<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FIRST AMENDMENT TO
FORM T-3
FOR APPLICATIONS FOR QUALIFICATIONS OF INDENTURES UNDER THE
TRUST INDENTURE ACT OF 1939
BISSELL INC.
2345 WALKER, N.W.
GRAND RAPIDS, MICHIGAN 49544
SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED
Title of Class Amount
-------------- ------
Subordinated Notes due June 30, 2008 Approximately $18,000,000
Approximate date of proposed public offering: Not Applicable
Name and address of agent for service:
Mark J. Bissell
President and Chief Executive Officer
BISSELL Inc.
2345 Walker, N.W.
Grand Rapids, Michigan 49544
With copies to:
David M. Hecht, Esq.
Hecht & Lentz
333 Bridge Street, N.W.
Suite 330
Grand Rapids, Michigan 49504
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1. General Information.
BISSELL Inc. ("BISSELL" or the Company") is a corporation incorporated
under the laws of the State of Michigan.
2. Securities Act Exemption Applicable.
In connection with the Company's offer to redeem shares of its issued
and outstanding common stock, the Company will, in addition to making cash
payments, exchange its Subordinated Notes (the "Notes") solely for its common
stock held by its stockholders which accept the Company's offer. The Company
will not pay any commission or other remuneration, directly or indirectly, to
any person or entity for soliciting any stockholder. Based on the foregoing, the
Notes are exempt under Section 3(a)(9) of the Securities Act of 1933, as
amended.
Neither the Company, nor any underwriter will sell the Notes or other
securities of the same class of the Company at or about the same time as the
transaction for which the exemption is claimed. The Company has incurred certain
legal and accounting and printing fees in connection with the transaction. No
holder of common stock will make any cash payment in connection with the
exchange of the Company's notes in partial redemption of its common stock.
3. Affiliates.
The following table sets forth, as of January 1, 1998, those persons
who may be deemed "affiliates" of the Company and the respective voting
securities owned by each or such other bases of control:
<TABLE>
<CAPTION>
Voting Securities
Name or other Bases of Control
---- -------------------------
<S> <C>
See list of Directors and Executive Officers in Item Management control
4, below
Michigan National Bank, Trustee under Will of M.R. As Trustee, MNB controls 249,205
Bissell and under various other agreements shares of common stock of the Company
List of Bissell, Inc. subsidiaries: The Company holds, directly or
indirectly, the following interest
in each entity:
Barcolene Incorporated 100.0%
BeAble! Health Centers, Inc. 100.0%
Penn Champ, Inc. 100.0%
Bissell Graphis Corporation 100.0%
Imperial Graphics, Inc. 100.0%
Atlas Tag & Label, Inc. 100.0%
ATL-East Tag & Label, Inc. 80%
Sierra Tag & Label, Inc. 100.0%
Bissell Healthcare Corporation 100.0%
Am Fab, Inc. 100.0%
Midland Manufacturing Company, Inc. 100.0%
</TABLE>
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<TABLE>
<S> <C>
J.A. Preston Corporation 100.0%
Tumble Forms, Inc. 100.0%
Sammons Preston Canada Inc. 100.0%
Bissell International Corporation 100.0%
Bissell A.G. 97.0%
Bissell Austrailia Pty. Ltd. 100.0%
Bissell Ltd. 99.5%
BISSELL Reynosa, A.C. of V.C. 100.0%
Bissell Mexico, S.A. de C.V. 99.6%
Bissell S.A. 100.0%
Bissell Mexico, Inc. 100.0%
Bissell Mexico, S. de R.I. de C.V. 100.0%
Bissell FSC Inc. 100.0%
</TABLE>
4. Directors and Executive Officers.
Directors and Executive Officers. The following table sets forth
certain information concerning the directors and executive officers of the
Company:
<TABLE>
<CAPTION>
Name Positions with the Company
---- --------------------------
<S> <C>
John M. Bissell Director and Chairman of the Board
Mark J. Bissell Director, President and Chief Executive
Officer
Matthew R. Bissell Director and Senior Vice President
Howard A. Schwartz Senior Vice President
Daniel T. Caldon Senior Vice President-Administration
Chief Financial Officer, Treasurer and
Assistant Secretary
Timothy E. Bosscher Vice President - Controller
Stephen R. Kretschman Secretary
Harry J. Bloem Director
Christy A. Cameron Director
Sabra M. Clark Director
Craig J. Duchossois Director
H. Kirke Latrop, III Director
Peter M. Sears Director
Jack P. Smith Director
</TABLE>
The mailing address of all directors and executive officers is 2345 Walker,
N.W., Grand Rapids, Michigan 49544.
5. Principal Owners of Voting Securities.
The Company only has common stock issued and outstanding. The following
table sets forth certain information, as of January 15, 1997, regarding each
person known by the Company to own of record, whether beneficially or otherwise,
ten percent or more of each class of the Company's outstanding voting securities
and the number of such securities and the total voting power with respect
thereof.
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<TABLE>
<CAPTION>
Number
Name and Mailing Address of Shares Percent
------------------------ --------- -------
<S> <C> <C>
Michigan National Bank, Trustee 249,205 15.0%
77 Monroe Center
PO Box 1707
Grand Rapids, MI 49501-1707
BISSELL Inc. Employee Stock Ownership Plan 477,404 28.7%
2345 Walker, N.W.
Grand Rapids, Michigan 49544
</TABLE>
The Company believes that upon completion of the redemption offer and
consequent exchange of Notes in redemption of common stock each of the persons
listed above in this Item 5 and John M. Bissell may own of record, whether
beneficially or otherwise, ten percent or more of the Company's outstanding
common stock. However, the number of shares so owned and the total voting power
with respect thereof cannot be determined until the completion of the redemption
offer.
6. Underwriters.
No person within the three-year period prior to the date hereof has
acted as an "underwriter" (as such term is defined under the Trust Indenture Act
of 1939, as amended) of any of the Company's currently issued and outstanding
securities. No person will act as underwriter of the Notes.
7. Capitalization.
a. The following table sets forth certain information regarding each
authorized class of securities of the Company as of January 15, 1997.
<TABLE>
<CAPTION>
Amount Amount
Title of Class Authorized Outstanding
-------------- ---------- -----------
<S> <C> <C>
Common Stock 3,000,000 1,609,103
Preferred Stock 40,000 0
9.86% Senior Notes $10,000,000 $1,429,000
</TABLE>
b. Each share of Common Stock is entitled to one vote. Preferred Stock
is entitled to the number of votes determined by resolution of the Board of
Directors upon issuance. To date, the Board of Directors has not issued any
Preferred Stock. The 9.86% Senior Notes have no conversion or voting rights.
8. Analysis of Indenture Provisions
The terms of the indenture securities include those stated in the
indenture, to be entered into between the Company and First of America Bank,
N.A., as Trustee, with respect to the Subordinated Notes (the "Indenture") and
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "TIA"). The following analysis of certain provisions of the
Indenture makes use of
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certain capitalized terms defined in the Indenture and not herein and such
terms shall have the meanings given to them in the Indenture and shall be
incorporated by reference herein. The following analysis does not purport to be
a complete description of the Indenture provisions discussed and is qualified in
its entirety by reference to the Indenture, which provisions are incorporated by
reference as a part of such analysis. (Section references are to the relevant
provisions of the Indenture).
