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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
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/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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/X/ Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
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(Name of Registrant as Specified In Its Charter)
DENNIS F. COUGHLIN
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the approximate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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computed pursuant to Exchange Act rule 0-11 (set forth the
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CW ACQUISITION CORPORATION
140 E. 19TH AVENUE, SUITE 700
DENVER, CO 80203-1035
303-863-1900
303-863-7100 FAX
TO: The Shareholders ("Shareholders") of The Writer Corporation ("Writer")
FROM: Dennis Coughlin, President of CW Acquisition Corporation ("CW
Acquisition)
DATE: January 25, 2000
RE: Recent Developments with Respect to the Writer Corporation, Including
the All Cash Offer from CW Acquisition to Purchase All of the Issued
and Outstanding Stock of Writer for $3.00 Per Share
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Enclosed for your review is a copy of the offer from CW Acquisition
to purchase all of the issued and outstanding shares of stock of Writer for
$3.00 cash per share (the "Acquisition Proposal"). All of the stock of CW
Acquisition is owned by a group of minority shareholders of Writer, of which
I am a member (the "Reporting Persons"). The Reporting Persons filed a
Schedule 13D with the Securities and Exchange Commission (the "SEC") on
October 20, 1999 ("Schedule 13D"), announcing their intention to meet with
the management of Writer to explore steps management could take to maximize
shareholder value, including, without limitation, conducting a comprehensive
review and analysis of the value that could be achieved from a sale of all of
Writer's stock, a sale of all or substantially all of Writer's assets or a
merger.
On January 7, 2000, CW Acquisition delivered a copy of its
Acquisition Proposal to Writer and each of its directors (the "Directors").
On January 14, 2000, Writer announced, in a very short press release, that
the Directors had unanimously rejected our Acquisition Proposal, without ever
meeting with anyone in the Reporting Group or calling anyone in the Reporting
Group to discuss the Acquisition Proposal or to ask any questions about it.
Since no one at Writer talked to us before the Board of Directors of
Writer (the "Board") summarily rejected our Acquisition Proposal, we have no
idea how the Board reached its unanimous conclusion that the Acquisition
Proposal was "not in the best interests of The Writer Corporation, its
shareholders, its employees, its homeowners and the communities it serves,"
as it said in the January 14th press release. Accordingly, on January 13,
2000, the owners of more than 10% of the outstanding shares of Writer
(including the members of the Reporting Group) demanded, as we are entitled
to do under Colorado law, that Writer convene a special meeting of all
shareholders on or about February 9, 2000, to discuss the Acquisition
Proposal and understand the Board's thinking behind its rejection of the
Acquisition Proposal. As of the date of this letter, the Board has not
responded to our demand.
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I would like to take a few minutes to give you the background of our
Acquisition Proposal and explain our frustrations with management and the
Board.
I, along with a group of investors, bought approximately 10% of the
stock of Writer at $1.50 per share in 1995. Since 1997, we have been
encouraging the Board to take steps to enhance shareholder value. To date,
the Board has not taken any steps in this regard and the bid price of the
stock remains at approximately $1.75, which is 58% of $3.00, the current book
value of the stock.
Although Writer's return on equity is only 12.24% (well below the
industry average of 19%), its Annual Report on Form 10-K for its fiscal year
ended December 31, 1998 (the "1998 10-K"), stated that Writer set aside
$289,000 for a profit sharing program for key employees, paid $189,000 in
bonuses to four employees and paid $502,000 under the Peninsula Acquisition
and Development financing to various Directors.
Although Writer has refused my request to pay dividends to
shareholders, it has paid interest to Directors on loans they made to Writer
in 1998, 1997, 1996 of $648,000, $578,000, and $753,000, respectively. The
interest rate on these Director loans was 3% over prime (plus stock options
for unsecured loans), while the interest rates on Writer's other secured and
unsecured loans from unrelated lenders were at 0.5% to 1.5% over prime. The
average rate of interest paid by Writer was 12.06% ion 1998, 12.25% in 1997
and 13.60% in 1996, due in part to the above market interest rates the
Directors paid to themselves.
As of December 31, 1998, Writer had options outstanding to certain
key employees to purchase 538,140 shares at a weighted-average exercise price
of $1.77. However, the Board chose not to repurchase any shares of stock on
the open market at $1.88 or less to cover these options. Instead, what did
the Directors do when shares became available at these attractive prices?
They purchased the shares for themselves.
Although Writer has been public for more than 30 years, its stock is
still traded on the OTC Bulletin Board, which is the market reserved for the
most speculative securities. The Directors have been unable or unwilling to
move the stock off the Bulletin Board to the Nasdaq Small Cap Market or
Nasdaq National Market.
Finally, Writer has engaged in business practices that I thought you
might be interested in knowing about. I have enclosed a copy of the
Arbitration Award in a case brought by two homeowners against Writer. The
arbitrator held Writer liable for DECEPTIVE TRADE PRACTICES and awarded the
two homeowners $1,122,651 in damages, plus interest of approximately $500,000
and attorney's fees, bringing the total award to approximately $2,000,000.
Writer's insurance carrier paid the award, but did not renew the policy. The
cost of insurance with the new carrier has gone up considerably according to
Deane Writer, a Director of Writer, and an employee of H.R.H. Insurance
agency, to whom Writer paid insurance premiums of approximately $200,000 in
1998.
I have enclosed a copy of a letter, dated November 17, 1999, that I
sent to Roland Seidler, a Director of Writer since 1971, and the member of
the Board designated to respond to me, that
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outlines my opinions regarding the actions Writer should be taking to
maximize shareholder value. Writer has not taken any of these actions. In
fact, over the last several months, the only thing the Directors have done is
purchase more than 650,000 shares of stock (including the initial purchases
by William Gillilan) at prices substantially below book value for their own
personal accounts. They chose to take this opportunity for themselves, rather
than have Writer repurchase the shares and thereby increase the per share
value for all shareholders.
