SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act)
Concord Fabrics Inc.
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(Name of Issuer)
Alvin Weinstein
Joan Weinstein
David Weinstein
Peter Weinstein
Jonathan Weinstein
Earl Kramer
Concord Merger Corp.
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(Name of Person(s) Filing Statement)
Class A Common Stock, $.50 per share
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Class B Common Stock, $.50 per share
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(Title of Class of Securities)
Class A Common Stock: 206219206
Class B Common Stock: 206219305
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(CUSIP Number of Class of Securities)
Peter A. Eisenberg, Esq.
Bryan Cave LLP
245 Park Avenue
New York, New York 10167
(212) 692-1800
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and
Communication on Behalf of Person(s) Filing Statement)
<PAGE>
This statement is filed in connection with (check the appropriate
box):
a. The filing of solicitation materials or in information statement
subject to Regulation 14A, Regulation 14C, or Rule 13E-3(c) under the Securities
Exchange Act of 1934.
b. The filing of registration statement under the Securities Act of 1933.
c. A tender offer.
d. None of the above. |X|
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies:
Calculation of Filing Fee
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10,495,146.38 2,099.03
Transaction Valuation 1/ Amount of Filing Fee
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Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount previously paid: 2,099.03 Filing party: Concord Merger Corp.
Form or registration no.: 14D-1 Date filed: August 4, 1999
This Schedule 13E-3 (the "Statement") relates to the offer by Concord
Merger Corp., a Delaware corporation ("Purchaser"), to purchase all of the
outstanding shares of Class A Common Stock, par value $.50 per share, and Class
B Common Stock, par value $.50 per share of Concord Fabrics Inc., a Delaware
corporation (the "Company") not owned by the Purchaser on July 29, 1999 at a
price of $7.875 per share, net to the seller in cash, upon the terms and subject
to the conditions set forth in Purchaser's Offer to Purchase dated August 5,
1999 (the "Offer to Purchase") and in the related Letter of Transmittal (which
together constitute the "Offer"), copies of which are attached hereto as
Exhibits (a)(1) and (a)(2), respectively.
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) The name of the subject company is Concord Fabrics Inc., a Delaware
corporation (the "Company"). The address of the Company's principal executive
offices is 1359 Broadway,
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1/ The Company has 3,614,215 shares outstanding. 2,281,498 shares are owned
by the purchaser. Therefore, the fee is based on 1,332,717 multiplied by
the merger price of $7.875 per share.
2
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New York, NY 10018.
(b) This transaction relates to a tender offer to purchase all outstanding
shares of Class A Common Stock, par value $.50 per share and Class B Common
Stock, par value $.50 per share, of the Company. As of July 29, 1999, there were
2,169,869 shares of Class A Common Stock outstanding and approximately 210
holders of record of Class A Common Stock and 1,444,401 shares of Class B Common
Stock and approximately 200 holders of record of Class B Common Stock.
(c) The information concerning the principal market in which the Shares
are traded and certain high and low sales prices for the Shares in such
principal market set forth in "The Tender Offer - 5. Price Range of Shares;
Dividends" of the Offer to Purchase is incorporated herein by reference.
(d) The information regarding the Company's dividend history and
restrictions is contained in "The Tender Offer - 5. Price Range of Shares;
Dividends" of the Offer to Purchase, which is incorporated herein by reference.
(e) The Company has not made an underwritten public offering for cash in
the last 3 years.
(f) The Company has not purchased any of its shares since the commencement
of its second full fiscal year preceding the date hereof, other than as listed
in "The Tender Offer - 7. Certain Information Concerning Purchaser" of the Offer
to Purchase, which is incorporated herein by reference.
Item 2. Identity and Background.
(a)-(d) and (g) This Statement is filed by Purchaser, as well as Alvin
Weinstein, Joan Weinstein, David Weinstein, Peter Weinstein, Jonathan Weinstein
and Earl Kramer (the "Continuing Shareholders"). The information concerning the
name, state or other place of organization, principal business and address of
the principal office of Purchaser, and the information concerning the name,
business address, present principal occupation or employment and the name,
principal business and address of any corporation or other organization in which
such employment or occupation is conducted, material occupations, positions,
offices or employments during the last five years and citizenship of each of the
executive officers and directors of Purchaser are set forth in the
"Introduction", "The Tender Offer - 7. Certain Information Concerning Purchaser"
and Schedule II of the Offer to Purchase and are incorporated herein by
reference.
Jonathan Weinstein is a citizen of the United States. His address is 2217
11th Avenue East, Seattle, Washington 98102. He is Marketing Manager of
E-Commence for Microsoft Corporation. Peter Weinstein resides at 2339 Stone
Road, Ann Arbor, Michigan 48105. He recently successfully defended a
dissertation in software architecture from the University of
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Michigan.
(e) and (f) During the last five years, neither Purchaser nor to the best
knowledge of Purchaser, none of the Continuing Shareholders has been (i)
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws.
Item 3. Past Contacts, Transactions or Negotiations.
(a) The information set forth in "The Tender Offer - 7. Certain
Information Concerning Purchaser", "Special Factors - 1. Background of the
Offer; Contacts with the Company" and "Special Factors - 2. The Offer and
Merger; Merger Agreement" of the Offer to Purchase is incorporated herein by
reference.
(b) The information set forth in the Introduction, "The Tender Offer
- - 6. Certain Information Concerning the Company", "The Tender Offer - 7. Certain
Information Concerning Purchaser", "Special Factors - 1. Background of the
Offer; Contacts with the Company", "Special Factors - 2. The Offer and Merger;
Merger Agreement", and "Special Factors - 3. Purpose of the Offer and the
Merger; Plans for the Company" of the Offer to Purchase is incorporated herein
by reference.
Item 4. Terms of the Transaction.
(a) The information contained in "The Tender Offer - 1. Terms of the
Offer", "Special Factors - 2. The Offer and Merger; Merger Agreement", "Special
Factors - 3. Purpose of the Offer and the Merger; Plans for the Company", and
"The Tender Offer - 9. Conditions to the Offer" of the Offer to Purchase is
incorporated herein by reference.
(b) The terms of the 13E-3 transaction are the same for all shareholders
of the Company other than Purchaser.
Item 5. Plan or Proposals of the Issuer of Affiliate.