The Subordinated Notes (the "Notes") may be presented for registration
of transfer or exchange at the offices of the Registrar. Payments of principal
and interest on the Notes will be made by check mailed to the registered address
of the Person entitled thereto as it appears in the register of the Registrar as
of the applicable record date for determining the persons entitled to receive,
as applicable, quarterly payments of interest and annual payments of principal
under the Notes.
The Notes will be issued only in registered form, without coupons, in
denominations which are an even multiple as determined by the Company prior to
the making of the redemption offer. (Section 2.01.) No service charge will be
made for any registration of transfer or exchange of Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. (Section 2.06.)
A Note will not be valid until authenticated by the manual signature of
the Trustee. The signature will be conclusive evidence that the Note has been
authenticated under the Indenture. The Trustee will authenticate the Notes for
original issue in the aggregate principal amount of the aggregate redemption
offer upon a written order of the Company signed by an Officer. The aggregate
principal amount of Notes outstanding at any time may not exceed the amount of
the aggregate redemption offer, except as otherwise provided in the Indenture.
(Section 2.02.)
Prepayment
The Notes may be prepaid at the Company's option, in whole or in part,
upon not less than 30 nor more than 60 days' notice mailed to each Holder of
Notes at his or her address appearing in the register of the Registrar. Any
prepayment of Notes will be done on a pro rata basis. The notice will state the
Interest Payment Date on which the prepayment shall be made; the amount of the
prepayment; if the Notes are being prepaid in part, the portion of the principal
amount of the Notes being prepaid and to be outstanding thereafter and that,
after the Interest Payment Date on which the prepayment is being made and upon
surrender of the Notes, the Notes shall be returned to the Holders after the
Company has placed thereon a notation of the amount prepaid and the date of such
prepayment; the name and address of the Paying Agent; that the Notes must be
surrendered to the Paying Agent to collect the amount being prepaid; and that,
unless the Company defaults in making such prepayment, interest on the amount
being prepaid ceases to accrue on and after the Interest Payment Date on which
the prepayment is being made. If the Company elects to prepay the Notes in whole
or in part, it must furnish to the Trustee, at least 45 days but not more than
60 days before the Interest Payment Date on which such prepayment will be made,
an Officer's Certificate setting forth (i) the Interest Payment Date on which
such prepayment is to be made and (ii) the amount of principal to be prepaid.
(Article 3.)
Subordination
The payment of the principal of and interest on the Notes will, to the
extent set forth in the Indenture, be subordinated in right of payment to the
prior payment in full of all Senior Debt. "Senior Debt" means all of the
Company's indebtedness for borrowed money from time to time outstanding (other
than indebtedness under the Notes) unless the instrument under which such
indebtedness is incurred expressly
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provides that it is on a parity with or subordinated in right of payment to the
Notes. Senior Debt does not include tax liabilities owed or owing by the Company
or trade payables of the Company. Upon any liquidation, dissolution,
reorganization, assignment for the benefit of creditors, marshalling of assets
or any bankruptcy, insolvency or similar proceedings of the Company, (i) the
holders of all Obligations due in respect of Senior Debt will first be entitled
to receive payment in full of all amounts due or to become due thereon before
the Holders of the Notes will be entitled to receive any payment in respect of
the principal of or interest on the Notes and (ii) until all Obligations with
respect to Senior Debt are paid in full in cash, any distribution to which
Holders of Notes would be entitled but for clause (i), above, shall be made to
holders of Senior Debt, as their interests may appear. Until all principal and
other Obligations with respect to the Senior Debt have been paid in full in
cash, the Company shall not make any payments of principal, interest or other
Obligation in respect of the Notes and may not acquire from the Trustee or any
Holder any Notes for cash or property if there shall have occurred and be
continuing a default in any payment with respect to Senior Debt, or an event of
default with respect to any Senior Debt permitting the holders thereof to
accelerate the maturity thereof or, if any judicial proceeding shall be pending
with respect to any such default. The Indenture does not prohibit or limit the
incurrence of Senior Debt by the Company.
Events of Default
The following will be Events of Default under the Indenture: (a)
failure to pay principal on any Notes when due, continuing for five days,
whether or not such payment is prohibited by the subordination provisions of the
Indenture; (b) failure to pay any interest on any Notes when due, continuing for
30 days, whether or not such payment is prohibited by the subordination
provisions of the Indenture; (c) failure by the Company for 30 days after notice
from the Trustee or the Holders of at least 25% in aggregate principal amount of
the then outstanding Notes to comply with the successor provisions of the
Indenture; (d) failure by the Company for 60 days after proper notice from the
Trustee or the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes to comply with any of its other agreements in the Indenture or
the Notes; (e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company (or the payment of which is
guaranteed by the Company) whether such Indebtedness or guarantee now exists, or
is created after the date hereof, which default results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness the maturity of which has been so accelerated, aggregates $5.0
million or more; (f) failure by the Company to pay final judgments aggregating
in excess of $5.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; and (g) certain events in bankruptcy, insolvency or
reorganization of the Company. (Section 6.01.) Subject to the provisions of the
Indenture relating to the duties of the Trustee in case an Event of Default has
occurred and is continuing, the Trustee is under no obligation to exercise any
of its rights or powers under the Indenture at the request or direction of any
of the Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity. (Section 7.02.) Subject to such provisions for the indemnification of
the Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. (Section 6.05.)
If an Event of Default has occurred and is continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Notes may accelerate the maturity of all Notes; provided, however,
that after such acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal amount of
outstanding Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal, have been cured or waived as provided in the Indenture. (Section 6.02
and 6.04.)
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No Holder of any Notes will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee written notice of a continuing Event
of Default and unless also the Holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. (Section 6.06.) However, such limitations do not apply to a suit
instituted by a Holder of a Note for the enforcement of payment of the principal
of, or interest on, such Note on or after the respective due dates expressed in
such Notes. (Section 6.07.)
The Company will be required to furnish to the Trustee annually a
statement as to the performance by the Company of certain of its obligations
under the Indenture and as to any default in such performance. (Section 4.03.)
Modification and Waiver
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
outstanding Notes affected thereby, (a) reduce the principal amount of, or
interest on, any Notes, (b) reduce the principal of or change the fixed maturity
of any installment of principal on any Notes, (c) reduce the interest rate of or
change the time for payment on any Note, (d) waive a Default or Event of Default
in the payment of principal of or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (e) make any Note payable in money other than that
stated in the Notes, (f) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or interest on the Notes, (g) waive any
prepayment with respect to which notice has been given to the Holders under
Section 3.03 of the Indenture, or (h) make any change in Section 6.04 or 6.07 of
the Indenture or in the amendment and waiver provisions of Section 8.02 of the
Indenture.