Because of the Directors' ongoing refusal to focus on shareholder
value issues except in the case of opportunities that benefit them
personally, the Reporting Group formed CW Acquisition and CW Acquisition
submitted its Acquisition Proposal to Writer. The Acquisition Proposal offers
to acquire all of the shares of stock of Writer, via a merger transaction,
for $3.00 per share, subject to certain limited adjustments. I arrived at
this price using the currently available public information about the
Writer's land positions. I asked Writer for copies of its land contracts, but
Writer refused to give me that information, claiming that it was "insider
information." This $3.00 per share price is full book value, is at a 70%
premium over the current $1.75 bid price and is a higher price per share than
the stock has traded at for over five years. The Acquisition Proposal is not
subject to a financing condition. All CW Acquisition asked for was 45 days to
complete its due diligence review of Writer's assets. CW Acquisition stands
ready to close the acquisition as quickly as Writer is prepared to move.
You may have seen the Directors' response to our efforts to date. In
Writer's press release dated November 29, 1999, George "Geoie" Writer labeled
our efforts "bizarre" due to the fact that the Directors collectively own 51%
of the outstanding stock. As mentioned above, he said, in Writer's January
14th press release, that our Acquisition Proposal was not in the "best
interests of The Writer Corporation, its shareholders, its employees, its
homeowners and the communities it serves." If the Directors are so confident
of their position, Writer should put out an all cash tender offer at $3.00
per share and let all of the shareholders decide for themselves whether they
think their shares are worth more or less than $3.00 per share. The Board has
recently purchased approximately 650,000 shares at $1.88 per share, but is
unwilling to accept an offer of $3.00 and apparently doesn't want the
shareholders to do so either.
I encourage you to communicate directly to George Writer, Chairman,
The Writer Corporation, 6061 South Willow Drive, Suite 232, Englewood,
Colorado 80111 or call at (303) 779-4100 and express your opinions directly
to him. I have also enclosed the names, addresses and telephone numbers of
the other Directors.
Assuming the Board will comply with its duties under Colorado law
and call the special shareholder meeting, I strongly encourage you to attend
the meeting. The Directors run Writer for all of the shareholders, not
themselves. Please attend the meeting, ask questions of the Directors and
let's find out why the Directors have made the decision for you that you do
not want to sell your shares for $3.00 per share.
SHAREHOLDERS ("SHAREHOLDERS") OF THE WRITER CORPORATION ("WRITER") ARE URGED
TO READ ALL OF THE RELEVANT DOCUMENTS FILED, OR TO BE FILED, BY WRITER, CW
ACQUISITION CORPORATION AND/OR THE
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REPORTING GROUP WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") IN
CONNECTION WITH THE MATTERS ADDRESSED HEREIN. SHAREHOLDERS MAY OBTAIN COPIES
OF SUCH DOCUMENTS FREE OF CHARGE AT THE SEC'S WEBSITE
("http://www.sec.gov."). THIS COMMUNICATION CONSTITUTES A SHAREHOLDER
COMMUNICATION UNDER RULE 14A-12, AS PROMULGATED BY THE SEC UNDER THE
SECURITIES EXCHANGE ACT OF 1934. NO FORM OF PROXY IS BEING REQUESTED IN
CONNECTION WITH THE MATTERS ADDRESSED HEREIN OR WILL BE REQUESTED UNLESS AND
UNTIL A PROXY STATEMENT IS DELIVERED TO THE SHAREHOLDERS.
Attachments:
1. The Acquisition Proposal
2. The Arbitration Award
3. The Letter to Roland Seidler, dated November 17, 1999
4. The Names, Addresses and Telephone Numbers of the Other Directors
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CW ACQUISITION CORPORATION
140 E. 19TH AVENUE, SUITE 700
DENVER, COLORADO 80203-1035
303-863-1900
303-863-7100 FAX
January 6, 2000
The Writer Corporation
6061 South Willow Drive #232
Englewood, Colorado 80111
Attention: The Board of Directors
c/o Mr. George S. Writer, Jr.
Chairman of the Board of Directors
Re: MERGER TRANSACTION - ACQUISITION OF THE WRITER CORPORATION
Gentlemen:
This letter of intent ("LETTER OF INTENT") sets forth the terms of
the proposed agreement between CW Acquisition Corporation, a Colorado
corporation ("CW"), and The Writer Corporation, a Colorado corporation
("WRITER"), regarding the proposed acquisition (the "ACQUISITION") by CW of
all of the issued and outstanding shares of capital stock of Writer ("WRITER
STOCK") and all other outstanding equity interests and rights to equity
interests in Writer, for example, stock options, warrants, convertible
securities of Writer ("OTHER WRITER EQUITY INTERESTS"), on the terms and
subject to the conditions set forth herein.
1. STRUCTURE. The Acquisition will be structured as a merger (the
"MERGER") of CW Acquisition Subsidiary Corporation, a wholly-owned Colorado
subsidiary of CW ("ACQUISITION SUB"), with and into Writer under Colorado
law. Writer will be the surviving corporation in the Merger (the "SURVIVING
COMPANY") and, upon consummation thereof, (a) Acquisition Sub will cease to
exist and (b) the Surviving Company will become a wholly-owned subsidiary of
CW.
All of the issued and outstanding capital stock of CW is owned by
the persons listed on EXHIBIT A hereto, each of whom is a current stockholder
of Writer (the "CW STOCKHOLDERS"). Prior to the consummation of the Merger,
the CW Stockholders will contribute all of their Writer Stock to CW, which in
turn will contribute the same Writer Stock and the balance of the Merger
Consideration to Acquisition Sub.
2. TERMS OF THE MERGER; MERGER CONSIDERATION.
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a. THE MERGER. At the effective time of the Merger as
stated in the Certificate of Merger to be filed with the Secretary of State
of the State of Colorado (the "EFFECTIVE TIME"), (a) each share of capital
stock of Acquisition Sub issued and outstanding immediately prior to the
Effective Time ("ACQUISITION SUB STOCK") will be converted into one share of
common stock of the Surviving Company, (b) each share of Writer Stock owned
by Acquisition Sub or held in treasury by Writer immediately prior to the
Effective Time will be canceled and shall cease to exist from and after the
Effective Time ("NON-CONVERTING SHARES") and (c) each share of Writer Stock,
other than Non-Converting Shares and Dissenting Shares (as defined below),
issued and outstanding immediately prior to the Effective Time will be
converted into the right to receive the Merger Consideration (as defined
below).
b. THE MERGER CONSIDERATION. The consideration to be issued
in the Merger for each share (or fraction thereof) of Writer's Stock (other
than Non-Converting Shares and Dissenting Shares) issued and outstanding as
of the Effective Time shall be the Adjusted Per Share Book Value (as defined
below) of Writer, which shall be payable entirely in cash at the Effective
Time (the "MERGER CONSIDERATION").