(a)-(e) The information set forth in the "Introduction", "Special
Factors - 1. Background of the Offer; Contacts with the Company", "Special
Factors - 2. The Offer and Merger; Merger Agreement", and "Special Factors - 3.
Purpose of the Offer; Plans for the Company" of the Offer to Purchase is
incorporated herein by reference.
(f) and (g) The information set forth in "Special Factors - 4.
Effect of the Offer on the Market for Shares, Exchange Act Listing, Exchange Act
Registration; Margin
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Regulations" of the Offer to Purchase is incorporated herein by reference.
Item 6. Source and Amounts of Funds or Other Consideration.
The information set forth in "The Tender Offer - 8. Sources and
Amounts of Funds" and "The Tender Offer - 11. Fees and Expenses" of the Offer to
Purchase is incorporated herein by reference.
Item 7. Purposes, Alternatives, Reasons and Effects.
The information set forth in the "Introduction", "Special Factors - 5.
Material Federal Tax Considerations", "Special Factors - 1. Background of the
Offer; Contacts with the Company", "Special Factors - 2. The Offer and Merger;
Merger Agreement", "Special Factors - 3. Purpose of the Offer and the Merger;
Plans for the Company", and "Special Factors - 4. Effect of the Offer on the
Market for the Shares; Exchange Act Listing; Exchange Act Registration; Margin
Regulations" of the Offer to Purchase is incorporated herein by reference.
Item 8. Fairness of the Transaction.
(a) Purchaser and the Continuing Shareholders reasonably believe that the
Rule 13e-3 transaction is fair to unaffiliated shareholders.
(b) The information set forth in "Special Factors - 1. Background of the
Offer; Contacts with the Company" of the Offer to Purchase is incorporated
herein by reference. Purchaser and the Continuing Shareholders place significant
weight on the opinion of the Special Committee and the report of Peter J.
Solomon, which are attached as exhibits hereto.
(c) The transaction is structured to require the approval of a majority of
the unaffiliated shareholders.
(d) A majority of the independent directors who are not employees of the
issuer have retained an unaffiliated representative for the purposes of
preparing a report concerning the fairness of such transaction. The information
set forth in "Special Factors -1. Background of the Offer, Contacts with the
Company" of the Offer to Purchase is incorporated herein by reference.
(e) The Rule 13e-3 transaction was approved by a majority of the
independent directors.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a), (b) The information set forth in the Introduction and "Special
Factors - 1.
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Background, and Schedule I of the Offer to Purchase is incorporated herein
by reference.
(c) Any report referred to in Item 9(a) shall be made available for
inspection or copying at the principal executive office of the Company during
its regular business hours by any interested equity security holder of the
Company or his or her representative who has been so designated in writing.
Item 10. Interest in the Securities of the Issuer.
(a) The information set forth in the Introduction and "The Tender Offer -
7. Certain Information Concerning Purchaser" of the Offer to Purchase is
incorporated herein by reference. Purchaser owns 1,168,699 shares of Class A
Common Stock, constituting 53.9% of that class, and 1,112,799 constituting 77.0%
of that class. Purchaser owns a total of 63.1% of the total outstanding stock of
the Company.
(b) No transaction in the class of equity securities of the Company was
effected during the past 60 days by the Company or by any person named in
response to Item 10(a) other than the contribution of shares to Purchaser
described in the "Introduction" and "The Tender Offer - 7. Certain Information
Concerning Purchaser."
Item 11. Contracts, Arrangements or Understandings with Respect to the Issuer's
Securities.
The information set forth in the "Introduction", "The Tender Offer - 7.
Certain Information Concerning Purchaser", "Special Factors - 1. Background of
the Offer; Contacts with the Company"; and "Special Factors - 2. The Offer and
Merger; Merger Agreement" and "Special Factors - 3. Purpose of the Offer; Plans
for the Company" of the Offer to Purchase is incorporated herein by reference.
Item 12. Present Intention and Recommendation of Certain Persons with Regard to
the Transaction.
(a) The information set forth in the Introduction, "The Tender Offer - 7.
Certain Information Concerning Purchaser" is incorporated herein by reference.
(b) The information set forth in the Introduction, "Special Factors - 1.
Background of the Offer; Contacts with the Company" of the Offer to Purchase is
incorporated herein by reference.
Item 13. Other Provisions of the Transaction
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(a) The information set forth in "Special Factors -2. The Offer and
merger; Merger Agreement" and "Special Factors - 3. Purpose of the Offer and the
Merger; Plans for the Company" of the Offer to Purchase is incorporated herein
by reference.
(b) Not applicable.
(c) Not applicable.
Item 14. Financial Information.
The information set forth in "The Tender Offer - 6. Certain Information
Concerning the Company" and "The Tender Offer - 7. Certain Information
Concerning Purchaser" of the Offer to Purchase, the Company's Annual Report on
form 10-K for the year ended August 30, 1998, the Company's Quarterly Reports on
Form 10-Q for the quarters ended November 29, 1999, February 28, 1999 and May
30, 1999, are incorporated herein by reference.
Item 15. Persons and Assets Employed, Retained or Utilized.
The information set forth in "The Tender Offer - 6. Certain Information
concerning the Company", "The Tender Offer - 7. Certain Information Concerning
the Purchaser", "Special Factors - 1. Background of the Offer; Contacts with the
Company", "Special Factors - 3. Purpose of the Offer and the Merger; Plans for
the Company", and "The Tender Offer - 11. Fees and Expenses" of the Offer to
Purchase is incorporated herein by reference.
Item 16. Additional Information.
The information set forth in the Offer to Purchase is incorporated herein
by reference.
Item 17. Material to be Filed as Exhibits.
(a) (1) Form of Offer to Purchase for Cash All Outstanding Shares of Class
A and Class B Common Stock of Concord Fabric Inc., at $7.875 net per share by
Concord Merger Corp., dated August 4, 1999.
(a) (2) Form of Letter of Transmittal, dated August 4, 1999.
(a) (3) Form of Commitment Letter from the Chase Manhattan Bank to Alvin
Weinstein, Joan Weinstein and David Weinstein, dated August 3, 1999.
(a) (4) Form of Report of Peter J. Solomon Company Limited, dated July 29,
1999.
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(a) (5) Form of Shareholders' Agreement, dated July 29, 1999, among Alvin
Weinstein, Joan Weinstein, David Weinstein, Peter Weinstein, Jonathan Weinstein
and Earl Kramer.