The Holders of a majority in aggregate principal amount of the
outstanding Notes may waive compliance by the Company with certain restrictive
provisions of the Indenture. (Section 8.02.) The Holders of a majority in
aggregate principal amount of the outstanding Notes may waive any past default
under the Indenture, except a default in the payment of principal or interest or
the performance of any covenant which may be waived only with the consent of all
Holders of the Notes. (Section 6.04)
Consolidation, Merger and Sale of Assets
The Company may, without the consent of any Holders of Notes,
consolidate or merge with or into, or transfer or lease all or substantially all
of its assets to, any Person, and any other Person may consolidate or merge with
or into, or transfer or lease all or substantially all of its assets to, the
Company, provided that (a) the Company is the surviving entity or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or which acquires or leases all or substantially all of the assets of
the Company is organized and existing under the laws of any United States
jurisdiction and assumes the Company's obligations on the Notes and under the
Indenture, (b) after giving effect to such transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an
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Event of Default, shall have happened and be continuing, and (c) certain other
conditions are met. (Article 5.)
Restrictions on Transfer
The Notes are not transferable except pursuant to an effective
registration statement under the Securities Act of 1933, as amended, or in a
transaction exempt from the registration requirements of the Securities Act, and
in accordance with all applicable securities laws of the states of the United
States and any foreign jurisdiction. See "The Subordinated Notes; General" for
requirements to complete a transfer, including registration of transferred Notes
with the Company and payment of applicable expenses.
Satisfaction and Discharge of the Indenture.
The Indenture will be discharged and will cease to be of further effect
as to all outstanding Notes when:
(1) all Notes theretofore authenticated and delivered (except lost,
stolen or destroyed Notes which have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust and thereafter repaid to
the Company) have been delivered to the Trustee for cancellation; or
(2) (i) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable by reason of the making of a notice of
prepayment or otherwise and the Company has irrevocably deposited or caused to
be deposited with the Trustee as trust funds in trust for the purpose an amount
sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation of principal and accrued
interest to the date of maturity or prepayment and (ii) the Company has paid all
sums required to be paid by it under this Indenture.
The Company will deliver an Officers' Certificate to the Trustee
stating that all conditions precedent to satisfaction and discharge have been
complied with. (Section 10.2).
Evidence of Compliance.
Upon any request or application by the Company to the Trustee to take
any action under the Indenture, the Company may be required to furnish to the
Trustee: (a) an Officer's Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in the Indenture
relating to the proposed action have been complied with; and (b) an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in the Indenture is required to include: (1) a
statement that the person making such certificate or opinion has read such
covenant or condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (3) a statement that, in the opinion of
such person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (4) a statement as to whether or not, in
the opinion of each such person, such condition or covenant has been complied
with; provided, however, that with respect to matters of fact an Opinion of
Counsel may rely on an Officers' Certificate or certificates of public
officials. (Section 11.5)
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9. Other Obligors.
The Company is the only obligor under the Indenture governing the
Subordinated Notes.
Contents of Application for Qualification.
This Application for qualification comprises:
A. Pages number 1 to 10, consecutively.
B. The statement of eligibility and qualification of the trustee
under the indenture to be qualified; and
C. The following exhibits in addition to those filed as a part of
the statement of eligibility and qualification of the trustee.
Exhibit T3A Articles of Incorporation of the Company, dated
April 18,1989. (Previously filed).
Exhibit T3B By-laws of the Company, dated April 8,1974.
(Previously filed).
Exhibit T3C Indenture to be entered into between the Company,
as Issuer, and First of America Corporation, as
Trustee, with respect to the Subordinated Notes due
June 30, 2008. (Previously filed).
Exhibit T3D Not Applicable.
Exhibit T3E Revised draft of the Redemption Offer Memorandum
of the Company to be distributed to all Stockholders.
Exhibit T3F Cross reference sheet showing the location in the
indenture of the provisions inserted therein pursuant
to Section 310 through 318(a), inclusive of the Trust
Indenture Act of 1939. (Previously filed).
REMAINING PORTION OF PAGE INTENTIONALLY LEFT BLANK
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SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939,
BISSELL Inc., a corporation qualified and existing under the laws of Michigan
(the "applicant'), has duly caused this application to be signed on its behalf
by the undersigned, thereunto duly authorized, and its seal to be hereunto fixed
and attested, all in the City of Grand Rapids, and State of Michigan, on the
20th day of February, 1998.
BISSELL INC.
By: /s/ Mark J. Bissell
-------------------------------------
Mark J. Bissell
President and Chief Executive Officer
Attest: /s/ Daniel T. Caldon
----------------------------------
Name: Daniel T. Caldon
Title: Senior Vice President-Administration
END OF DOCUMENT
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
Exhibit 99.1 Revised draft of the Redemption Offer Memorandum
of the Company to be distributed to all
Stockholders.
<PAGE> 1
EXHIBIT 99.1
Draft 2/20/98
BISSELL INC.
REDEMPTION OFFER MEMORANDUM
THE OFFER EXPIRES ON MARCH 31, 1998, AT 5 P.M. E.S.T. UNLESS EXTENDED.
-------------------------------------------------------
THE NOTES OFFERED UNDER THIS MEMORANDUM HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND (A)
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (2) IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
AND, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND ANY FOREIGN JURISDICTION AND (B) THE HOLDER, AND
EACH SUBSEQUENT HOLDER, IS REQUIRED TO NOTIFY ANY PURCHASER FROM IT OF THE NOTES
OF THE RESALE RESTRICTIONS LISTED IN (A) ABOVE.
-------------------------------------------------------
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY SHAREHOLDER TO TENDER OR REFRAIN FROM TENDERING SHARES OF COMMON STOCK.
EACH SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION WHETHER TO TENDER SUCH
SHARES AND, IF SO, HOW MANY SHARES TO TENDER.
-------------------------------------------------------
OFFER TO REDEEM SHARES
On the terms and subject to the conditions set forth in this Memorandum,
BISSELL Inc. (the "Company") hereby offers (the "Offer") to redeem up to an
aggregate of [______] shares of its common stock, $1.00 par value per share,
(the "Common Stock") from shareholders (the "Offerees") at a price of $[___] per
share (the "Purchase Price"). The Purchase Price is equal to the appraised fair
market value of the Company's Common Stock as of February 20, 1998 as determined
by Duff & Phelps, LLC for purposes of this Offer prior to the application of a
discount for lack of marketability. See "Appraised Value of Common Stock."
The Purchase Price of $[___] for each share of Common Stock sold to the
Company by the Offerees and redeemed by the Company will be paid in the form of
$[____] per share in cash and $[___] per share in face amount of Subordinated
Notes of the Company (the "Notes"), as described under the heading "The
Subordinated Notes." However, Offerees who are residents of Canada will be paid
only in cash. Also, the Company reserves the right to pay cash, in lieu of each
Note that is equal to or less than a minimum principal amount, not to exceed
$10,000, as determined by the Company upon completion of the Offer.
The Offer is limited to Offerees who are the holders of the Common Stock
according to the Company's records on January 15, 1998 (the "Record Date"), but
excluding the BISSELL EMPLOYEE STOCK OWNERSHIP PLAN (the "ESOP")..
<PAGE> 2
The ESOP and certain members of the John M. Bissell Family who have agreed
not to participate in the Offer as to all or substantially all of their shares
of Common Stock. See "Excluded Shareholders."
The Offer is designed to achieve several objectives. First, the Offer
provides an opportunity for those shareholders who seek liquidity to sell a
significant portion of their stock. Second, the Offer is designed to increase
the potential availability of capital gain treatment. See "Federal Income Tax
Consequences."