The "ADJUSTED PER SHARE BOOK VALUE" of Writer shall be $3.00 per
Share, assuming 7,442,300 Shares issued and outstanding at the Effective Time
(i.e., $22,326,000 in total for all of the Shares), subject to the following
adjustments.
(i) If Writer repurchases Shares after December 31, 1999 and
on or before the Effective Time (the "PRE-CLOSING PERIOD"), the
Adjusted Per Share Book Value shall be recomputed by dividing (A)
$22,326,000 less the aggregate repurchase price paid by Writer for such
Shares by (B) the decreased number of Shares issued and outstanding as
of the Effective Time (other than Non-Converting Shares and Dissenting
Shares).
FOR EXAMPLE, assume Writer repurchases 650,000 Shares
at $1.88 per Share (for an aggregate repurchase price of $1,222,0000)
during the Pre-Closing Period. After the repurchase, there will be
6,791,300 Shares issued outstanding (i.e., 7,442,000 minus 650,000).
The Adjusted Per Share Book Value will be $3.10 per Share (i.e.,
[$22,326,000 minus $1,222,000] divided by 6,791,300 Shares).
(ii) If Writer issues additional Shares during the Pre-Closing
Period for any reason, the Adjusted Per Share Book Value shall be
recomputed by dividing (A) $22,326,000 plus the consideration received
by Writer for the issuance of such additional Shares by (B) the
increased number of Shares issued and outstanding as of the Effective
Time (other than Non-Converting Shares and Dissenting Shares).
FOR EXAMPLE, assume optionees exercise options to
purchase 538,140 Shares at an exercise price of $1.77 per Share (for an
aggregate purchase price of $952,507) during the Pre-Closing Period.
After the repurchase, there will be 7,980,440 Shares issued outstanding
(i.e., 7,442,000 plus 538,140). The Adjusted Per Share Book Value will
be $2.92 per Share (i.e., [$22,326,000 plus $952,507] divided by
7,980,440 Shares).
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c. DISSENTING SHARES. Shares of Writer Stock that are
outstanding immediately prior to the Effective Time and which are held by
Stockholders who do not vote in favor of the Merger and who have demanded
properly in writing appraisal for such shares of Writer Stock ("DISSENTING
SHARES") shall not be converted into or represent the right to receive the
Merger Consideration. Instead, the holders of Dissenting Shares shall only be
entitled to receive payment of the appraised value for their Dissenting
Shares.
d. OTHER WRITER EQUITY INTERESTS. Prior to the Effective
Time, Writer shall (i) cause all Other Writer Equity Interests to be
exercised or converted into shares of Writer Stock or (ii) terminate and
cancel such outstanding Other Writer Equity Interests or (iii) cause the
holders of such outstanding Other Writer Equity Interests to enter into
agreements with Writer and CW providing that such Other Writer Equity
Interests issued and outstanding at the Effective Time shall be converted
into the right to receive, for each share of Writer Stock underlying such
Other Writer Equity Interests, cash in an amount equal to the Merger
Consideration less the exercise/conversion price per share for such
underlying shares, such that, on and as of the Effective Time, there shall be
no outstanding Other Writer Equity Interests.
3. DEFINITIVE MERGER AGREEMENT AND OTHER AGREEMENTS.
a. MERGER AGREEMENT. Within 20 business days from the date
of this Letter of Intent, the parties hereto shall enter into a definitive
Agreement and Plan of Merger (the "MERGER AGREEMENT"), setting forth the
definitive terms of the Merger, which Merger Agreement shall constitute a
legally valid and binding agreement between Writer, CW and Acquisition Sub.
The initial draft of the Merger Agreement shall be prepared by CW's counsel,
at CW's expense. The Merger Agreement shall include customary covenants,
representations, warranties, conditions and other provisions and terms for a
Merger transaction of this nature.
b. NO SHOP AGREEMENT. The "NO SHOP PERIOD" shall commence
on the date of execution of this Letter of Intent by Writer and end on the
earlier to occur of (i) the date of termination of this Letter of Intent and
(ii) the date of execution of the definitive Merger Agreement. Writer shall
notify CW promptly if any proposal regarding a Competing Transaction (or any
inquiry from or contact with any Third Party) is made and shall advise CW of
the contents thereof (and, if in written form, provide CW with copies
thereof). Writer hereby agrees that, during the No Shop Period, it will not
(a) enter into any agreement, agreement in principal or commitment (whether
or not legally binding) relating to any business combination with any person
or entity other than CW and/or Acquisition Sub (a "THIRD PARTY"),
recapitalization of Writer, merger of Writer with any Third Party,
acquisition or purchase by any Third Party of all or a significant portion of
the assets of Writer, acquisition or purchase by any Third Party of a
material portion of Writer Stock or any similar transaction or transactions
having a similar effect involving Writer and any Third Party (a "COMPETING
Transaction"); (b) solicit, initiate or encourage the submission of any
proposal or offer from any Third Party (including its respective officers,
directors, employees and agents) relating to any Competing Transaction; or
(c) participate in any discussions or negotiations with any Third Party
regarding a Competing Transaction. In addition, Writer shall immediately
terminate all discussions, negotiations or agreements now pending with other
Third Party participants in any
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Competing Transaction.
Notwithstanding anything in this Letter of Intent to the contrary,
in response to any proposal or inquiry with respect to a Competing
Transaction, (a) the Company may engage in discussions or negotiations
regarding such proposal or inquiry with a third party who seeks to initiate
such discussions or negotiations and may negotiate with and furnish to such
third party information concerning the Company and its business, properties
and assets, and (b) if such Competing Transaction is a tender offer subject
to the provisions of section 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 ACT"), the Board may take and disclose to the Stockholders
a position contemplated by Rule 14e-2(a) under the 1934 Act.
