation on prices for, securities on
any national securities exchange or in the over-the-counter market in
the United States, (ii) any extraordinary or material adverse change in
the financial markets or major stock exchange indices in the United
States or abroad or in the market price of Shares, (iii) any change in
the general political, market, economic or financial conditions in the
United States or abroad, including but not limited to changes resulting
from the so called Y2K or Year 2000 problem, that could, in the sole
judgment of the Purchaser, have a material adverse effect upon the
business, properties, assets, liabilities, capitalization,
shareholders' equity, condition (financial or otherwise), operations,
licenses or franchises, results of operations or prospects of the
Company, Stockwalk or their respective subsidiaries or the trading in,
or value of, the Shares, (iv) any material change in United States
currency exchange rates or any other currency exchange rates or a
suspension of, or limitation on, the markets therefor, (v) a
declaration
-26-
29
of a banking moratorium or any suspension of payments in respect of
banks in the United States, (vi) any limitation (whether or not
mandatory) by any government, domestic, foreign or supranational, or
Governmental Entity on, or other event that, in the sole judgment of
the Purchaser, might affect, the extension of credit by banks or other
lending institutions, (vii) a commencement of a war or armed
hostilities or other national or international calamity directly or
indirectly involving the United States or (viii) in the case of any of
the foregoing existing at the time of the commencement of the Offer, a
material acceleration or worsening thereof;
(e) the Company or any of its subsidiaries shall have (i) split,
combined or otherwise changed, or authorized or proposed a split,
combination or other change of, the Shares or its capitalization, (ii)
acquired or otherwise caused a reduction in the number of, or
authorized or proposed the acquisition or other reduction in the number
of, outstanding Shares or other securities (other than as aforesaid),
(iii) issued or sold, or authorized or proposed the issuance,
distribution or sale of, additional Shares (other than the issuance of
Shares under option as publicly disclosed prior to December 31, 1998)
other class of capital stock, other voting securities or any securities
convertible into, or rights, warrants or options, conditional or
otherwise, to acquire, any of the foregoing, (iv) declared or paid, or
proposed to declare or pay, any dividend or other distribution, whether
payable in cash, securities or other property, on or with respect to
any shares of capital stock of the Company, (v) altered or proposed to
alter any material term of any outstanding security other than to
satisfy the Business Combination Condition with respect to the
Purchaser as described herein, (vi) incurred any debt other than in the
ordinary course of business or any debt containing burdensome
covenants, (vii) authorized, recommended, proposed or entered into, an
agreement with respect to any merger, consolidation, liquidation,
dissolution, business combination, acquisition of assets, disposition
of assets, release or relinquishment of any material contractual or
other right of the Company or any of its subsidiaries or any comparable
event not in the ordinary course of business, (viii) authorized,
recommended, proposed or entered into, or announced its intention to
authorize, recommend, propose or enter into, any agreement or
arrangement with any person or group that in the sole judgment of the
Purchaser could adversely affect either the value of the Company or any
of its subsidiaries or the value of the Shares to the Purchaser or any
other affiliate of the Purchaser, (ix) entered into any employment,
severance or similar agreement, arrangement or plan with or for the
benefit of any of its employees other than in the ordinary course of
business or entered into or amended any agreements, arrangements or
plans so as to provide for increased or accelerated benefits to the
employees as a result of or in connection with the transactions
contemplated by the Offer, (x) except as may be required by law, taken
any action to terminate or amend any employee benefit plan (as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended) of the Company or any of its subsidiaries, or the Purchaser
shall have become aware of any such action that was not disclosed in
publicly available filings prior to December 8, 1999, or (xi) amended,
or authorized or proposed any amendment to, its articles of
incorporation or its by-laws (other than any amendment effected as a
result of the adoption of the Proposals), or the Purchaser shall become
aware that the Company or any of its subsidiaries shall have proposed
or adopted any such amendment that was not disclosed in publicly
available filings prior to December 8, 1999;
(f) a tender or exchange offer for any Shares shall have been made