IMPORTANT FACTORS TO BE CONSIDERED BY OFFEREES
In connection with their assessment of the Offer, the Company wishes to
call the attention of Offerees to a number of important factors. First, the
$[___] value per share of Common Stock was determined by Duff & Phelps, LLC ("D
& P") as the fair market value of the Common Stock for purposes of this Offer
prior to reflecting any discount for lack of marketability. In general, a
significant discount for lack of marketability would be applied in the appraisal
of shares of a closely held company representing less than control but the
Company did not request that D & P determine the appropriate discount for lack
of marketability. Likewise, the Company did not attempt to determine the
discount, if any, that may be appropriate to determine the fair market value of
the Notes based on either lack of marketability or the interest rate on the
Notes compared to a market rate on interest on obligations similar terms and
conditions and the Company does not make any representation regarding the fair
market value of the Notes.. Finally, if the Company's future performance is
favorable, as the Company's management projects it will be, future earnings,
less the interest costs incurred in connection with the Offer, pro rated over
the reduced number of shares of Common Stock outstanding after completion of the
Offer, should provide greater earnings per share of Common Stock to continuing
holders than would have applied absent the Offer. However, there is no assurance
that the Company will meet its future projections and poor performance could
result in lower earnings per share to continuing holders than would have applied
absent the offer. Further, the debt incurred in connection with the Offer will
place the Company in a more leveraged and riskier position.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY SHAREHOLDER TO TENDER OR REFRAIN FROM TENDERING SHARES OF COMMON STOCK. EACH
SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION WHETHER TO TENDER SUCH SHARES AND,
IF SO, HOW MANY SHARES TO TENDER.
NUMBER OF SHARES EACH OFFEREE MAY HAVE REDEEMED PURSUANT TO OFFER
Redemption Right Certificates
The Company is distributing to each Offeree a Redemption Right Certificate
which requires the Company to redeem from the registered holder of such
Certificate a specified number of shares of Common Stock, subject to all of the
terms and conditions of the Offer as described in this Memorandum including the
Company's right to terminate the Offer and rights evidenced by the Redemption
Right Certificate. See "Termination of Offer." Each Offeree has been issued a
Redemption Right Certificate covering [___]% of the shares of Common Stock owned
by such Offeree on the Record Date, rounded up to the nearest whole share. See
"Federal Income Tax Consequences" for a discussion of the basis on which the
number of shares covered by the Redemption Right Certificates was determined.
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Each registered holder of a Redemption Right Certificate has the right to
assign his or her Redemption Right Certificate, and the rights evidenced
thereby, in whole or in part to one or more other Offerees subject to the
following: (i) the assignee(s) must be a shareholder(s) of the Company on the
Record Date; (ii) the Offeree making the assignment and the assignee(s) must
certify to the Company that no consideration has been paid or received, directly
or indirectly, by them in connection with such assignment, and (iii) the
Redemption Right Certificate being assigned, with a properly completed
assignment form executed by the Offeree making the assignment and the
assignee(s), must be tendered to the Company at 2345 Walker, N.W., Grand Rapids,
Michigan 49544 on or before the Expiration Date for recordation of the transfer.
Pro Rata Right of Redemption
In addition to shares which each Offeree may sell to the Company pursuant
to Redemption Right Certificate(s), each Offeree may participate in the pro rata
right to have redeemed shares of Common Stock by the Company which are subject
to all of the Redemption Right Certificates which have been distributed by the
Company but which are not duly exercised or are not exercised in full. The right
to have redeemed by the Company the number of shares covered by Redemption Right
Certificates which are not exercised or are only partially exercised by the
Expiration Date, as defined below, will be allocated pro rata to Offerees who
elect, in the manner described under "Acceptance of the Offer; Procedure for
Tendering Shares and Redemption Right Certificate," to participate in such phase
of the Offer. The pro rata allocation will be based on the respective number of
shares of Common Stock owned by all Offerees who participate in such phase of
the offering and any Offeree so participating may specify a limit on the number
of shares of Common Stock that he or she is willing to sell pursuant thereto.
ACCEPTANCE OF THE OFFER; PROCEDURE FOR TENDERING SHARES AND REDEMPTION RIGHT
CERTIFICATES
In order for an Offeree to accept the Offer, he or she must complete and
tender to the Company on or before 5 P.M. Eastern Standard Time on March 31,
1998, subject to extension by the Company in its discretion to a date not later
than April 30, 1998 (the "Expiration Date"), the following: (i) a properly
completed and executed Redemption Offer Election and Transmittal Form ("Election
Form") which accompanies this Memorandum, (ii) if appropriate, one or more
Redemption Right Certificates, and (iii) certificates for the shares of Common
Stock subject to being redeemed by the Company, all in accordance with the
instructions to the Election Form. Any Offeree wishing to have the maximum
number of shares of Common Stock redeemed should tender all of his or her
certificates for shares of Common Stock. PLEASE READ THE INSTRUCTIONS ON THE
REVERSE SIDE OF THE ELECTION FORM CAREFULLY.
The Company will pay the cash portion due an Offeree pursuant to this Offer
by check payable by the Company and the balance, if any, by delivery to the
Offeree of a Subordinated Note for the principal amount of such balance. See
"Subordinated Notes". If any tendered shares of Common Stock are not purchased
pursuant to this Offer or if less than all such shares evidenced by a stock
certificate are tendered, stock certificates for any unpurchased shares of
Common Stock will be returned by the Company as promptly as practicable after
the Expiration Date without expense to the Offeree.
The method of delivery of such certificates and documents is at the
election and risk of the Offeree, and if sent by mail, it is recommended that
the certificates be delivered by registered mail, return receipt requested.
Postal insurance is available for those who wish to insure delivery of
certificates. All questions as to the validity, form and documentation of any
tender, the propriety of execution of any documents or assignment of any
certificate, allocation of redemption in the event of oversubscription, and
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other questions as to the eligibility or acceptability of any certificate
including the time of receipt will be determined by the Company, whose
determination and interpretation will be final and binding on all Offerees. The
Company reserves the right to reject any and all tenders that are not in the
appropriate form or the acceptance of which would, in the opinion of Company's
counsel, be unlawful. The Company reserves the right to waive any of the
conditions of this Offer or any defect in tender with regard to any particular
certificate of any particular Offeree. Neither the Company nor any other entity
or person is under any duty to give notification of any defects or
irregularities in tenders and neither the Company nor any other entity or person
shall incur liability for failure to give any such notification. Tenders will
not be deemed to have been made until all defects and irregularities have been
cured or waived by the Company.
TERMINATION OF OFFER
THE COMPANY MAY REVOKE THE OFFER AND TERMINATE THE RIGHTS EVIDENCED BY THE
REDEMPTION RIGHT CERTIFICATES AT ANY TIME UP TO AND INCLUDING THE EXPIRATION
DATE. In the event of such termination, the Company will pay to each registered
holder of a Redemption Right Certificate an amount equal to 1/100th of one cent
per share of Common Stock covered by such Redemption Right Certificate. Such
payment will be made by the Company within 15 days of such termination. The
reservation of the right to terminate the Offer is designed to protect the
Company in the event of its failure to close on the necessary financing, a
material change in the Company's circumstances or other unforeseen events.
EXCLUDED SHAREHOLDERS
The ESOP is not eligible to accept the Offer because legally it may only
sell shares to the Company for all cash. Consequently, the ESOP has agreed to be
excluded as an Offeree and no Redemption Right Certificate has been distributed
to it.