In the event the Company shall determine to provide any information
or negotiate as described in the immediately preceding paragraph, or shall
receive any offer of the type referred to in the immediately preceding
paragraph, it shall (a) immediately provide CW with a copy of all information
provided to the third party, (b) inform CW that information is to be
provided, that negotiations are to take place or that an offer has been
received, as the case may be, and (c) furnish to CW the identity of the third
party receiving such information or the proponent of such offer, if
applicable, and, if an offer has been received, unless the Board concludes
that such disclosure is inconsistent with its fiduciary duties under
applicable law, a description of the material terms of such offer.
The Company may terminate this Letter of Intent, withdraw, modify or
not make its recommendation referred to above and enter into a definitive
agreement for a Competing Transaction if, but only if, (a) the Company shall
have determined in good faith after consultation with the independent
financial advisors to the Company that such Competing Transaction would more
favorable to the Stockholders from a financial point of view than the Merger,
(b) the Board shall conclude in good faith after consultation with its legal
counsel that such action is necessary in order for the Board to act in manner
that is consistent with its fiduciary obligations under applicable law and
(c) to the extent consistent with its fiduciary obligations under applicable
law, the Board shall have provided CW with a copy of the definitive agreement
at least 5 business days prior to its execution and CW shall have failed
within such 5 business day period to offer to amend the terms of this Letter
of Intent so that the Merger would be, in the good faith determination of the
Board, at least as favorable to the Stockholders from a financial point of
view as the Competing Transaction.
Writer hereby agrees to pay CW or its designee a "BREAK UP FEE" in
the amount of CW's out-of-pocket expenses incurred, directly or indirectly,
in connection with the Transaction plus $100,000 in the event (A) Writer
fails to consummate the Merger for any reason other than a material breach of
this Letter of Intent or the Merger Agreement by CW or Acquisition Sub or (B)
Writer consummates, or enters into an agreement or other arrangement to
consummate, a Competing Transaction with any Third Party within 12 months
from the date of execution of this Letter of Intent by Writer (each a
"BREAK-UP EVENT"). CW shall deliver to Writer a written statement of the
calculation of its Break Up Fee upon the occurrence of a Break-Up Event,
which statement, absent fraud shall be binding on the Parties.
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c. STOCKHOLDER AGREEMENT. Simultaneously with the execution
and delivery of the definitive Merger Agreement, each of the directors of
Writer (each a "DIRECTOR" and collectively the "DIRECTORS") who is a
Stockholder shall execute and deliver the Stockholders Agreement in
substantially the form attached as EXHIBIT A hereto, pursuant to which the
Directors, in their individual capacities as Stockholders, agree to, among
other things, vote all of the shares of Writer Stock (i) in favor of the
Merger and (ii) against (A) any action that would result in a breach of the
Merger Agreement by Writer, (B) a Competing Transaction, (C) any change in a
majority of the members of the Board of Directors of Writer (the "BOARD"),
(D) any change in the capital structure of Writer and/or (E) any other action
involving, or on the part of, Writer that would or could impede, interfere
with, delay, postpone or materially adversely affect the consummation of the
Merger.
d. STOCKHOLDER MEETING; RECOMMENDATION OF APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT; PROXY STATEMENT. Following execution and
delivery of the Merger Agreement, Writer shall, as promptly as possible,
submit the Merger Agreement and the transactions contemplated therein for
approval to its Stockholders at a meeting of Stockholders (the "STOCKHOLDERS
MEETING") and, subject to the fiduciary duties of the Board, shall use its
reasonable best efforts to obtain Stockholder approval and adoption of the
Merger Agreement and the transactions contemplated therein at the
Stockholders Meeting. Writer, through its Board (subject to their fiduciary
duties), shall recommend to the Stockholders of Writer approval of the Merger
Agreement and the transactions contemplated thereby. The Board shall file
with the Securities and Exchange Commission (the "SEC") as soon as is
reasonably practicable after the date of the Merger Agreement (but in no
event later than 20 days after the date of the Merger Agreement) a proxy
statement (the "PROXY STATEMENT") in connection with the Stockholders Meeting.
e. OTHER DOCUMENTS. The parties agree to negotiate in good
faith the terms of such other instruments, documents and agreements as may be
necessary or desirable to effectuate and consummate in full the transactions
contemplated in this Letter of Intent, the Merger Agreement and the other
documents referred to herein.
4. CLOSING. It is the intention of the parties to close the Merger
(the "CLOSING") within five business days immediately following the date on
which all of the conditions to closing of the Merger (as set forth in the
Merger Agreement) have been satisfied in full, or waived by the appropriate
party, as the case may be (the "CLOSING DATE"). Writer shall have the right
to terminate the Merger Agreement if (a) the Merger is not consummated by
September 30, 2000, other than on account of delay or default by Writer, (b)
the Merger is enjoined by a final, nonappealable court order not entered at
the request, or with the support, of Writer or more than 5% of its
Stockholders or (c) CW or Acquisition Sub fails to perform in any material
respect its obligations under the Merger Agreement and does not cure such
default in all material respects within 30 days after written notice thereof
from Writer. CW and Acquisition Sub shall have the right to terminate the
Merger Agreement if (i) the Merger is not consummated by September 30, 2000,
other than on account of delay or default by CW or Acquisition Sub, (ii) the
Merger is enjoined by a final, nonappealable court order not entered at the
request, or with the support, of CW and/or Acquisition Sub, (iii) Writer
fails to perform in any material respect its obligations under the Merger
Agreement and does not cure such default in all material respects within 30
days after written notice thereof from CW or (iv) CW shall be dissatisfied
with the results of its due diligence review and so notifies Writer within 45
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days after the date of execution of this Letter of Intent by Writer or (v)
holders of more than 10% of the total outstanding shares of Writer Stock
exercise their rights of appraisal.