or publicly proposed to be made by any other person (including the
Company or any of its subsidiaries or affiliates), or it shall have
been publicly disclosed or the Purchaser shall
-27-
30
have otherwise learned that (i) any person, entity (including the
Company or any of its subsidiaries) or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) shall have acquired or proposed
to acquire beneficial ownership of more than 5% of any class or series
of capital stock of the Company (including the Shares), through the
acquisition of stock, the formation of a group or otherwise, or shall
have been granted any right, option or warrant, conditional or
otherwise, to acquire beneficial ownership of more than 5% of any class
or series of capital stock of the Company (including the Shares), other
than acquisitions for bona fide arbitrage purposes only and other than
as disclosed in a Schedule 13G on file with the Commission prior to
December 8, 1999, (ii) any such person, entity or group that prior to
December 8, 1999, had filed such a Schedule with the Commission has
acquired or proposes to acquire, through the acquisition of stock, the
formation of a group or otherwise, beneficial ownership of 1% or more
of any class or series of capital stock of the Company (including the
Shares), or shall have been granted any right, option or warrant,
conditional or otherwise, to acquire beneficial ownership of 1% or more
of any class or series of capital stock of the Company (including the
Shares), (iii) any person or group shall have entered into a definitive
agreement or an agreement in principle or made a proposal with respect
to a tender offer or exchange offer or a merger, consolidation or other
business combination with or involving the Company or (iv) any person
shall have filed a Notification and Report Form under the HSR Act (or
amended a prior filing to increase the applicable filing threshold set
forth therein) or made a public announcement reflecting an intent to
acquire the Company or any assets or subsidiaries of the Company;
(g) any approval, permit, authorization, favorable review or
consent of any Governmental Entity (including those described or
referred to in Section 15) shall not have been obtained on terms
satisfactory to the Purchaser in its sole discretion;
(h) the Purchaser shall become aware (i) that any material
contractual right of the Company or any of its subsidiaries shall be
impaired or otherwise adversely affected as a result of the
transactions contemplated by the Offer, or (ii) of any covenant, term
or condition in any of the Company's or any of its subsidiaries'
instruments or agreements that are or may be materially adverse to the
value of the Shares in the hands of the Purchaser or any other
affiliate of the Purchaser (including, without limitation, any event of
default that may ensue as a result of the consummation of the Offer, or
any other business combination or the acquisition of control of the
Company); or
(i) the Purchaser shall have reached an agreement or understanding
with the Company providing for termination of the Offer, or the
Purchaser or any other affiliate of the Purchaser shall have entered
into a definitive agreement or announced an agreement in principle with
the Company providing for a merger or other business combination with
the Company or the purchase of stock or assets of the Company; which,
in the sole judgment of the Purchaser in any such case, and regardless
of the circumstances (including any action or inaction by the Purchaser
or any other affiliate of the Purchaser) giving rise to any such
condition, makes it inadvisable to proceed with the Offer and/or with
such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of the Purchaser and
maybe asserted by the Purchaser regardless of the circumstances giving rise to
any such condition or may 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 will not be deemed a waiver
of any such right, the waiver of any such right with respect to particular facts
and circumstances will not be deemed
-28-
31
a waiver with respect to any other facts and circumstances and each such right
will be deemed an ongoing right that may be asserted at any time and from time
to time. Any determination by the Purchaser concerning the events described in
this Section 14 will be final and binding upon all parties.
A public announcement may be made of a material change in, or waiver of,
such conditions and the Offer may, in certain circumstances, be extended in
connection with any such change or waiver.
The Purchaser acknowledges that the Commission believes that (a) if the
Purchaser is delayed in accepting the Shares it must either extend the Offer or
terminate the Offer and promptly return the Shares and (b) the circumstances in
which a delay in payment is permitted are limited and do not include unsatisfied
conditions of the Offer, except with respect to any approval required under the
HSR Act and most other regulatory approvals.