The institutions providing the financing of the cash portion of the Offer
have required that John M. Bissell, Mark J. Bissell and Matthew R. Bissell not
sell any of their shares pursuant to the Offer in order to demonstrate their
financial commitment to the Company. Accordingly, John M. Bissell, Mark J.
Bissell and Matthew R. Bissell have agreed not to participate in the Offer with
respect to all of the Common Stock which they own or control, aggregating [____]
shares, and John R. Bissell and James H. Bissell have agreed not to participate
in the Offer with respect to all but 2,300 shares, each, of the shares of Common
Stock which they own. These exclusions, as well as the exclusion of the ESOP
from the Offer, have the added benefit of enhancing the opportunity for other
Offerees to be entitled to capital gain treatment. If all shareholders other
than the ESOP were eligible to participate in the Offer, the required percentage
of shares that would have to be redeemed to meet the "substantially
disproportionate test" would be so large as to render the transaction
financially unfeasible.
On the Record Date, the ESOP owned 47,404 shares of Common Stock,
representing approximately 28.75% of the Company's issued and outstanding shares
on such date and approximately [__]% of the number of issued and outstanding
shares following completion of the Offer assuming that the full number of shares
which the Company is offering to redeem from Offerees are redeemed. John M.
Bissell, Mark J. Bissell and Matthew R. Bissell owned or controlled an aggregate
of [____] shares on the Record Date, representing approximately [__]% of the
Company's issued and outstanding shares on such date. Such parties will own or
control [___] shares representing approximately [__]% of the then number of
issued and outstanding shares following completion of the Offer assuming that
the full number of shares which the Company is offering to redeem from Offerees
are redeemed. Any Offeree who does not participate in the Offer similarly will
experience an increase in percentage ownership.
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IMPACT OF OFFER ON FUTURE DIVIDEND AND REDEMPTION POLICIES
While it is anticipated that the financing arrangements pursuant to which
the Company will fund the cash portion of the transactions will restrict the
payment of dividends and distributions to redeem stock, the Company does not
believe that such restrictions will impair the Company's ability to continue to
pay dividends pursuant to its previous policies or to make a future offer to
redeem shares. However, future dividend payments or offers to redeem shares are
wholly within the discretion of the Company's Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES
Capital Gain Treatment
The redemption by a corporation of shares of its stock from a shareholder
will be treated as a dividend and taxed as ordinary income, without any offset
for the shareholder's cost basis in such stock, unless the redemption meets one
of the tests set forth in Section 302 of the Internal Revenue Code of 1986, as
amended (the "Code"). If a redemption meets one of such tests, the proceeds
realized on the transaction in excess of the shareholder's cost basis will be a
capital gain taxed at a rate which depends on the shareholder's holding period
for the shares. Capital gain treatment is also dependent on the shares being a
capital asset in the shareholder's hands, as opposed, for example, to inventory
in the hands of a dealer in securities. This discussion assumes that the shares
held by each of the Offerees are capital assets in such Offeree's hands.
A shareholder will be entitled to capital gain treatment if he or she meets
any of three tests under Section 302 of the Code which are relevant to the Offer
and provide for capital gain treatment. These tests as applied to the Offer are
as follows: (1) the redemption pursuant to the Offer is "substantially
disproportionate" as to the Offeree; (2) the redemption pursuant to the Offer is
in complete redemption of all of the shares of Common Stock owned by the
Offeree; or (3) the redemption pursuant to the Offer is not essentially
equivalent to a dividend payment to the Offeree. In making the foregoing
determinations and subject to certain exceptions discussed below, each Offeree
is deemed to own not only the shares actually owned by him or her but also the
shares owned directly, or indirectly, by or for certain related parties,
including his or her spouse, children, grandchildren and parents, as well as by
certain entities in which he or she has an interest, including certain
corporations, partnerships, estates and trusts. Likewise, subject to certain
exceptions, the shares owned by an Offeree are deemed also to be owned by such
related parties. This concept of constructive ownership is commonly referred to
as "attribution of ownership" and is prescribed in Section 318 of the Code,
subject to certain modifications set forth in Section 302 of the Code.
In order for a redemption to be substantially disproportionate as to an
Offeree, the Offeree must compare his or her percentage interest in the
outstanding shares of the Company owned, or deemed owned by the Offeree through
attribution of ownership, both before and after the Offer is consummated. If the
percentage interest after the Offer is consummated is less than 80% of the
percentage interest before the Offer is consummated, the Offeree will be
entitled to capital gain treatment. As an example, assume that an Offeree
("Shareholder A") owns 10,000 shares of the Company's Common Stock and his child
("Shareholder B") owns 5,000 shares. Assume also that no other Offerees have a
relationship which results in attribution of ownership to either Shareholder A
or Shareholder B. Both Shareholder A and Shareholder B would be deemed to own
the shares which they own directly and the shares owned by the other of them, or
a total of 15,000 shares each which is 0.9% of the 1,660,549 shares issued
and
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outstanding on the Record Date. The Redemption Right Certificate distributed
to Shareholder A would cover the sale to the Company by Shareholder A of [_____]
shares and the Redemption Right Certificate distributed to Shareholder B would
cover the sale to the Company of [___] shares. If both Shareholder A and
Shareholder B were to sell to the Company all of the shares covered by their
Redemption Right Certificates, both Shareholder A and Shareholder B would own
and be deemed to own an aggregate of [____] shares after the redemption of
shares pursuant to the Offer which would represent not more than [___]% of the
Company's shares of Common Stock then outstanding. The [__]% direct and
attributed ownership after consummation of the Offer would be less than 80% of
the [___]% direct and attributed ownership before the Offer, resulting in both
Shareholder A and Shareholder B qualifying for capital gain treatment.
As illustrated by the foregoing example, if all of the Offerees who are
part of a group of Offerees having a direct or indirect relationship resulting
in attribution of ownership under Section 302 of the Code were to sell to the
Company all of the shares covered by the Redemption Right Certificates
distributed to them, every Offeree in such group would be entitled to capital
gain treatment, with the rate of taxation based on his or her holding period.
This was the basis on which the Company fixed the number of shares which are
covered by the Redemption Right Certificates distributed to the Offerees.
However, the Company recognizes that some Offerees may not wish to sell any
shares or may desire to sell fewer or more shares than covered by their
Redemption Right Certificate while preserving, to the extent possible, the
ability of related Offerees to qualify for capital gain treatment. For this
reason, the Redemption Right Certificates may be assigned, subject to certain
conditions, which may provide the necessary flexibility for each member of a
related group of Offerees to sell the desired number of shares and for each of
them to qualify for capital gain treatment. However, in certain cases it may not
be possible to achieve the desired result. Returning to the above example, if
Shareholder A wants to sell as many shares as possible and Shareholder B does
not wish to sell any shares, if Shareholder B assigned his or her Redemption
Right Certificate to Shareholder A and Shareholder A sold all of the shares
covered by the Redemption Right Certificate distributed to Shareholder A and the
one assigned to Shareholder A by Shareholder B, Shareholder A will qualify for
capital gain treatment. However, if Shareholder A did not wish to sell any
shares and Shareholder B wished to sell all of his or her shares, the assignment
of Shareholder A's Redemption Right Certificate to Shareholder B would permit
Shareholder B to sell all of his or her shares but the transaction would not be
substantially disproportionate as to Shareholder B because the 10,000 shares
owned and retained by Shareholder A and attributed to Shareholder B would not
permit Shareholder B to pass the mathematical percentage ownership test.