5. OBLIGATION OF CW AND ACQUISITION SUB TO CLOSE THE MERGER. CW's
and Acquisition Sub's obligations to close the Acquisition will be subject to
the satisfaction of conditions customary of an acquiror in a Merger
transaction of this type, including the following: (a) the completion of CW's
and its legal and financial advisors' due diligence investigations of Writer
within 45 days after the date of execution of this Letter of Intent by
Writer, which due diligence shall be satisfactory to CW in its sole and
absolute discretion; (b) the receipt of all governmental and third party
consents and approvals necessary for the consummation of the Merger and the
ongoing operation of the business of Writer, including, but not limited to,
approval and adoption by the Stockholders of the Merger Agreement; (c) the
expiration or termination of the waiting period applicable to the
consummation of the Merger, if any, under the Hart-Scott-Rodino Antitrust
Improvement Act ("HSR"); (d) the absence of any material adverse change in
the business, assets, condition (financial or otherwise), or prospects of
Writer; (e) no preliminary injunction or permanent injunction or other order
or decree by any court which prevents the consummation of the Merger shall
have been issued and remain in effect; (f) the requirements regarding the
cancellation, exercise or termination of the Other Writer Equity Interests
shall have been satisfied; (g) CW shall have received "comfort letters" from
Writer's independent public account with respect to certain of Writer's
financial statements and any changes thereto since the date of Writer's last
audited financial statements; (h) Writer shall have received from a
nationally recognized investment banker an opinion, dated as of the date of
the Proxy Statement, to the effect that the Merger Consideration is fair from
a financial point of view to the holders of Writer Stock and such opinion
shall not have been withdrawn; and (i) CW and Acquisition Sub shall have
received an opinion from Writer's legal counsel in form and substance
reasonably satisfactory to CW. A copy of the Company's initial due diligence
request is attached as EXHIBIT B hereto.
6. CONDUCT OF THE BUSINESS. From the date of the execution of this
Letter of Intent by Writer through the Effective Time, Writer shall (a)
conduct its business only in the ordinary course of business and consistent
with relationships and goodwill of Writer existing as of the date hereof; and
(b) promptly notify CW of any emergency or other change in the ordinary
course of Writer's business.
7. ACCESS. Writer agrees to provide representatives of CW, its
advisors (including legal, accounting and other representatives), its lenders
and their advisors (including legal, accounting and other representatives),
with reasonable access to the financial, legal, tax and other data and
information pertaining to Writer. Such information shall be made available to
the foregoing persons on a confidential basis, all of whom shall be notified
of the confidential nature thereof.
8. TERMINATION. Following its execution by all of the parties
hereto, this Letter of Intent shall automatically terminate upon the earlier
of the following to occur: (i) the execution of the definitive Merger
Agreement by all parties and (ii) the mutual determination of all parties, in
writing, that the Merger transaction shall not proceed. CW or Writer may
terminate this Letter of Intent at any time after February 29, 2000, if the
definitive Merger Agreement has not been signed by such date other than on
account of delay or default on the part of the terminating party. The
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provisions of Sections 3.a. (regarding payment of the cost of preparing the
initial draft of the Merger Agreement), 3.b. (regarding payment of break up
fees), 9 (confidentiality) and 10 (expenses) hereof shall survive the
termination of this Letter of Intent. In the event that the Merger does not
close for any reason, CW and Acquisition Sub shall promptly return, or cause
to be returned, to Writer written material provided by Writer or its
representatives to CW and/or Acquisition Sub, their affiliates,
representatives or advisors in connection with this Letter of Intent and the
Merger.
9. EXPENSES. Subject to 3.a. (regarding payment of the cost of
preparing the initial draft of the Merger Agreement) and 3.b. (regarding
payment of break up fees) above, each party shall bear its own expenses
(including, without limitation, the expenses of all legal and accounting
advisors, lenders, brokers, or investment bankers incurred by such party) in
connection with the Merger transactions contemplated hereby. In the event
that any break-up fees become payable to any financing source, Writer shall
bear such expense. The parties agree that any HSR filing fees payable in
connection with the Merger shall be shared equally by the parties.
10. BINDING OBLIGATION. This Letter of Intent does not constitute a
binding obligation to effect the Merger, it being understood that such
obligation shall arise only from the definitive Merger Agreement.
Notwithstanding the foregoing, the provisions and obligations of Sections
3.a. (regarding payment of the cost of preparing the initial draft of the
Merger Agreement), 3.b. (regarding payment of break up fees), 9
(confidentiality) and 10 (expenses) hereof shall be binding upon the parties
and shall survive the termination of this Letter of Intent.
11. GOVERNING LAW. This Letter of Intent shall be deemed to be
governed by the laws of the State of Colorado.
This Letter of Intent supersedes all prior communications between
CW, Acquisition Sub, Writer and their respective principals with respect to
the subject matter hereof. This Letter of Intent shall expire on January 17,
2000, unless Writer executes and delivers an executed copy of this Letter of
Intent to CW prior to the close of business on such date.
7
<PAGE>
If this Letter of Intent is acceptable to you, please indicate so by
signing and returning the enclosed copy. Upon receipt of your executed Letter
of Intent, CW will instruct its counsel to begin to draft the Merger
Agreement.
Sincerely,
CW ACQUISTION CORPORATION, FOR AND ON
BEHALF OF ITSELF AND ITS WHOLLY-OWNED
SUBSIDIARY, CW ACQUISITION
SUBSIDIARY CORPORATION.
By:
--------------------------------------
Name (Print):
----------------------------
Title:
-----------------------------------
AGREED TO AND ACCEPTED THIS __ DAY OF JANUARY __, 2000:
THE WRITER CORPORATION
By:
--------------------------------------
Name (Print):
----------------------------
Title:
-----------------------------------
8
<PAGE>
LEGAL RESOLUTION CENTER
Case No. 99-021
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ARBITRATION AWARD
- --------------------------------------------------------------------------------
JOHN & PATTY DUFFY, and
JAMES & CYNTHIA MORGAN,
Claimants,
vs.
THE WRITER CORPORATION,
Respondent.
- --------------------------------------------------------------------------------
I. INTRODUCTION
This matter came on for arbitration on February 9, 10, and 11, 1999,
before Richard C. Davidson, Arbitrator. Present were the Claimants with Scott
F. Sullan, Esq. representing the Claimants and John M. Palmeri, Esq., and
Robert R. Carlson, Esq. representing Respondent.