15. CERTAIN LEGAL MATTERS; REQUIRED REGULATORY APPROVALS.
General. Except as disclosed herein, based upon review of publicly
available filings by the Company, the Purchaser is not aware of any license or
regulatory permit that appears to be material to the business of the Company and
that might be adversely affected by the Purchaser's acquisition of Shares
pursuant to the Offer, or of any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic or foreign, that
would be required for the acquisition or ownership of Shares by the Purchaser
pursuant to the Offer. Should any such approval or other action be required, it
is presently contemplated that such approval or action would be sought. While
the Purchaser does not currently intend to delay acceptance for payment of
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 required,
would be obtained without substantial conditions or that adverse consequences
would not result to the business of the Company or the Purchaser in the event
that such approvals were not obtained or such other actions were not taken or in
order to obtain any such approval or other action. The Purchaser's obligation to
purchase and pay for Shares is subject to certain conditions, including
conditions with respect to litigation and governmental actions. See the
Introduction and Section 14 for a description thereof.
State Takeover Laws. The Company and certain of its subsidiaries conduct
business in a number of states throughout the United States, some of which have
adopted laws and regulations applicable to offers and acquisitions of shares of
corporations that are incorporated or have substantial assets, shareholders or a
principal place of business in such states. In Xxxxx x. MITE Corp., the Supreme
Court of the United States held that the Illinois Business Takeover Statute,
which involved state securities laws which made takeover of certain corporations
more difficult, imposed a substantial burden on interstate commerce and was
therefore unconstitutional. In CTS Corp. v. Dynamics Corp. of America, however,
the Supreme Court 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.
The Company is incorporated under the laws of the state of Minnesota. The
Minnesota Control Share Act requires, among other things, that in order to vote
shares of an "issuing public corporation" acquired over a 20%, 33% or 50%
threshold, an `Acquiring Person" must receive the approval of the holders of a
majority of all shares entitled to vote and the holders of a majority of shares
entitled to vote excluding all "interested shares" at a meeting to be held no
later than 55 calendar days following delivery of, among other things, an
information statement by the Acquiring Person to the Issuing Public Corporation,
unless the Acquiring Xxxxxx agrees to a later date. "Interested Shares" are
defined to mean shares beneficially owned by an Acquiring Person, by any officer
of the Issuing Public Corporation and
-29-
32
by employee-directors of the Issuing Public Corporation. An `Acquiring
Person" is defined as any person that makes or proposes to make an acquisition
of, directly or indirectly, of beneficial ownership of shares of an Issuing
Public Corporation that would, when added to all other shares beneficially
owned by such person, entitle such person immediately after such acquisition to
exercise or direct the exercise of voting power over a new range of voting
power within any of the ranges referred to above. In order to obtain the right
under the Control Share Act to vote all Shares that may be acquired by the
Purchaser pursuant to the Offer, the Purchaser would be required to deliver to
the Company an Information Statement containing the information required by the
Minnesota Control Share Act and, in accordance with the Minnesota Control Share
Act, request that the Company call a special meeting of shareholders for the
sole purpose of considering the voting rights to be accorded to all Shares
acquired by the Purchaser pursuant to the Offer.
The above provisions do not apply to a control share acquisition of shares
of an Issuing Public Corporation whose articles of incorporation or bylaws
provide that the Control Share Act does not apply to control share acquisitions
of its shares. The Company's Articles of Incorporation, currently exclude the
Company from the restrictions imposed by the Control Share Act.
In addition, Section 302A.673 of the Minnesota Business Corporation Act
would prohibit any "business combination" including any merger, for a period of
four years following the date that the Purchaser first acquires beneficial
ownership, directly or indirectly, of 10% or more of the outstanding Shares if
the Purchaser does not receive approval of a special committee composed of all
of the disinterested members of the Company's Board of Directors prior to such
acquisition. A CONDITION OF THE OFFER IS THAT A COMMITTEE OF THE COMPANY'S
DISINTERESTED DIRECTORS APPROVE THE PURCHASER'S ACQUISITION OF SHARES PRIOR TO
THE PURCHASER ACQUIRING BENEFICIAL OWNERSHIP, DIRECTLY OR INDIRECTLY OF AT LEAST
10% OF THE COMPANY'S OUTSTANDING SHARES IN ACCORDANCE WITH THE MINNESOTA
BUSINESS COMBINATION ACT.