However, it may be possible that the redemption of all of Shareholder B's
directly owned shares would qualify under another test depending on a variety of
other factors.
If pursuant to the Offer, the Company redeems from an Offeree all of the
shares owned directly by such Offeree, such redemption might qualify for capital
gain treatment as a "complete redemption" even though shares owned directly or
indirectly by other Offerees would otherwise be attributable to such Offeree and
prevent the redemption from meeting the mathematical test of being
"substantially disproportionate." Section 302 of the Code permits the suspension
of the family attribution rules (but not entity attribution rules) of Section
318 of the Code if the redemption is in complete termination of a shareholder's
interest in the Company other than as a creditor, including the termination of
any interest as an employee, officer or director. Further, in order to suspend
family attribution, the shareholder must agree not to acquire any interest in
the Company for the ensuing ten years other than by inheritance and agree to
notify the Internal Revenue Service of any such acquisition. However, family
attribution is not suspended for a particular shareholder if any transfer of
shares was made or received by such shareholder during the prior ten years to or
from any other shareholder who at the time of the redemption bears a
relationship resulting in attribution with the shareholder (unless such transfer
did not have as one of its
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principal motives the avoidance of Federal income tax). As stated above, family
attribution rules may be suspended in the event of a complete termination of a
shareholder's interest, but attribution from entities is not suspended,
requiring the redemption of all of the shares owned by the entity in order to
eliminate attribution from the entity.
In addition to the "substantially disproportionate" and "complete
redemption" tests, an Offeree may qualify for capital gain treatment if the
redemption from the Offeree pursuant to the Offer is "not essentially equivalent
to a dividend." This test does not have any mathematical rules for its
application but has been interpreted in various court decisions and Internal
Revenue Service rulings, with the outcome depending on the particular facts and
circumstances. Since it lacks mathematical certainty, the "not essentially
equivalent to a dividend" test is generally not used for planning purposes but
may permit capital gain treatment for an Offeree who cannot meet either the
"substantially disproportionate" test or the "complete redemption" test.
As should be apparent from the foregoing discussion, in any situation where
all Offerees who bear a relationship resulting in direct or indirect attribution
of ownership under Section 318 of the Code do not exercise in full the rights
represented by the Redemption Right Certificates distributed to them, the
determination of whether any of such Offerees who accept the Offer will qualify
for capital gain treatment may be relatively complex. In order to assist
Offerees in determining the federal income tax consequences to them of accepting
the Offer, the Company will make available, at its expense, to any Offeree who
desires such assistance, the resources of the Company's independent public
accounting firm, BDO Seidman, LLP. Any Offeree desiring such assistance should
contact the Company's Senior Vice President - Administration, Daniel T. Caldon,
at (616) 791-7735 as soon as possible.
BECAUSE OF THE NUMBER OF JURISDICTIONS IN WHICH OFFEREES RESIDE, THE
COMPANY HAS NOT ADDRESSED, AND IS NOT IN A POSITION TO OFFER RESOURCES TO
ADDRESS, THE ISSUE OF STATE OR FOREIGN TAXES.
Installment Treatment
An Offeree who qualifies for capital gain treatment and receives a Note in
partial payment will be entitled to report the gain realized by him or her on
the installment basis under Section 453 of the Code. As an example, if an
Offeree had a cost basis of $4,000 and a gross selling price of $40,000 for the
shares redeemed, 10% of the initial cash payment and of each subsequent
installment of principal would represent recovery of basis and the balance of
90% of each such payment would represent capital gain taxable in the year in
which received. Interest received on the Note will be taxable as ordinary income
as received. In general, if an Offeree who received a Note in partial payment
and is entitled to installment treatment transfers such Note, the Offeree's gain
will be accelerated. An Offeree who qualifies for capital gain treatment may
elect not to be taxed on the installment basis resulting in recognition of his
or her entire gain in 1998.
An Offeree who does not qualify for capital gain treatment will be required
to recognize as ordinary income in 1998 an amount equal to the sum of the cash
and the value of the Note received by such Offeree from the Company without
reduction for the cost basis of the shares of Common Stock redeemed.
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THE SUBORDINATED NOTES
General
The payment of the $[___] per share Purchase Price will be in the form of
cash to the extent of $[___] per share and the balance of $[___] per share in
face amount of the Company's Subordinated Notes dated as of the Expiration Date
(the "Notes"). However, the Company reserves the right to pay cash in lieu of
each Note that is equal to or less than a minimum principal amount, not to
exceed $10,000, as determined by the Company upon completion of the Offer.
The Notes will bear interest at 8%. per annum, payable quarterly on
March 31, June 30, September 30 and December 31 of each year (each an "Interest
Payment Date"), commencing June 30, 1998, until the principal of the Notes has
been paid in full. The principal portion of the Notes will be repaid in seven
equal installments, payable annually on June 30 of each year, commencing June
30, 2002, subject to the Company's right to prepay the principal as described
below.
The Company does not make any representations that the interest rate on the
Notes, taking into consideration all of the terms and conditions of the Notes,
represents a market rate of interest or that the fair market value of a Note is
equal to its face amount.
The Notes are to be issued under an Indenture, to be dated as of March 15,
1998 (the "Indenture"), between the Company and First of America Bank, N.A.,
Kalamazoo, Michigan, as Trustee (the "Trustee"), a copy of which Indenture is on
file at the Company's main offices and a copy of which will be made available
upon request and without cost to any Offeree. The following summaries of certain
provisions of the Notes and the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to all of the
provisions of, the Notes and Indenture, including the definitions therein of
certain terms. Wherever particular Sections or defined terms are referred to,
such Sections or defined terms are located in the Indenture and are incorporated
herein by reference.
The Notes may be presented for registration of transfer or exchange at the
offices of the Registrar. Payments of principal and interest on the Notes will
be made by check mailed to the registered address of the Person entitled thereto
as it appears in the register of the Registrar as of the applicable record date
for determining the persons entitled to receive, as applicable, quarterly
payments of interest and annual payments of principal under the Notes.
The Notes will be issued only in registered form, without coupons, in
denominations which are an even multiple of $[______]. (Section 2.01.) No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith. (Section 2.06.)
Prepayment
The Notes may be prepaid at the Company's option, in whole or in part, upon
not less than 30 nor more than 60 days' notice mailed to each then current
Holder of Notes at his or her address appearing in the register of the
Registrar. Any prepayment of Notes will be done on a pro rata basis. The notice
will state the Interest Payment Date on which the prepayment shall be made; the
amount of the prepayment; if the Notes are being prepaid in part, the portion of
the principal amount of the Notes being prepaid and to be outstanding thereafter
and that, after the Interest Payment Date on which the prepayment is being made
and upon surrender of the Notes, the Notes shall be returned to the Holders
after the Company has placed
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thereon a notation of the amount prepaid and the date of such prepayment; the
name and address of the Paying Agent; that the Notes must be surrendered to
the Paying Agent to collect the amount being prepaid; and that, unless the
Company defaults in making such prepayment, interest on the amount being prepaid
ceases to accrue on and after the Interest Payment Date on which the prepayment
is being made. If the Company elects to prepay the Notes in whole or in part, it
must furnish to the Trustee, at least 45 days but not more than 60 days before
the Interest Payment Date on which such prepayment will be made, an Officer's
Certificate setting forth (i) the Interest Payment Date on which such prepayment
is to be made and (ii) the amount of principal to be prepaid. (Article 3.)