(a) (6) Form of Opinion of the Special Committee, dated July 29, 1999.
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Signature
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
August 4, 1999
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(Date)
/s/ Earl Kramer
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(Signature)
President
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(Name and Title)
/s/ Alvin Weinstein
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Alvin Weinstein
/s/ Joan Weinstein
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Joan Weinstein
/s/ David Weinstein
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David Weinstein
/s/ Peter Weinstein
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Peter Weinstein
/s/ Jonathan Weinstein
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Jonathan Weinstein
/s/ Earl Kramer
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Earl Kramer
9
Offer to Purchase for Cash All Outstanding Shares of
Class A and Class B Common Stock
of
CONCORD FABRICS INC.
at
$7.875 NET PER SHARE
by
CONCORD MERGER CORP.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON AUGUST 31, 1999, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST A
NUMBER OF SHARES OF CONCORD FABRICS INC. (THE "COMPANY") THAT SHALL CONSTITUTE A
MAJORITY OF EACH CLASS OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS NOT
THEN OWNED BY CONCORD MERGER CORP. ("PURCHASER"), BENEFICIALLY AND OF RECORD
(THE "MINIMUM CONDITION"); (2) PURCHASER HAVING OBTAINED SUFFICIENT FINANCING TO
ENABLE IT TO PURCHASE THE SHARES TO BE PURCHASED BY IT AND TO PAY THE FEES AND
EXPENSES OF THE OFFER; AND (3) CERTAIN OTHER CONDITIONS, ANY OF WHICH CONDITIONS
MAY BE WAIVED BY THE PURCHASER EXCEPT THAT THE MINIMUM CONDITION MAY ONLY BE
WAIVED BY PURCHASER WITH THE PRIOR APPROVAL OF THE COMPANY. SEE "INTRODUCTION"
AND THE "THE TENDER OFFER - 9. CONDITIONS TO THE OFFER."
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IMPORTANT
Any stockholder desiring to tender all or any portion of his shares of
Class A Common Stock, par value $.50 per share (the "Class A Shares"), or Class
B Common Stock, par value $.50 per share (the "Class B Shares" and collectively
with the Class A Shares, the "Shares"), of Concord Fabrics Inc. should either
(1) complete and sign the Letter of Transmittal (or a facsimile thereof) in
accordance with the instructions in the Letter of Transmittal and mail or
deliver it together with the certificate(s) evidencing tendered Shares, and any
other required documents, to the Depositary (as defined herein) or tender such
Shares pursuant to the procedure for book-entry transfer set forth in "The
Tender Offer - 3. Procedures for Accepting the Offer and Tendering Shares," or
(2) request his broker, dealer, commercial bank, trust company or other nominee
to effect the transaction for him. Any stockholder whose Shares are registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
must contact such broker, dealer, commercial bank, trust company or other
nominee if he desires to tender such Shares.
A stockholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available, or who cannot comply with
the procedure for book-entry transfer on a timely basis, may tender such Shares
by following the procedure for guaranteed delivery set forth in "The Tender
Offer - 3. Procedures for Accepting the Offer and Tendering Shares."
Questions or requests for assistance may be directed to the Information
Agent or to the Dealer Manager at their respective addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Additional copies
of this Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery may also be obtained from the Information Agent or from
brokers, dealers, commercial banks or trust companies.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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The Dealer Manager for the Offer is:
FIRST UNION CAPITAL MARKETS CORP.
August 4, 1999
<PAGE>
TABLE OF CONTENTS
Page
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INTRODUCTION 1
SPECIAL FACTORS 5
1. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY 5
2. THE OFFER AND MERGER; MERGER AGREEMENT 18
3. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY 24
4. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; EXCHANGE ACT
LISTING; EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS 27
5. MATERIAL FEDERAL INCOME TAX CONSIDERATIONS 28
THE TENDER OFFER 29
1. TERMS OF THE OFFER 30
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES 32
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES 33
4. WITHDRAWAL RIGHTS 36
5. PRICE RANGE OF SHARES; DIVIDENDS 37
6. CERTAIN INFORMATION CONCERNING THE COMPANY 38
7. CERTAIN INFORMATION CONCERNING PURCHASER 43
8. SOURCES AND AMOUNTS OF FUNDS 46
9. CONDITIONS TO THE OFFER 48
10. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS 50
11. FEES AND EXPENSES 51
12. MISCELLANEOUS 52
SCHEDULE I - OPINION OF PETER J. SOLOMON COMPANY LIMITED I-1
SCHEDULE II - DIRECTORS AND EXECUTIVE OFFICERS OF
PURCHASER II-1
SCHEDULE III - TEXT OF SECTION 262 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE III-1
SCHEDULE IV - CERTAIN FINANCIAL STATEMENTS OF THE COMPANY IV-1
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To the Holders of Common Stock of Concord Fabrics Inc.:
INTRODUCTION
Concord Merger Corp., a Delaware corporation ("Purchaser"), hereby offers
to purchase all outstanding shares of Class A Common Stock, par value $.50 per
share (the "Class A Shares"), and Class B Common Stock, par value $.50 per share
(the "Class B Shares" and together with the Class A Shares, the "Company Common
Stock" or the "Shares"), of Concord Fabrics Inc., a Delaware corporation (the
"Company"), at $7.875 per Share, net to the seller in cash (the "Offer Price"),
upon the terms and subject to the conditions set forth in this Offer to Purchase
and in the related Letter of Transmittal (which, as amended or supplemented from
time to time, together constitute the "Offer").
Purchaser was organized in July 1999 by Alvin Weinstein, Chairman of the
Board of the Company, Joan Weinstein, Secretary of the Company and wife of Alvin
Weinstein, David Weinstein, President of the Company's Concord House Division
and son of Alvin and Joan Weinstein, Jonathan Weinstein, son of Alvin and Joan
Weinstein, Peter Weinstein, son of Alvin and Joan Weinstein, and Earl Kramer,
President of the Company (collectively, the "Continuing Shareholders"). Alvin
and Joan Weinstein collectively own approximately 76% of Purchaser, David,
Jonathan and Peter Weinstein each own approximately 7% of Purchaser and Earl
Kramer owns approximately 3% of Purchaser. Approximately 55% of the shares of
the capital stock of Purchaser owned by Jonathan and Peter Weinstein carry no
voting rights; all other outstanding shares of capital stock of Purchaser carry
full voting rights. On July 29, 1999, Alvin Weinstein contributed the 1,619,770
Shares owned by him to Purchaser, Joan Weinstein contributed the 120,000 Shares
owned by her to Purchaser, David, Jonathan and Peter Weinstein each contributed
the 154,576 Shares owned by each of them to Purchaser and Earl Kramer
contributed the 78,000 Shares owned by him to Purchaser (collectively, the
"Continuing Shareholder Shares"). See "Special Factors - 1. Background of the
Offer; Contacts with the Company," "The Tender Offer - 7. Certain Information
Concerning the Company."