Verne Quimby, Roberta Boldon, John D. Nelson, David B. Fisher, Wayne
Janish, Claimant John Duffy, Robert Sackett, Kevin L. Witchel, Michael
Broadie, Ali Marvi, Peg Wood, Priscilla Calhoun, John Hope, Robert Reid,
Claimant Cynthia Morgan, Robert W. Thompson, Ronald M. McOmber, Kent L.
Petersen, and Donald Coffey were called, sworn, and testified.
Additional records and other written evidence and exhibits were
submitted for the Arbitrator to review.
After hearing the testimony and arguments and after reviewing the
evidence and exhibits the Arbitrator makes the following findings:
II. FINDINGS
1. This action is brought by the Claimants seeking repairs and other
damages from Respondent, arising out of injury to their homes caused
by soil movement. Respondent developed the subdivision, built the
homes and sold them to Claimants. Respondent is responsible for any
damages owed to Claimants. Respondent may have claims against
1
<PAGE>
other persons or entities. Those claims are not part of this
arbitration and are not affected by this award or any ruling herein.
2. Respondent Writer originally purchased the property for this
subdivision in approximately 1991. At that time, Writer hired
CTL/Thompson, Inc. to conduct an investigation to determine the soils
conditions for the lots in the subdivision. CTL/Thompson prepared a
report titled "Soils And Foundation Investigation Highlands Ranch,
Filing No. 84 lots 18, 19, 53-87 And 102-106." The Claimants' lots are
numbers 85 and 86. In order to prepare this report, CTL/Thompson did
borings on each lot to obtain soil samples. These samples were then
tested to determine the amount of potential swelling in the soils. A
map was prepared showing the potential swelling for each lot in the
subdivision. Claimants' lots were found to fall within an area of
"very high swell" potential. The report contained an analysis of the
potential problems because of the very highly expansive soils and
warned of the dangers of constructing homes on such soils. The report
also suggested methods to mitigate the problems including the use of
Type I or II drilled piers and the use of wood structural floors in
basements. This report was furnished to Writer and was used in
determining the type of piers and the basement floors utilized in the
homes in the subdivision.
3. Writer constructed Claimants' homes using the recommended Type II pier
system and installed wood structural floors in both homes.
4. During construction, several "mistakes" were made in the construction
of these homes. The basement foundation walls were actually 9'5" high
rather than the 10' called for in the plans. Specific size reinforcing
steel was required, but, in the vertical foundation walls, smaller
steel was installed. The plans called for a minimum void space of 20"
under the structural wood floors to insure adequate ventilation. This
space was not achieved and in places appears to be no more than two or
three inches. A foundation drain system was installed in each home. It
is not clear that these were properly installed to insure drainage
from the base of the foundation walls. The plans called for surface
grading to achieve a minimum slope of 10% for ten feet away from the
foundation walls to carry water away from the homes. This was not
always achieved. In places around the homes the grading appears to be
flat. Testimony was offered to prove that these deviations from the
plans also constituted violations of the Uniform Building Code as
adopted in Douglas County, Colorado.
5. Both the Claimants' homes were built in 1993. Claimants are the
original owners, having purchased the homes directly from Writer.
6. At the time Claimants were contemplating the purchase of their homes,
they were told by Writer sales agents that the homes were being built
in an area of potentially swelling soils. They were shown the
structural wood floors as a method of dealing with the potential soils
problem. Writer provided sales information to Claimants that the homes
were being constructed with engineered foundations. The information
concerning potential soils problems was presented by Respondent in a
positive manner. Before their
2
<PAGE>
purchases, none of the Claimants were provided with a full copy of the
soils report of September 3, 1991. They were not provided with the map
showing their lots to be located in an area of "very high swell"
potential. They were not told that their homes would have a higher
risk of foundation movement. Neither were they told that their homes
had been constructed with "mistakes" present in their construction
which could potentially add to the risk of damage from soils movement.
It is unclear whether the summary soils report required to be
furnished prior to purchase was furnished before closing. In any case,
it was insufficient to give notice to Claimants of the potential
problems with their homes.
7. The Morgans closed on their home in May, 1993. The Duffys closed on
their home in November, 1993. As part of the sale and purchase, Writer
provided a one year warranty on each of the homes. During that first
year, Claimants each requested several service calls to correct
problems. Writer responded and provided the appropriate service. At
the time of purchase and sale, Writer normally enrolled the homes into
a warranty program with Home Builders Warranty Corporation. HBW then
contracted with National Home Insurance Company to insure the
warranty. This was intended to provide a 10-year structural warranty
against structural defects. The Duffy home was enrolled at the time of
purchase. In 1994, it was discovered that the Morgan home had not been
enrolled. In order to enroll the home, Writer hired a structural
engineer, Ali Marvi, to inspect the home for HBW. Mr. Marvi did
inspect the home and noted some evidence of possible foundation
movement in vertical foundation wall cracks. He also noted that the
grading around the home did not conform to the 10% slope requirement.
He recommended that the cracks be monitored and that the grading be
corrected to conform to the plans. Neither of these recommendations
were carried out by Writer. Rather, the Morgan home was enrolled in
the HBW program without anything being done about these problems.
8. Some time after the one-year warranty period, Claimants began to
notice evidence of increasingly severe problems with the homes. Long
cracks began to appear through the homes, windows and doors no longer
fit, concrete flat work appeared to shift in elevation, and some brick
facing was noticed to be loosening. It has now been determined that
the foundation piers under each home have failed and the homes are
being moved by the forces of the expansive soils. When Claimants
notified Writer of these problems, they were told that their remedy
would be to file a claim with HBW. When the Duffys filed their claim,
it was accepted by HBW. The Morgan's claim was denied. After the
Duffys reviewed the limited scope of repairs suggested by HBW, they
contacted an engineer, Verne Quimby, to look at the problems and
determine a scope of repair. The Morgans have also hired Mr. Quimby.
None of the repairs have yet been performed.
9. Claimants seek to recover the cost of the repairs according to the
findings of Mr. Quimby. The cost of these repairs has been estimated
by Shaker Construction to be $243,300.75 for the Duffy home and
$255,360.00 for the Morgan home. Evidence was presented by Respondent
to show the scope of required repairs to be less than that
contemplated by Mr. Quimby. Respondent's estimated cost of repairs is
$96,712.29 for the Duffy home and $66,904.61 for the Morgan home.