Subordination
The payment of the principal of and interest on the Notes will, to the
extent set forth in the Indenture, be subordinated in right of payment to the
prior payment in full of all Senior Debt. "Senior Debt" means all of the
Company's indebtedness for borrowed money from time to time outstanding (other
than indebtedness under the Notes) unless the instrument under which such
indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes. Senior Debt does not include tax
liabilities owed or owing by the Company or trade payables of the Company. Upon
any liquidation, dissolution, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, (i) the holders of all Obligations due in respect of
Senior Debt will first be entitled to receive payment in full of all amounts due
or to become due thereon before the Holders of the Notes will be entitled to
receive any payment in respect of the principal of or interest on the Notes and
(ii) until all Obligations with respect to Senior Debt are paid in full in cash,
any distribution to which Holders of Notes would be entitled but for clause (i),
above, shall be made to holders of Senior Debt, as their interests may appear.
Until all principal and other Obligations with respect to the Senior Debt have
been paid in full in cash, the Company shall not make any payments of principal,
interest or other Obligation in respect of the Notes and may not acquire from
the Trustee or any Holder any Notes for cash or property (other than Permitted
Junior Securities) if there shall have occurred and be continuing a default in
any payment with respect to Senior Debt, or an event of default with respect to
any Senior Debt permitting the holders thereof to accelerate the maturity
thereof or, if any judicial proceeding shall be pending with respect to any such
default. (Article 9.)
As of the completion of the Offer as as adjusted for the transactions
described under "Funding of Offer," the Company anticipates having approximately
$[_________] of Senior Debt outstanding. The Indenture does not prohibit or
limit the incurrence of Senior Debt by the Company.
Events of Default
The following will be Events of Default under the Indenture: (a) failure to
pay principal on the Notes when due, continuing for five days, whether or not
such payment is prohibited by the subordination provisions of the Indenture; (b)
failure to pay any interest on any Notes when due, continuing for 30 days,
whether or not such payment is prohibited by the subordination provisions of the
Indenture; (c) failure by the Company for 30 days after notice from the Trustee
or the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes to comply with the successor provisions of the Indenture; (d)
failure by the Company for 60 days after proper notice from the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes to comply with any of its other agreements in the Indenture or the Notes;
(e) default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company (or the payment of which is guaranteed by the Company)
whether such Indebtedness or guarantee now exists, or is created after the date
hereof, which default results in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of any such
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Indebtedness, together with the principal amount of any other such Indebtedness
the maturity of which has been so accelerated, aggregates $5.0 million or more;
(f) failure by the Company to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; and (g) certain events in bankruptcy, insolvency or reorganization of the
Company. (Section 7.01.) Subject to the provisions of the Indenture relating to
the duties of the Trustee in case an Event of Default has occurred and is
continuing, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the Holders,
unless such Holders shall have offered to the Trustee reasonable indemnity.
(Section 7.02.) Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. (Section 6.05.)
If an Event of Default has occurred and is continuing, either the Trustee
or the Holders of at least 25% in aggregate principal amount of the outstanding
Notes may accelerate the maturity of all Notes; provided, however, that after
such acceleration, but before a judgment or decree based on acceleration, the
Holders of a majority in aggregate principal amount of outstanding Notes may,
under certain circumstances, rescind and annul such acceleration if all Events
of Default, other than the non-payment of accelerated principal, have been cured
or waived as provided in the Indenture. (Section 6.02 and 6.04.)
No Holder of any Notes will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request to pursue the
remedy, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the Holders
of a majority in aggregate principal amount of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. (Section 6.06.) However, such limitations do not
apply to a suit instituted by a Holder of a Note for the enforcement of payment
of the principal of, or interest on, such Note on or after the respective due
dates expressed in such Notes. (Section 6.07.)
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (Section 4.03.)
Modification and Waiver
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
outstanding Notes affected thereby, (a) reduce the principal amount of, or
interest on, any Notes, (b) reduce the principal of or change the fixed maturity
of any installment of principal on any Notes, (c) reduce the rate of or change
the time for payment on any Note, (d) waive a Default or Event of Default in the
payment of principal of or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (e) make any Note payable in money other than that
stated in the Notes, (f) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or interest on the Notes, (g) waive any
prepayment with respect to which notice has been given to the Holders under
Section 3.03 of the Indenture, or (h)
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make any change in Section 6.04 or 6.07 of the Indenture or in the amendment and
waiver provisions of Section 8.02 of the Indenture. (Section 8.02.)
The Holders of a majority in aggregate principal amount of the outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. (Section 8.02.) The Holders of a majority in aggregate principal
amount of the outstanding Notes may waive any past default under the Indenture,
except a default in the payment of principal or interest or the performance of
any covenant which may be waived only with the consent of the Holder of each
outstanding Note affected. (Section 6.04.)
Consolidation, Merger and Sale of Assets
The Company may, without the consent of any Holders of Notes, consolidate
or merge with or into, or transfer or lease all or substantially all of its
assets to, any Person, and any other Person may consolidate or merge with or
into, or transfer or lease all or substantially all of its assets to, the
Company, provided that (a) the Company is the surviving entity or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or which acquires or leases all or substantially all of the assets of
the Company is organized and existing under the laws of any United States
jurisdiction and assumes the Company's obligations on the Notes and under the
Indenture, (b) after giving effect to such transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing, and (c) certain other conditions
are met. (Article 5.)
Restrictions on Transfer
The Notes are not transferable except pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or in a transaction
exempt from the registration requirements of the Securities Act, and in
accordance with all applicable securities laws of the states of the United
States and any foreign jurisdiction. See "The Subordinated Notes; General" for
requirements to complete a transfer, including registration of transferred Notes
with the Company and payment of applicable expenses. (Section 2.06.)
FUNDING OF OFFER
Management proposes to fund the cash payment to the Offerees, aggregating
approximately $[___________] through a restructuring of its current financing
agreements. Specifically the Company will set up separate financing lines for
its Consumer Products Group and Graphics Division, or the Company, and for the
BISSELL Healthcare Division ("BHC").
The financing for the Company will consist of a private placement of
approximately $[__] million of senior unsecured notes. These notes are expected
to have a ten year maturity with a seven year average life. The coupon is
expected to be approximately [___] basis points over the ten year Treasury bond
rate, indicating an investment grade security. The notes will rank pari passu
with the Company's other senior indebtedness. The notes will contain provisions
for a prepayment "make-whole," change in control put, and minimum financial
covenants including the following: (1) maintenance of net worth at $27 million
plus 40% of net income (positive only), (2) total debt to consolidated operating
cash flow not to exceed 3.5 to 1, (3) fixed charges not less than 1.75 to 1, and
(4) priority debt such as liens not to exceed 20% of net worth. In addition, the
Company will require a senior unsecured revolving credit line of $[__] million.