The Minnesota Takeover Disclosure Law. Minnesota Statutes Ch.80B.01 et
seq., requires certain disclosures and filing of disclosure material with the
Minnesota Commissioner of Commerce (the "Commissioner"). The Purchaser filed
disclosure materials with the Commissioner. Although the Commissioner does not
approve such material, he or she does review it for the adequacy of such
disclosure and is empowered to summarily suspend the Offer in Minnesota within
three days of such filing if the material does not provide full disclosure. Such
summary suspension, if made, would be effective until a hearing is held (within
ten days of the summary suspension) and a determination made (within three days
of such hearing, but no more than sixteen days after the initial summary
suspension) to make any such suspension permanent, subject to corrective
disclosure.
The Purchaser has not determined whether any other state takeover laws and
regulations will by their terms apply to the Offer, and, except as set forth
herein, the Purchaser has not presently sought to comply with any state takeover
statute or regulation. The Purchaser reserves the right to challenge the
applicability or validity of any state law or regulation purporting to apply to
the Offer, 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 and an
appropriate court does not determine that such statute is inapplicable or
invalid as applied to the Offer, 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 Laws. Under the HSR Act, and the rules and regulations that have
been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be consummated until certain information and
documentary material has been furnished for review by the Antitrust Division of
the Department of Justice (the "Antitrust Division") and the FTC and certain
waiting
-30-
33
period requirements have been satisfied. The acquisition of Shares pursuant to
the Offer and a merger is subject to such requirements.
The Purchaser intends to file a Premerger Notification and Report Form with
the Antitrust Division and the FTC under the HSR Act in connection with the
purchase of Shares that would include Shares acquired pursuant to the Offer, and
the required waiting period will expire at 11:59 p.m., New York City time,
fifteen days after such filing, unless earlier terminated by the Antitrust
Division or the FTC or the Purchaser receives a request for additional
information or documentary material prior thereto. If, within such
15-calendar-day waiting period, either the FTC or the Antitrust Division were to
request additional information or documentary material from the Purchaser, the
waiting period would be extended for an additional period of 10 calendar days
following the date of substantial compliance with such request by the Purchaser.
Only one extension of the waiting period pursuant to a request for additional
information is authorized by the rules promulgated under the HSR Act.
Thereafter, the waiting period could be extended only by court order or with the
consent of Purchaser. The additional 10-calendar-day waiting period may be
terminated sooner by the FTC or the Antitrust Division. Although the Company is
required to file certain information and documentary material with the Antitrust
Division and the FTC in connection with the Offer, neither the Company's failure
to make such filings nor a request made to the Company from the Antitrust
Division or the FTC for additional information or documentary material will
extend the waiting period with respect to the purchase of Shares pursuant to the
Offer.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the acquisition of Shares by the
Purchaser pursuant to the Offer. At any time before or after the Purchaser's
purchase of Shares, the Antitrust Division or the FTC could take such action
under the antitrust laws as either deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer, the divestiture of Shares purchased pursuant to the Offer or the
divestiture of substantial assets of the Purchaser, the Company or any of their
respective subsidiaries or affiliates. Private parties as well as state
attorneys general may also bring legal actions under the antitrust laws under
certain circumstances.
Based upon an examination of publicly available information relating to the
businesses in which the Company is engaged, the Purchaser believes that the
acquisition of Shares pursuant to the Offer should not violate the applicable
antitrust laws. Nevertheless, there can be no assurance that a challenge to the
Offer on antitrust grounds will not be made, or, if such challenge is made, what
the result will be.
Foreign Approvals. In connection with the acquisition of the Shares
pursuant to the Offer, the laws of certain of those foreign countries and
jurisdictions may require the filing of information with, or the obtaining of
the approval of, governmental authorities in such countries and jurisdictions.