3
<PAGE>
10. Respondent caused the Claimants to be in the position of owning
defective homes through the "mistakes" in construction, and in
Writer's failure to fully advise Claimants of the potential problems
of soils movement. Consequently, Respondent is responsible to fully
and completely repair these homes. However, the Arbitrator finds the
scope of repairs suggested by Mr. Quimby to be somewhat overbroad.
Likewise, the scope of repairs suggested by Respondent is too narrow.
After a review of the repairs suggested by both sides, the Arbitrator
finds the use of structural steel floors to be unnecessary and reduces
the scope of the excavations on the exterior of the homes. After this
is done, the Arbitrator finds the Duffys are entitled to the sum of
$171,219.50 as the cost of repairs and the Morgans are entitled to the
sum of $182,997.50.
11. Claimants have brought claims under the Colorado Consumer Protection
Act. In order to establish a claim under the CCPA, Claimants must
prove the five elements outlined in the case of HALL V. WALTER, 969
P.2d 224, (Colo., 1998). First, Claimants must establish conduct by
Writer that constitutes a deceptive trade practice. Claimants have
offered evidence that Writer represented that the homes were of good
quality and fit for habitation and were constructed according to the
plans. Writer represented that the problems of expansive soils had
been addressed through "engineered foundation" and the use of
structural wood floors. Writer knew or should have known that there
were "mistakes" in construction and that the problems with expansive
soils could not be totally eliminated. In addition, Writer failed to
fully disclose material information about the property which was in
the soils report. As previously found, the summary soils report was
insufficient to advise Claimants of the soils problems. Claimants
testified that if they had known about the true nature of the
expansive soils and the dangers of foundation movement, they would not
have purchased the homes. The inference drawn by the Arbitrator is
that the true nature of the soils was not disclosed in order to induce
the Claimants to purchase their homes. While the Arbitrator does not
find that Respondent acted willfully in any way, the Arbitrator does
find that Respondent negligently failed to disclose the condition of
the soils. While Writer may have honestly believed that the dangers in
the soils had been minimized, such belief is no defense to the CCPA
requirements of full disclosure.
12. The second element requires the deceptive trade practice to occur in
the course of Writer's business. Clearly, in this case, the practices
occurred in the construction and marketing of these homes by Writer.
13. The third element requires a showing that the deceptive practices of
Writer "significantly impact the public as actual or potential
consumers . . . ." The evidence shows that Writer used the claims that
they had mitigated the soils problems in its advertising and in its
sales practices. This element has been proven.
14. The fourth element requires proof that Claimants suffered injury to a
legally protected interest. Claimants were injured by their purchase
of homes which proved to be defective.
4
<PAGE>
15. The fifth element requires proof that the actions of Writer caused the
injuries. As previously discussed, Claimants testified that they would
not have purchased the homes had they known the true facts of the
risks of soils movement. The Arbitrator finds that the CCPA claims
have been proven by Claimants.
16. According to the terms of the CCPA, Claimants must be awarded three
times their actual damages plus attorney fees and arbitration costs.
Consequently, the Arbitrator must treble the amount of damages found
to be owed to Claimants.
17. Claimants have also brought tort claims for their emotional distress,
mental anguish, loss of use and inconvenience caused by the defects in
their homes. The Arbitrator finds that Claimants are entitled to be
awarded damages for their mental anguish, loss of use and
inconvenience in the amount of $10,000.00 for the Duffys and
$10,000.00 for the Morgans.
18. The Arbitrator finds that all claims not specifically discussed are
either subsumed into the claims proven or are without merit.
III. AWARD
1. Based upon a preponderance of the evidence, the Arbitrator hereby
awards the Duffys treble damages in the total amount of $543.658.50.
2. Based upon a preponderance of the evidence, the Arbitrator hereby
awards the Morgans treble damages in the total amount of $578,992.50.
3. The damages shall bear interest at the rate of 8% per annum from the
date each family purchased their home.
4. All other requests for damages are hereby denied.
5. Each of the families shall be awarded a reasonable attorney's fee
together with their Arbitration costs. If the parties are unable to
agree on the amount of attorney fees and costs, Claimants are directed
to submit a statement of attorney fees together with a bill of costs
to the Arbitrator within 10 days of the receipt of this award.
Respondent shall have 5 days to object. Either party may request a
hearing on this issue.
6. Pursuant to the terms of the arbitration provision contained in the
Limited Warranty Agreement booklet, each of the parties shall be
responsible for paying one-half the Arbitration fees charged by Legal
Resolution Center.
Dated this 16th day of March, 1999.
Legal Resolution Center
5
<PAGE>
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Richard C. Davidson
Arbitrator
CERTIFICATE OF CERTIFIED MAILING
I hereby certify that on this, the 18th day of March, 1999, I
deposited in the United States mail, postage pre-paid, certified/return
receipt requested, a true and correct copy of the foregoing Arbitration Award
to the following:
Scott F. Sullan, Esq.
Vanatta, Sullan, Sangrund & Sullan, P.C.
5290 DTC Parkway, Suite 120
Englewood, CO 80111-2721
John M. Palmeri, Esq.
Robert R. Carlson, Esq.
White & Steele, P.C.
1225 - 17th Street, 28th Floor
Denver, CO 80202-2828
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LEGAL RESOLUTION CENTER
Susan L. Carter
6
<PAGE>
COUGHLIN & COMPANY INC.
140 East 19th Avenue, Suite 700
Denver, CO 80203-1035
303-863-1900
303-863-7100 FAX
November 17, 1999
Mr. Roland Seidler, Jr.