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of July 29, 1999 and amended August 3, 1999 (as amended, the "Merger
Agreement"), by and between Purchaser and the Company. The Merger Agreement
provides, among other things, that as promptly as practicable following the
completion of the Offer and the satisfaction or waiver of certain conditions,
including the purchase of Shares pursuant to the Offer (sometimes referred to
herein as the "consummation" of the Offer) and the approval and adoption of the
Merger Agreement by the stockholders of the Company, if required by applicable
law, Purchaser will be merged with and into the Company (the "Merger"), with the
Company as the surviving corporation (the "Surviving Corporation"). In the
Merger, each issued and outstanding Share (other than Dissenting Shares (as
hereinafter defined)) not owned by Purchaser or the Company will be converted
into and represent the right to receive $7.875 in cash or any higher price that
may be paid per Share in the Offer, without interest. See "Special Factors - 2.
The Offer and Merger; Merger Agreement."
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING
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VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE AT LEAST A
NUMBER OF SHARES THAT SHALL CONSTITUTE A MAJORITY OF THE TOTAL NUMBER OF EACH
CLASS OF SHARES OUTSTANDING ON A FULLY DILUTED BASIS NOT THEN OWNED BENEFICIALLY
AND OF RECORD BY PURCHASER (THE "MINIMUM CONDITION"). THE OFFER IS ALSO
CONDITIONED UPON, AMONG OTHER THINGS, PURCHASER HAVING OBTAINED SUFFICIENT
FINANCING TO ENABLE IT TO PURCHASE THE SHARES TO BE PURCHASED BY IT AND TO PAY
THE FEES AND EXPENSES OF THE OFFER AND THE MERGER AND IS SUBJECT TO THE OTHER
TERMS AND CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. ALL CONDITIONS MAY BE
WAIVED BY THE PURCHASER EXCEPT THAT THE MINIMUM CONDITION MAY ONLY BE WAIVED BY
PUCHASER WITH THE PRIOR APPROVAL OF THE COMPANY. SEE "THE TENDER OFFER - 9.
CONDITIONS TO THE OFFER" WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER.
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger Agreement
by the requisite vote of the stockholders of the Company. See "The Tender Offer
- - 9. Conditions to the Offer." Under the Company's Certificate of Incorporation
and the Delaware General Corporation Law ("Delaware Law"), the affirmative vote
of the holders of a majority of the outstanding Class A Shares and the
affirmative vote of the holders of a majority of the Class B Shares is required
to approve and adopt the Merger Agreement and the Merger. Consequently, since
Purchaser currently owns 1,168,699 Class A Shares and 1,112,799 Class B Shares
(consisting entirely of the Continuing Shareholder Shares contributed to it)
representing, respectively, approximately 54% of the currently issued and
outstanding Class A Shares and approximately 77% of the currently issued and
outstanding Class B Shares, Purchaser has sufficient voting power to approve and
adopt the Merger Agreement and the Merger without the vote of any other
stockholder. Purchaser has agreed in the Merger Agreement that if there are not
tendered and purchased pursuant to the Offer a sufficient number of Shares to
satisfy the Minimum Condition and Purchaser waives such condition with the
consent of the Company, Purchaser will vote its Shares in favor of the Merger.
Under Delaware Law, if Purchaser acquires, pursuant to the Offer or
otherwise, at least 90% of the then outstanding Class A Shares and at least 90%
of the then outstanding Class B Shares, the Company and Purchaser will be able
to approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger, without a vote of the Company's stockholders. In
such event, Purchaser and the Company have agreed to take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders. If, however, Purchaser does not acquire at least 90% of the then
outstanding Class A Shares and at least 90% of the then outstanding Class B
Shares pursuant to the Offer, or otherwise, and a vote of the Company's
stockholders is required under Delaware Law, a significantly longer period of
time will be required to effect the Merger. See "Special Factors - 3. Purpose of
the Offer and the Merger; Plans for the Company."
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As of July 30, 1999, there were outstanding 2,169,814 Class A Shares held
by approximately 210 holders of record, of which Purchaser owned 1,168,699
shares, or approximately 54 % and there were outstanding 1,444,401 Class B
Shares held by approximately 200 holders of record, of which Purchaser owned
1,112,799 shares, or approximately 77%. Accordingly, of the total 3,614,215
Shares outstanding, Purchaser owns 2,281,498 shares or approximately 63%. As of
July 30, 1999, options to purchase a total of 325,000 Class A Shares under the
Company's option plan (whether or not vested) were outstanding. As a result, as
of such date, the Minimum Condition would be satisfied if Purchaser acquired
663,058 Class A Shares and 165,802 Class B Shares. Further, if more than
1,193,503 Class A Shares and more than 298,441 Class B Shares are tendered and
purchased pursuant to the Offer, Purchaser would own 90% or more of each class
of the Shares and could consummate the Merger without a vote of the Company's
stockholders. See "Special Factors - 3. Purpose of the Offer and the Merger;
Plans for the Company."
A SPECIAL COMMITTEE OF TWO OF THE COMPANY'S DIRECTORS INDEPENDENT OF
PURCHASER AND MANAGEMENT OF THE COMPANY (THE "SPECIAL COMMITTEE") UNANIMOUSLY
RECOMMENDED TO THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD" OR "BOARD OF
DIRECTORS") THAT THE COMPANY ENTER INTO THE MERGER AGREEMENT AND THAT THE BOARD
APPROVE THE OFFER. THE COMPANY'S ENTIRE BOARD ALSO REVIEWED THE OFFER AND, AFTER
RECEIPT OF THE RECOMMENDATION OF THE SPECIAL COMMITTEE, CONCLUDED THAT THE OFFER
IS ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY AND THE STOCKHOLDERS OF
THE COMPANY OTHER THAN PURCHASER OR ITS AFFILIATES (THE "PUBLIC STOCKHOLDERS").