The governments in such countries and jurisdictions might attempt to impose
additional conditions on the Company's operations conducted in such countries
and jurisdictions as a result of the acquisition of the Shares pursuant to the
Offer. There can be no assurance that the Purchaser will be able to cause the
Company or its subsidiaries to satisfy or comply with such laws or that
compliance or noncompliance will not have adverse consequences for the Company
or any subsidiary after purchase of the Shares pursuant to the Offer.
Margin Credit Regulations. Federal Reserve Board Regulations T, U and X
(the "Margin Credit Regulations") restrict the extension or maintenance of
credit for the purpose of buying or carrying margin stock, including the Shares,
if the credit is secured directly or indirectly thereby. The Purchaser will be
required to comply with the Margin Credit Regulations.
-31-
34
16. CERTAIN FEES AND EXPENSES.
XX Xxxxxxxx & Co is acting as Dealer Manager in connection with the Offer.
The Purchaser is obligated to pay to XX Xxxxxxxx & Co an advisory retainer fee
of $50,000, $10,000 per month beginning April 1, 2000 until the offer is
completed or terminated and an additional fee in the form of 5-Year Warrants to
purchase 100,000 shares of Common Stock of Stockwalk at an initial exercise
price of $8.00 per share if the Purchaser accumulates more than 50%. The
Purchaser has agreed to reimburse XX Xxxxxxxx & Co for all of its reasonable
expenses, including reasonable fees and disbursements of its counsel, incurred
in rendering its services under its engagement agreement with Purchaser and has
agreed to indemnify XX Xxxxxxxx & Co against certain liabilities and expenses in
connection with the Offer, including certain liabilities under the federal
securities laws.
In the ordinary course of business, XX Xxxxxxxx & Co and its affiliates may
actively trade the securities of the Company for their own account and for the
account of customers and accordingly may, at any time, hold long or short
positions in such securities. As of December 3, 1999, XX Xxxxxxxx & Co did not
hold any of the Company's securities for its own account or the accounts of its
affiliates.
Beacon Hill Partners, Inc. has been retained by the Purchasers as
Information Agent in connection with the Offer. The Information Agent may
contact holders of Shares by mail, telephone, telex, telegraph and personal
interview and may request brokers, dealers and other nominee shareholders to
forward material relating to the Offer to beneficial owners of Shares. The
Purchaser will pay the Information Agent reasonable and customary compensation
for all such services in addition to reimbursing the Information Agent for
reasonable out-of-pocket expenses in connection therewith. The Purchaser has
agreed to indemnify the Information Agent against certain liabilities and
expenses in connection with the Offer, including certain liabilities under the
federal securities laws.
In addition, Firstar Bank of Minnesota, N.A. has been retained as the
Depositary. The Purchaser will pay the Depositary reasonable and customary
compensation for its services in connection with the Offer, will reimburse the
Depositary for its reasonable out-of-pocket expenses in connection therewith and
will indemnify the Depositary against certain liabilities and expenses in
connection therewith, including certain liabilities under the federal securities
laws.
Except as set forth above, neither the Purchaser nor any of its officers or
directors will pay any fees or commissions to any broker, dealer or other person
(other than the Information Agent and the Dealer Manager) for soliciting tenders
of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust
companies and other nominees will, upon request, be reimbursed by the Purchaser
for customary clerical and mailing expenses incurred by them in forwarding
offering materials 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 residing in any jurisdiction in which the making of
the Offer or the acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction. However, the Purchaser
may, in its discretion, take such action as it may deem necessary to make the
Offer in any jurisdiction and extend the Offer to holders of Shares in such
jurisdiction.
In any jurisdiction where the securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer will 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.