Based on cash flow projections, over the next approximately [__] years, the
Company will be able to reduce its outstanding debt to lower, more normal levels
of leverage.
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The financing of BHC will consist of a senior unsecured revolving credit
line of $25 million.
Set forth below is a description of the capitalization of the Company
as of December 31, 1997 and as adjusted for (i) the redemption of shares
pursuant to the Offer and its funding as described above, and (ii) the
separate financing of BHC as described above. The "as adjusted" numbers are
based on the assumptions that the Offer is fully subscribed and that the
redemptions pursuant to the Offer and related financing had occurred on
December 31, 1997.
<TABLE>
<CAPTION>
December 31, 1997
-----------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Short-term debt:
Notes payable to banks and current portion of long-term debt . . . . .
Long-term debt, net of current portion . . . . . . . . . . . . . . . .
Shareholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid in capital . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned ESOP shares . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative foreign currency translation adjustment . . . . . . . . .
Total stockholders' equity. . . . . . . . . . . . . . . . . .
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
If the Offer is not fully subscribed, up to [_____] shares of Common Stock
may be purchased from the ESOP for cash at the offering price specified in this
Memorandum.
APPRAISED VALUE OF COMMON STOCK
The Company engaged Duff & Phelps, LLC ("D & P") to determine the fair
market value of the Company's Common Stock for purposes of the Offer as of the
most recent practicable date following completion of the Company's audited
financial statements for the year ended December 31, 1997 and the Company is
using the results of such valuation in connection with the Offer. The valuation
was made by D & P as of February 20, 1998 and D & P's conclusion was that the
value of a share of the Company's Common Stock as of such date was $[___] per
share before apply any discount for lack of marketability.. D & P is an
independent firm which provides valuation, financial advisory and consulting
services to a wide range of clients in connection with transactions varying in
size up to approximately $[__] billion. D & P also has substantial experience in
providing valuation services in connection with ESOP-related transactions and
providing annual valuations of stock held in ESOP's for many companies. The
Company has relied on the qualifications of D & P as an expert in providing
valuations. The Company has used D & P to value the Common Stock for ESOP
purposes for more than [___] years.
For purposes of making its determination of value, D & P reviewed, among
other things, the Company's audited financial statements for the years ended
December 31, 19[__] through 1997; strategic plans and financial projections
prepared by management,; operating statements for the Company's three separate
operating entities; and other internal information. It also interviewed Company
management and updated its knowledge of the Company, its business environment
and future prospects based on meetings with management. D & P relied on the
accuracy and completeness of this information provided to it
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which it did not independently verify. A summary of the financial projections
prepared by management and provided to D & P and the assumptions upon which such
projections are based are set forth in the Company's annual report to its
shareholders. Offerees should bear in mind that such projections and related
assumptions are of future financial and operating performance and as such
consist of forward-looking statements. Such projections and assumptions are not
to be viewed as facts and should not be relied upon as an accurate
representation of future results. Furthermore, because the projections are based
on estimates and assumptions about circumstances and events that have not yet
taken place, are not within the Company's control and are subject to material
variation, there can be no assurance that the anticipated events and assumptions
upon which the projections are based will in fact transpire or that the
projected results will be attained. Among the many factors which are beyond the
control of the Company and which may affect the Company's ability to achieve the
projected results are interest rates, the relationship of the United States
dollar to foreign currencies and new product introductions by competitors.
The valuation by D & P is based on its assessment of "fair market value"
which it defines to be the price at which an asset would change hands between a
willing buyer and a willing seller where the former is not under any compulsion
to buy and the latter is not under any compulsion to sell, and both parties are
able, as well as willing, to trade and are well informed about the asset and the
market for such asset. The valuation made by D & P is prior to the application
of a discount for lack of marketability. See "Important Factors to be Considered
by Offerees." D & P based its determination of fair market value on a wide
variety of qualitative and quantitative factors which included: (i) the nature
and history of the Company's business; (ii) the economic outlook, in general,
and the condition of the specific industries in which the Company operates;
(iii) the book value of the Company's Common Stock and the Company's financial
condition; (iv) the earnings capacity of the Company; (v) the Company's dividend
paying capacity; (vi) any goodwill or intangible value of the Company; (vii) the
market price of securities of corporations engaged in the same or similar lines
of business as the Company which are actively traded in a free and open market;
and (viiii) the percentage interest being valued, which is less than control.
In arriving at its determination of fair market value, D & P used two
different valuation methodologies which D & P has indicated are generally used
and accepted within the financial community. They were as follows: (i)
discounted cash flow ("DCF") analysis based on projections of future operating
results and capital requirements; and (ii) comparative analysis involving a
comparison of the Company with publicly traded companies engaged in lines of
business similar to those of the Company and with respect to relative
performance statistics and valuation multiples.
In applying the DCF analysis, D & P estimated free cash flow, being the
amount estimated to be available by the Company to reinvest in new businesses or
to distribute to shareholders in the form of dividends, stock buybacks or debt
service. The estimated free cash flows for future years were then discounted to
arrive at present value. The discount rate used by D & P was the weighted
average of the rates which it determined debt and equity investors would
reasonably target for an investment in the business. The rate of return on debt
considered the after-tax long-term borrowing rate of companies with credit
worthiness similar to the Company, or about [__]% (about [__]% pretax). The rate
of return on equity capital was estimated using the Capital Asset Pricing Model
("CAPM") which approximates the 20-year Treasury bond yield plus an equity risk
premium based on the nondiversifiable risk inherent in a stock investment. Since
the Company is small relative to New York Stock Exchange traded companies, a
small stock premium was added to the cost of equity determined by CAPM. The
resulting cost of equity was determined to be [__]% and, based on a capital
structure of [__]% debt and [__]% capital, D & P arrived at a weighted average
cost of capital of [__]%. Such weighted cost of capital, was then used by D & P
to value the enterprise and arrive at the fair market value of the equity
interests in the Company.
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In applying the comparative company approach, D & P examined operating and
financial data, market prices and resulting valuation multiples for [__] public
companies engaged in businesses that D & P considered to be comparable to the
Company's three distinct lines of business. Combining the results of the DCF
analysis and the comparative analysis, D & P concluded that $[___] per share
represents fair market value of the Company's Common Stock prior to the
application of a discount for lack of marketability.
A complete copy of the valuation report of D & P is available for
inspection by any Offeree and the duly designated representatives of any Offeree
at the Company's office at 2345 Walker, N.W., Grand Rapids, Michigan 49544
during regular business hours. To make arrangements for such an inspection,
please contact Mr. Daniel T. Caldon, Senior Vice President - Administration at
(616) 791-7735.
ANNUAL REPORT
This Memorandum is accompanied by the Company's annual report to its
shareholders for 1997 and should be read in conjunction with such annual report
which contains, among other things, the audited financial statements of the
Company for its fiscal years ended December 31, 1996 and 1997, management's
discussion and analysis of significant changes in line items in the Consolidated
Statements of Income between fiscal 1995 and fiscal 1996 and between fiscal 1996
and fiscal 1997, a description of recent developments at the Company, a summary
of key operating and balance sheet figures for the past five fiscal years and a
five-year summary of the dividend history of the Company and of the appraised
value of the Common Stock for ESOP purposes.
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