ACCORDINGLY, THE BOARD UNANIMOUSLY HAS APPROVED THE MERGER AGREEMENT, THE OFFER
AND THE MERGER AND DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE AND
FAIR TO AND IN THE BEST INTERESTS OF THE PUBLIC STOCKHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR
SHARES. SEE " - RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS" AND "SPECIAL
FACTORS - 1. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY."
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares by
Purchaser pursuant to the Offer. Purchaser will pay all charges and expenses of
First Union Capital Markets Corp., which is acting as the Dealer Manager (in
such capacity, the "Dealer Manager"), The ChaseMellon Shareholder Services, LLC
(the "Depositary"), and American Stock Transfer & Trust Company (the
"Information Agent"), incurred in connection with the Offer in accordance with
the terms of agreements entered into between Purchaser and such persons. See
"The Tender Offer - 11. Fees and Expenses."
The purpose of the Offer is to enable the Continuing Shareholders, through
Purchaser, to acquire any and all outstanding Shares and to facilitate the
Merger. On July 28, 1999, the closing market price of the Company's Class A
Shares was $5.625 per Share and the closing market
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price of the Company's Class B Shares was $5.625 on July 27, 1999, the last full
trading day for the Class B Shares prior to announcement of the terms of the
Merger Agreement. Accordingly, the Offer provides an opportunity to existing
stockholders of the Company to sell Shares at a significant premium over recent
trading prices. See "The Tender Offer - 5. Price Range of Shares; Dividends."
THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY,
CONSENT OR AUTHORIZATION FOR OR WITH RESPECT TO AN ANNUAL MEETING OR ANY SPECIAL
MEETING OF THE COMPANY'S STOCKHOLDERS OR ANY ACTION IN LIEU THEREOF. ANY SUCH
SOLICITATION, IF REQUIRED, WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY
MATERIALS IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
Information concerning the Company contained herein has been provided by
the Company unless otherwise stated.
Except for the waiver of the Minimum Condition which requires the prior
approval of the Company, Purchaser expressly reserves the right to waive any one
or more conditions to the Offer. See "Special Factors - 2. The Offer and Merger;
Merger Agreement," and "The Tender Offer - 9. Conditions to the Offer."
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION AND SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
The Special Committee unanimously recommended to the Company's Board of
Directors that the Company enter into the Merger Agreement and that the Board
approve the Offer. The Company's entire Board also reviewed the Offer and the
Merger Agreement and, after receipt of the recommendation of the Special
Committee, concluded that the Offer and the Merger is advisable and in the best
interests of the Company and the Public Stockholders. Accordingly, the Board
unanimously has (1) determined that the Merger Agreement is advisable and fair
to and in the best interests of the Public Stockholders, (2) approved and
adopted the Merger Agreement, including the Merger and the Offer, and recommends
that stockholders of the Company accept the Offer, tender their Shares to
Purchaser and, if required by applicable law, approve and adopt the Merger
Agreement and the Merger. The Offer is being effected to acquire any and all
outstanding Shares and to facilitate the Merger. The Offer allows stockholders
to receive cash at a premium over recent trading prices for the Company's
Shares. See "The Tender Offer - 5. Price Range of Shares; Dividends," and
"Special Factors - 1. Background of the Offer; Contacts with the Company."
Peter J. Solomon Company Limited ("Peter J. Solomon"), the financial
advisor retained by the Company to act as financial advisor to the Special
Committee, has delivered to the Special Committee its written opinion dated July
29, 1999, to the effect that, as of such date and based
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upon and subject to certain matters stated in such opinion, the cash
consideration to be received by the Public Stockholders in the Offer and the
Merger is fair to such holders from a financial point of view. A copy of the
full text of the opinion of Peter J. Solomon, dated July 29, 1999, which sets
forth, among other things, the opinion expressed, assumptions made, procedures
followed, matters considered and limitations of review undertaken in connection
with such opinion, is attached as Schedule I hereto and should be read carefully
in its entirety.
SPECIAL FACTORS
1. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY
Background. Alvin Weinstein, Chairman of the Board of Directors, and his
wife own approximately 48%, and together with three of their sons, approximately
61% of the aggregate number of outstanding shares of Class A Common Stock and
Class B Common Stock of the Company. Through ownership of approximately 58% of
the Class B Common Stock he is able to elect a majority of the Board of
Directors of the Company. In the second half of 1998 Mr. Weinstein began a
review of the Company's prospects in the light of its position in the United
States textile industry, the difficulties facing the Company in the markets it
serves, management succession issues facing the Company, the historical trading
prices of the Company's common stock on the American Stock Exchange, the thin
trading market for the Company's common stock and his own liquidity and estate
planning needs. In late 1998, Mr. Weinstein decided that the Company might
benefit from the assistance of professional financial advisors in an assessment
of the future direction of the Company and various strategies that might enhance
shareholder value. To that end, he instructed Bryan Cave LLP ("Bryan Cave"),
counsel to the Company, to obtain a confidentiality agreement from Bowles
Hollowell Conner ("BHC"), a division of First Union Capital Markets Corp. That
confidentiality agreement was signed on December 4, 1998. Thereafter, BHC was
given a broad outline of the issues facing the Company and asked to review
publicly available information in preparation for a meeting with Mr. Weinstein.
During his initial meeting with BHC, it was suggested that his interests and the
interests of the minority stockholders might be satisfied by a going private
transaction. On February 22, Alvin Weinstein held a teleconference with a BHC
representative and a partner of Bryan Cave counsel to the Company. Mr. Weinstein
outlined some of the factors that had led him to the assessment he was
undertaking. They included the possible future of the Company's two divisions,
particularly the difficulties facing the Concord House Division; the Company's
financial position; and, his disappointment with the values historically
ascribed to the Company's common stock by the stock markets. At the conclusion
of the teleconference, it was agreed that BHC would be furnished with additional
data in order to facilitate its assessment of strategic options.