-32-
35
The Purchaser and Stockwalk have filed with the Commission a Schedule
14D-1, together with exhibits, pursuant to Rule l4d-3 of the General Rules and
Regulations under the Exchange Act, furnishing certain additional information
with respect to the Offer, and may file amendments thereto. Such Schedule 14D-1
and any amendments thereto, including exhibits, may be examined and copies may
be obtained from the office of the Commission in the same manner as described in
Section 8 with respect to information concerning the Company, except that they
will not be available at the regional offices of the Commission.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, ANY SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Neither the delivery of the Offer to Purchase nor any purchase pursuant to
the Offer shall, under any circumstances, create any implication that there has
been no change in the affairs of the Purchaser, the Company or any of their
respective subsidiaries since the date as of which information is furnished or
the date of this Offer to Purchase.
-----------------------
SW ACQUISITION, INC.
December 8, 1999
-33-
36
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER AND STOCKWALK
The name, present principal occupation or employment and five-year
employment history of each of the directors and executive officers of the
Purchaser and Stockwalk are set forth below. The principal business address of
each director and executive officer is 0000 Xxxxxxx Xxxxxxxxx, Xxxxx 000,
Xxxxxxxxxxx, Xxxxxxxxx 00000. Each such person is a citizen of the United
States.
Position with the Purchaser Principal
Name Occupation or Employment, 5 year Employment History
---- ---------------------------------------------------
Xxxxx X. Xxxxxx (59)................................... Xx. Xxxxxx is the Chairman and Chief Executive Officer of the Purchaser
and has been the Chairman and Chief Executive Officer of Stockwalk
since its merger with Xxxxxx, Xxxxxxx & Xxxxx Holdings, Inc. in July
1999. Xx. Xxxxxx has also been the Chief Executive Officer and Chairman
of the Board of Xxxxxx, Xxxxxxx & Xxxxx, Inc., since 1980.
Xxxxx X. Xxxxxxx (49).................................. Xx. Xxxxxxx is the Executive Vice President and a Director of Purchaser
and has been the Executive Vice President and a Director of Stockwalk
since its merger with Xxxxxx, Xxxxxxx & Xxxxx Holdings, Inc. Since
1989, Xx. Xxxxxxx has also been the Executive Vice President of Xxxxxx,
Xxxxxxx & Xxxxx, Inc.
Xxxx X. Xxxxx (57)..................................... Xx. Xxxxx is the President and a Director of the Purchaser and has been
the President and a Director of Stockwalk since its merger with Xxxxxx,
Xxxxxxx & Xxxxx Holdings, Inc. Xx. Xxxxx has also been the President
and a Director of Xxxxxx, Xxxxxxx & Xxxxx, Inc. since 1989.
Xxxxxxx X. Xxxx (67)................................... Xx. Xxxx is a Senior Vice President and a Director of Purchaser and has
been a Senior Vice President and a Director of Stockwalk since its
merger with Xxxxxx, Xxxxxxx & Xxxxx Holdings, Inc. Xx. Xxxx has been
the Treasurer and a Director of Xxxxxx, Xxxxxxx & Xxxxx, Inc., since
1981.
X. Xxx Xxxxxx (59)..................................... Xx. Xxxxxx has been a Director of Stockwalk since its merger with
Xxxxxx, Xxxxxxx & Xxxxx Holdings, Inc. Since 1992, Xx. Xxxxxx has been
an independent investor and has been the General Partner of Standard
Mill Limited Partnership, LLC, an owner of a Minneapolis hotel
property, since January 1997.
-34-
37
Xxxxxx X. Xxxxx (63)................................... Xx. Xxxxx has been a Director of Stockwalk since its merger with Xxxxxx,
Xxxxxxx & Xxxxx Holdings, Inc. Xx. Xxxxx is a general partner of
Brightstone Capital, Ltd. and has more than 30 years of experience in
venture capital related fields and has been a director of more than 55
publicly owned companies.
Xxxx X. Xxxxxx (36).................................... Xx. Xxxxxx is the Treasurer and Chief Financial Officer of Purchaser and
has served as the Treasurer and Chief Financial Officer of Stockwalk since
its merger with Xxxxxx, Xxxxxxx & Xxxxx Holdings, Inc. He has been
employed at Xxxxxx, Xxxxxxx & Xxxxx, Inc. in a variety of capacities since
1982.