515 South Figueroa Street
Los Angeles, CA 90071-3396
RE: THE WRITER CORPORATION
Dear Roland:
While the book value of the company was $2.88 a/o June 30, and is anticipated
to be $3.00 a/o December 30, the stock price remains at approximately $1.75,
has been at about that price for five years and will remain at that price for
the following reasons:
- The trading volume has always been, and will continue to be
extremely low;
- No firm has, or likely will have, a buy recommendation on the
stock;
- The only market for any significant amount of shares is members
of the Board who control the company through their majority
ownership and their position but only offer 60% of the book;
- The stock remains, and will continue to remain, on the bulletin
board;
- Earnings for 1999 will be about 30 cents per share for a return
on equity ("ROE") of about 12% when good homebuilders are
achieving +20% ROE and the industry average is 19%;
- Expenses have been and continue to be too high reflecting the
poor ROE; and
- There is a general apprehension that the bull market in
homebuilding may be coming to an end and that rates may be going
up.
Therefore, we believe that the only way for the stockholders to maximize
their value is to merge with another homebuilder or sell all the company
stock. The time to do this is NOW because:
- Management is very thin, the company has operated without a
president since Ron left and until Dan's recent appointment.
Geoie is 64, and has stated to me that that is too old to
continue to run the business. Dan, nor Rip, nor Dave, nor Darwin
is capable of running the company, nor would they have
credibility in the public market;
- If Geoie, Bob or you were to die, and the estate put the stock on
the market, it would have a severe negative impact, or the
company would be sold under less than favorable conditions;
- Recent sales have been slow and therefore the first two quarters
of next year will not be good;
- After the company's recent loss at arbitration, insurance will be
difficult and expensive to obtain;
- Participating loans with the Board members have been paid off;
- Land prices remain high and there exists a strong market for the
company's land positions;
<PAGE>
- Work in progress is primarily in Fort Collins and Castle Pines.
We believe, after visiting with a number of builders, both
projects could be completed, warranted and closed;
- Banks are anxious for loans so this deal can be financed;
- The labor market is very tight and therefore all the company
employees will quickly find jobs either in the new entity or
elsewhere in the industry; and
- It is highly unlikely that there will be any movement in the
stock price.
MERGE WITH ANOTHER HOMEBUILDER
If the company were to merge with another homebuilder, there could be
substantial cost saving and therefore increase the ROE to an acceptable
level. After talking to several local homebuilders, it is our belief that the
General and Administrative expenses could, at a minimum, be cut from last
year's $3,719,000 to less than $2,000,000. Sales and Marketing expenses could
be cut an additional $500,000. We believe that with the same sales volume,
net revenue could be doubled, bringing the ROE in line with what good
homebuilders are achieving.
The disadvantage to a merger is the fact that the acquiring company would not
likely offer cash but rather a tax-free exchange of stock. The second problem
is the price of the Writer stock. It is unlikely that the acquiring company
would offer an acceptable premium over the low current price of Writer.
SALE OF ALL THE COMPANY STOCK
This is the most favorable option open to the company for the following
reasons:
- All cash transaction,
- Capital gains treatment,
- Warranty issues remain with the company, and
- Transaction could be negotiated much quicker than a merger.
The sale of the company stock could be accomplished by either:
A. Taking the company private. The Board of Directors who now own
approximately 55% could further leverage the company's assets and buy
out the remaining 45% without a personal cash outlay. The debt to
equity ratio of the company would certainly allow for this kind of
leverage. This could be accomplished very quickly. An independent fair
market value opinion would have to be obtained and the tender offer
made.
The Board could then run the company as a private company.
The impediment to this type of transaction is the fact that the Board
has bought about 700,000 shares in the last year at about $1.88 and
those shareholders who sold in the last year may view these
transactions as a "creeping going private" transaction with subsequent
liability to the purchasing members of the Board. If the Board
determines they have no liability and wish to purchase all the stock,
this could be accomplished very quickly, assuming a fair price was
offered. If the offer was viewed as too low, other groups could put in
competitive proposals and throw the transaction into a turmoil.
B. Hire an investment banker to solicit offers. This method may assure
the highest price. The disadvantages to this method are:
<PAGE>
- The costs and fees involved,
- The time necessary to receive, review and negotiate the
proposals, and
- The disruption to the company and its employees during this
process.
C. Negotiate with a group (or groups) capable of closing the transaction.
This method would be quicker and cheaper than an RFP but may or may
not achieve the highest net price.
We have talked to real estate land brokers who sell ground to the
homebuilding industry, several homebuilders analyzed the company's various
land positions, and retained THK to review each parcel and the work in
progress to determine the true value of the company. I have enclosed
information and plats on the various Writer land positions, pictures of the
work in progress and an analysis of Castle Pines and Stetson Creek. I doubt
if the Board goes into this level of detail, but we found it most helpful and
necessary.
It is our intention to submit an offer for all of the company stock. Bob and
I felt it was best to meet before the offer was made public but he obviously
wanted to meet with Geoie first.
You and I have had four calls concerning Writer and on each call you have
been called away on another matter. I understand that. I, too, am extremely
busy. Therefore, if you want to discuss this important and complicated issue
by phone, please call to set up a time that is convenient for both of us and
completely clear your calendar, as will I, so that we will not be
interrupted. If you would be more comfortable coming to my office, I will
make time available. I look forward to hearing from you.
Sincerely,
COUGHLIN & COMPANY INC.
Dennis F. Coughlin
President
DFG:st
Enclosures
<PAGE>
THE WRITER CORPORATION BOARD OF DIRECTORS
George S. Writer, Chairman
The Writer Corporation
6061 South Willow Drive, Suite #232
Englewood, Colorado
(303) 779-4100
Roland Seidler, Jr.
The Seidler Companies
515 South Figueroa Street
Los Angeles, California 90071-3396
(213) 624-4232
Deane J. Writer, Jr.
H R H Insurance
455 Sherman, Suite #390
Denver, Colorado 80203
(303) 722-7776
Ronald S. Loser
Brega & Winters, P.C., Suite 2222
1700 Lincoln Street
Denver, Colorado 80203
(303) 866-9400
Louis P. Bansbach III
Columbine Realty, Inc.
650 South Cherry Street, Suite 1005
Glendale, Colorado 80246
(303) 320-6778
Robert G. Tointon
Phelps-Tointon, Inc.
822 7th Street, Suite 700
Greeley, Colorado 80631
(970) 353-7000
William J. Gillilan III
305 Royal Tiger Road
Breckenridge, Colorado 80424
(970) 547-0501