At the suggestion of Alvin Weinstein, on March 4, 1999, a teleconference
was held among representatives of BHC, Bryan Cave, Arthur Andersen LLP,
accountants to the Company ("Arthur Andersen"), and David Weinstein, President
of the Company's Concord House Division and son of Alvin Weinstein, to discuss
tax and other implications of various strategic alternatives that might be
available to the Company. The alternatives discussed included (i) a going
private transaction that would result in the Company being wholly owned by Alvin
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Weinstein, members of his family and certain members of management (the
"Continuing Shareholders"), (ii) a sale of the Company's Knit Division followed
by payment of a partial liquidating dividend with the proceeds, (iii) a sale of
the Company's Concord House Division to its management, (iv) a split up of the
Company, followed by a sale of one or more of the resulting businesses, and (v)
a sale of the entire Company.
Over the next two weeks, Alvin Weinstein, Joan Weinstein, Secretary of the
Company and wife of Alvin Weinstein, and David Weinstein met with the Company's
and their personal advisors to consider legal, accounting, financial, tax, and
estate planning aspects of the alternatives outlined above. On March 22, 1999,
Alvin Weinstein informed the other executive officers of the Company that he had
begun to explore strategic alternatives for the Company and discussed the
alternatives that had been identified through his informal preliminary
discussions with legal, accounting, and financial advisors. He indicated that
because of his concerns about the viability of the Concord House Division,
management succession issues facing the Knit Division, and his own personal
financial requirements, he expected to propose a going private transaction.
On March 30, 1999, at a regular meeting of the Board, Alvin Weinstein
informed the entire Board that he had had informal preliminary meetings with
representatives of Bryan Cave, Arthur Andersen and BHC, in order to ascertain
what strategic alternatives might be open to the Company in order to enhance
shareholder value both near and long term, taking into account the interests of
the Continuing Shareholders and the Public Stockholders. Mr. Weinstein told the
Board that among the strategic alternatives that had been presented by the
advisors were a sale of the entire business, a sale of one or more of the
Company's divisions and a going private transaction. He informed the Board that
the he would not consider a sale of the entire business of the Company and that
his tentative conclusion was that the alternative most likely to provide the
Public Stockholders with a valuation better than that which they currently
enjoyed and satisfy the long term needs of the Continuing Shareholders would be
a going private transaction; provided, that a number of conditions could be
satisfied. The principal conditions would be the determination of a fair going
private price for the Public Stockholders acceptable to both the Public
Stockholders and the Continuing Shareholders and, the financeablity of any going
private transaction. At the meeting, the Board authorized the engagement of a
professional financial advisor to assist management in determining an
appropriate price to offer to the Public Stockholders in a going private
transaction and advise with respect to dealings with the holders of the
Company's long term debt. In the discussion that followed, Mr. Weinstein stated
that he was not currently interested in a sale of the Company nor a sale of any
of the divisions. He noted particularly the difficulties with which the Concord
House Division had been dealing and stated that he expected it would take two to
three years before Concord House could expect to return to its former
profitability and that there was no assurance it would ever succeed in doing so,
particularly because of the adverse demographics affecting the Division's
traditional markets.
After Mr. Weinstein interviewed BHC and another investment banking firm,
on May 19, 1999, BHC was engaged by the Company to assist management in
determining an appropriate price to offer to the Public Stockholders in a going
private transaction and to advise with respect to dealings with the holders of
the Company's long term debt. On May 19, 1999, representatives
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of BHC met with Alvin Weinstein, Joan Weinstein, David Weinstein, Earl Kramer
and Martin Wolfson and representatives of Bryan Cave, and reviewed with them in
depth the Company's history, financial and otherwise, structure and future
prospects, all with a view to determining an appropriate price to be offered the
Company's Public Stockholders in a going private transaction. During that
meeting, BHC made a preliminary presentation summarizing its work to date. The
presentation discussed various approaches to valuation and included, among other
things, an analysis of comparable companies, a discounted cash flow analysis of
the Company, a leveraged going private analysis and a premiums paid analysis.
BHC noted that it had not identified from publicly available data information
for any transactions that in its opinion were sufficiently comparable to aid in
the valuation process. BHC informed the Company's management that based on the
information made available to them and their analysis of the information, as
well as their review and analysis of the Company's stock trading history,
historical and projected operating performance, and valuation methodologies
discussed above, they had reached a preliminary conclusion that $7.50 per Share
(of Class A and Class B Common Stock) would be an appropriate price to offer the
Public Stockholders in a going private transaction.
At a meeting of the Board on May 25, 1999, Alvin Weinstein informed the
Board that based upon the preliminary opinion of BHC, he proposed an offer of
$7.50 per Share for all shares of Common Stock held by Public Stockholders,
provided that the Special Committee agreed that the offered price was fair (the
"Initial Proposal"). Mr. Weinstein said that he had met with representatives of
Chase Manhattan Bank who had informally advised him that they, alone or together
with another bank, would provide the necessary financing to a corporation to be
formed by the Continuing Shareholders for the purpose of making the offer.
Thereafter, the Board established the Special Committee consisting of Fred
Heller and Richard Solar, both of whom are neither employees of, nor consultants
to, the Company, Purchaser, or the Continuing Shareholders and had no interest
in the proposed transaction other than as holders of non-employee director
Company Stock Options and, in one case, as a Public Stockholder. The Special
Committee was authorized to consider and take such action, if any, (including,
without limitation, negotiation and/or rejection) as the Special Committee may
consider appropriate with respect to a proposal by the Continuing Shareholders
to acquire all shares of common stock of the Corporation held by the Public
Stockholders at a purchase price of $7.50 per share. The Board also authorized
the Special Committee to retain, at the expense of the Company, legal counsel
and an independent investment banking firm to assist and advise it in its work
concerning the Initial Proposal. Before the meeting adjourned, representatives
of Bryan Cave reviewed with the members of the Board the duties and
responsibilities of the members of the Board and of the Special Committee in
connection with the Initial Proposal. They also reviewed the various legal forms
by which a going private transaction might be accomplished.
Following the meeting the Special Committee selected Proskauer Rose LLP
("Proskauer") as its legal counsel. The Special Committee made its determination
based on Proskauer's experience and expertise in matters such as those
contemplated in the Initial Proposal and its experience in advising other
special committees of boards of directors in similar transactions.
On June 1, 1999, Messrs. Heller and Solar, with the assistance of
Proskauer, interviewed
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four investment banking firms to act as the financial advisor to the Special
Committee. Following those interviews, the Special Committee selected Peter J.