Xxxxxx X. Xxxxxx (40).................................. Xx. Xxxxxx is the Secretary of Purchaser and has served as the General
Counsel of Stockwalk since September, 1999. Xx. Xxxxxx previously was a
partner with the law firm of Maun & Simon, PLC.
-35-
38
SCHEDULE II
The following table sets forth information concerning transactions in
Shares since the beginning of the third full fiscal year of the Company prior to
the date of this Offer by the Purchaser and its affiliates. All such
transactions were effected in open market purchases on the NASDAQ National
Market.
Purchase Date Quantity Price Per Share(1)
------------- -------- ------------------
October 13, 1999.............................. 10,200 $4.3750
October 14, 1999.............................. 2,500 4.3750
October 15, 1999.............................. 2,400 4.3750
October 18, 1999.............................. 6,000 4.3750
October 18, 1999.............................. 10,000 4.3125
October 19, 1999.............................. 4,600 4.3750
October 20, 1999.............................. 800 4.3750
October 22, 1999.............................. 2,200 4.6250
October 22, 1999.............................. 2,900 4.5000
October 27, 1999.............................. 5,000 4.8750
October 27, 1999.............................. 3,500 5.0000
October 28, 1999.............................. 3,000 5.0000
October 29, 1999.............................. 500 5.0000
October 29, 1999.............................. 3,000 5.2500
October 29, 1999.............................. 2,000 5.1250
October 29, 1999.............................. 3,000 5.2500
November 1, 1999.............................. 1,800 5.1250
November 8, 1999.............................. 100 5.1875
November 8, 1999.............................. 2,600 5.2500
November 8, 1999.............................. 5,000 5.3750
November 9, 1999.............................. 1,300 5.2500
November 12, 1999............................. 11,100 5.5000
November 12, 1999............................. 5,100 5.6250
November 12, 1999............................. 5,100 5.7500
November 15, 1999............................. 14,300 5.8300
November 17, 1999............................. 25,000 5.8750
November 18, 1999............................. 4,100 6.0000
November 24, 1999............................. 4,600 5.7098
November 24, 1999............................. 24,900 5.8750
November 26, 1999............................. 26,900 5.8750
November 29, 1999............................. 18,400 5.8700
===========================================
Total 211,900
===========================================
---------------------
(1) Does not include brokerage commissions.
-36-
39
Manually signed facsimile copies of the Letter of Transmittal will be accepted.
Letters of Transmittal and certificates for Shares should be sent or delivered
by each shareholder of the Company or his broker, dealer, commercial bank or
trust company to the Depositary at one of its addresses set forth below:
The Depositary for the Offer Is:
FIRSTAR BANK MINNESOTA, N.A.
By Mail:
000 Xxxx Xxxxx Xxxxxx
Xx. Xxxx, Xxxxxxxxx 00000
Corporate Trust Department
By Hand or Overnight Delivery
000 Xxxx Xxxxx Xxxxxx
Xx. Xxxx, Xxxxxxxxx 00000
Corporate Trust Department
By Xxxxxxxxx (For Eligible Institutions Only)
(000) 000-0000
Confirm Facsimile by Telephone:
(000) 000-0000
ANY QUESTIONS AND REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO THE
INFORMATION AGENT OR THE DEALER MANAGER AT THEIR RESPECTIVE ADDRESSES AND
TELEPHONE NUMBERS SET FORTH BELOW. Additional copies of this Offer to Purchase,
the Letter of Transmittal and other tender offer materials may be obtained from
the Information Agent as set forth below, and will be furnished promptly at the
Purchaser's expense. 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:
BEACON HILL PARTNERS, INC.
00 Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
or
Collect (000) 000-0000
The Dealer Manager for the Offer Is:
XX XXXXXXXX & CO
One Financial Plaza
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
(000) 000-0000
(000) 000-0000
-37-