Solomon Company Limited ("Peter J. Solomon") to act as its financial advisor
based on Peter J. Solomon's experience and expertise in matters such as those
contemplated in the Initial Proposal, its experience in advising other special
committees of boards of directors in similar transactions, its experience in the
industry, and the proposed terms of its engagement. During the following two
weeks, the Special Committee reviewed and negotiated the terms of an engagement
letter with Peter J. Solomon. On June 14, 1999, the Company entered into an
engagement letter with Peter J. Solomon, under which Peter J. Solomon was
retained by the Company to act as financial advisor to the Special Committee in
connection with the Initial Proposal and to render an opinion as to the
fairness, from a financial point of view, to the Public Stockholders of the
consideration to be paid to Public Stockholders under the Initial Proposal. See
" Presentation and Fairness Opinion of Peter J. Solomon."
On June 16, 1999, Peter J. Solomon met with management of the Company to
obtain information about the Company relevant to its analysis. The subjects
covered included, among other matters, the Company's divisions and their
historical performance, industry-wide issues, financial performance of the
Company, management's projections, and the Continuing Shareholders' desire not
to engage in any strategic transaction other than the Offer and the Merger.
Thereafter, Peter J. Solomon met with Martin Wolfson for further discussion of
the financial results of the Company and had numerous telephone conversations
with the Company's management.
On June 28, 1999, the Special Committee met with its financial and legal
advisors. Peter J. Solomon discussed the progress of its due diligence
activities and reviewed its preliminary financial analysis. Proskauer reviewed
with the Special Committee members their fiduciary duties with respect to the
Offer and the Merger. The Special Committee was advised that its purpose, among
others, was to negotiate at arms' length with the Continuing Shareholders in
order to protect the interests of the Public Stockholders. The Special Committee
was further advised that it was under no obligation to reach any agreement with
the Continuing Shareholders, unless the Special Committee determined that such
agreement was in the best interests of the Public Stockholders. Following the
meeting, at the Special Committee's direction, Peter J. Solomon conveyed to BHC
the Special Committee's view that the price of $7.50 per Share was not
satisfactory.
On July 9, 1999, management of the Company delivered revised projections
to Peter J. Solomon. On July 13, 1999, at the request of Peter J. Solomon,
representatives of BHC, Peter J. Solomon, Proskauer and Bryan Cave, and all
members of the Company's Board other than Mr. Gleitman, including the members of
the Special Committee, met to discuss the changes made to the projections. At
the meeting management of the Company explained that the revised projections
reflected a recent industry-wide price increase of polyester by the fiber's
largest global suppliers. The pricing announcements affected the projected
profitability of the Company's Knit Division, and were made public by the
polyester suppliers at the end of June 1999. Notwithstanding the projected lower
profitability, the Continuing Shareholders stated their intention not to reduce
the offered price of $7.50 per Share. At the request of Peter J. Solomon,
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BHC generally discussed the valuation methodologies it employed in its analysis
of the Company. The Special Committee, after caucusing with Peter J. Solomon,
advised the meeting that, despite the projected lower profitability, it
continued to believe that $7.50 was not satisfactory. The parties then concluded
the meeting having determined that the discussions were at an impasse.
On July 15, 1999, BHC communicated to Peter J. Solomon the Continuing
Shareholders' willingness to offer a price of $7.75 per Share. Following
consultation with the members of the Special Committee, Peter J. Solomon spoke
with BHC by phone to indicate that the offer of $7.75 was not satisfactory to
the Special Committee.
On July 19, 1999, Alvin Weinstein spoke with Richard Solar by telephone,
indicating a willingness to offer $7.875 per Share and stating that this was his
best and final offer. The Special Committee convened later that day and reviewed
the $7.875 per Share offer with its financial and legal advisors. The Committee
concluded that, subject to the completion of Peter J. Solomon's financial
analysis, the price of $7.875 would be satisfactory and communicated its view to
Mr. Weinstein.
On July 20, 1999, Morrison Cohen Singer & Weinstein, LLP was retained to
represent Purchaser and the Continuing Shareholders in connection with the
negotiation of the proposed Merger Agreement. During the ensuing week, Proskauer
offered comments on the proposed Merger Agreement on behalf of the Special
Committee.
On July 26, 1999, the Special Committee met with Peter J. Solomon and
Proskauer to review Peter J. Solomon's financial analysis and Proskauer's
evaluation of the proposed merger agreement. Peter J. Solomon indicated the
conditions that needed to be satisfied in order for it to be able to conclude
that the price of $7.875 per Share was fair to the Public Stockholders from a
financial point of view. These included the receipt of representations from the
Company and the Continuing Shareholders.
On July 29, 1999, the Special Committee met with Peter J. Solomon and
Proskauer to review Peter J. Solomon's updated financial analysis and
Proskauer's review of changes in the draft merger agreement. At the conclusion
of the meeting, Peter J. Solomon advised the Committee that, in its opinion, the
price of $7.875 per Share was fair to the Public Stockholders from a financial
point of view. Thereafter, the Special Committee unanimously (i) determined that
$7.875 is a fair price, and that the Merger Agreement and the transactions
contemplated thereby are fair to the Public Stockholders, and (ii) resolved that
on the basis of the foregoing and the opinion of Peter J. Solomon, to recommend
to the Board of Directors of the Company that it approve and authorize the
Offer, the Merger and the Merger Agreement. Immediately following the conclusion
of the Special Committee meeting, the Company's Board of Directors met. The
Special Committee reviewed for the Board the steps it had taken in its
evaluation of the proposed transaction and, at the Committee's request, Peter J.
Solomon reviewed for the Board its financial analysis. Following discussion, the
Board unanimously approved and adopted the Merger Agreement and the transactions
contemplated by it and resolved to recommend to the Public Stockholders that
they accept the Offer, tender their Shares thereunder, and if required, approve
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and adopt the Merger Agreement.
On August 4, 1999, the Board of Directors of the Company, with the
concurrence of the members of the Special Committee, adopted and approved
certain amendments to the Merger Agreement.
Recommendations of the Special Committee and the Board. At a meeting of
the Special Committee held on July 29, 1999, at which both members of the
Special Committee were present, the Special Committee met with its legal and
financial advisors to review the proposed terms of the Merger. Thereafter, the
Special Committee unanimously (i) determined that $7.875 is a fair price, and
that the Merger Agreement and the transactions contemplated thereby are
advisable and fair to the Public Stockholders, and (ii) resolved that on the
basis of the foregoing and the opinion of Peter J. Solomon, to recommend to the
Board of Directors of the Company that it approve and authorize the Offer, the
Merger and the Merger Agreement.
At a special meeting of the Board held immediately following the Special
Committee's meeting on July 29, 1999, at which all directors of the Company were
present, the Board considered the recommendation of the Special Committee. The
Board unanimously approved and adopted the Merger Agreement and the transactions
contemplated by it and resolved to recommend to the Public Stockholders that
they accept the Offer, tender their Shares thereunder, and if required, approve
and adopt the Merger Agreement.
Reasons for the Recommendation of the Special Committee and the Board. In
determining that the Merger Agreement and the transactions contemplated thereby
are advisable and fair to the Public Stockholders, and in making its
recommendation to the Board, the Special Committee considered the following
material factors, which taken as a whole, supported its determination:
(i) the financial condition, assets, results of operations, business and
prospects of the Company, and the risks inherent in achieving those
prospects;
(ii) the terms and conditions of the Merger Agreement, including the
amount and form of consideration payable to the Public Stockholders;
(iii) that the $7.875 per Share price represented a sufficient premium
over the trading prices for the Shares for the six months prior to
the announcement of the transaction;
(iv) that the Continuing Shareholders have stated that they have no
current intention to sell the Company;
(v) the opinion of Peter J. Solomon as to the fairness, from a financial
point of view, of the price of $7.875 per Share to be paid in the
Offer and the Merger; and
(vi) the availability of appraisal rights under the DGCL to holders of
Shares who
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dissent in the Merger.
In reaching its determinations referred to above, the Board considered the
recommendation of the Special Committee and a report of the Special Committee,
which, in the view of the Board, supported such determinations.
The members of the Board, including the members of the Special Committee,
evaluated the various factors considered in light of their knowledge of the
business, financial condition and prospects of the Company, and sought and
considered the advice of financial and legal advisors. In light of the number
and variety of factors that the Board and the Special Committee considered in
connection with their evaluation of the Offer and the Merger, neither the Board
nor the Special Committee found it practicable to quantify or otherwise assign
relative weights to any of the foregoing factors, and, accordingly, neither the
Board nor the Special Committee did so. In addition to the factors listed above,
the Special Committee considered the fact that consummation of the Offer and the
Merger would eliminate the opportunity of the Public Stockholders to participate
in any potential future growth in the value of the Company, but believed that
this loss of opportunity was appropriately reflected by the price of $7.875 per
Share to be paid in the Offer and the Merger.
The Board, including the Special Committee, believes that the Offer and
the Merger are procedurally fair because, among other things: (i) the Special
Committee consisted of independent directors (unaffiliated with Purchaser or it
affiliates or the Company's management) appointed to represent the interests of
the Public Stockholders; (ii) the Special Committee retained and was advised by
independent legal counsel; (iii) the Special Committee retained and was advised
by independent financial advisors, who assisted the Special Committee in
evaluating the Offer and the Merger and rendered a fairness opinion, as
described herein; (iv) the detailed review by the Special Committee and its
advisors of the business and financial condition of the Company; (v) the
deliberations pursuant to which the Special Committee evaluated the Offer and
the Merger; (vi) the $7.875 per Share price and the other terms and conditions
of the Merger Agreement resulted from active arms' length bargaining between
members of the Special Committee, on the one hand, and Purchaser and the
Continuing Shareholders, on the other; and (vii) Purchaser is not permitted to
waive the Minimum Condition without the consent of the Special Committee.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE MERGER IS ADVISABLE AND
FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND THE PUBLIC STOCKHOLDERS,
AND, UPON THE RECOMMENDATION OF THE SPECIAL COMMITTEE, RECOMMENDS THAT PUBLIC
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES TO PURCHASER.
Opinion of Peter J. Solomon. The Company retained Peter J. Solomon to act
as financial advisor to the Special Committee in connection with the
Transactions (as defined herein). Peter J. Solomon has delivered a written
opinion to the Special Committee, dated July 29, 1999, to the effect that,
subject to the various assumptions and limitations set forth therein, as of the
date thereof, the $7.875 per Share cash consideration to be received by the
Public Stockholders in the
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Offer and the Merger pursuant to the Merger Agreement (collectively, the
"Transactions") is fair to such Public Stockholders from a financial point of
view. Peter J. Solomon was engaged to act solely as an advisor to the Special
Committee and not as an advisor to or agent of any other person, including the
Company. Peter J. Solomon's opinion is for the benefit and use of the Special
Committee in its consideration of the Transactions and may not be used for any
other purpose.
THE FULL TEXT OF THE WRITTEN OPINION OF PETER J. SOLOMON, DATED JULY 29, 1999,
WHICH SETS FORTH AMONG OTHER THINGS THE OPINIONS EXPRESSED, THE ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW
UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS SCHEDULE I AND HOLDERS
OF THE SHARES ARE URGED TO READ IT IN ITS ENTIRETY.
PETER J. SOLOMON'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
SHARES AS TO WHETHER OR NOT SUCH HOLDER SHOULD TENDER SHARES PURSUANT TO THE
OFFER OR HOW SUCH HOLDER SHOULD VOTE OR OTHERWISE ACT IN RESPECT OF THE OFFER,
THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY AND SHOULD NOT BE
RELIED UPON BY ANY HOLDER IN RESPECT OF SUCH MATTERS. THE SUMMARY OF THE OPINION
OF PETER J. SOLOMON SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE OPINION ATTACHED AS SCHEDULE I.
Such opinion shall be made available for inspection and copying at the
principal executive offices of the Company between 9:00 a.m. and 5:00 p.m.
Eastern time by any interested stockholder or his representative who has been so
designated in writing. A copy of such opinion will be transmitted by the Company
to any interested stockholder or his representative who has been so designated
in writing upon written request and at the expense of the requesting
stockholder.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
following is a brief summary and general description of the valuation
methodologies utilized by Peter J. Solomon. The summary does not purport to be a
complete statement of the analyses and procedures applied, the judgments made or
the conclusion reached by Peter J. Solomon or a complete description of its
presentation. Peter J. Solomon believes, and so advised the Special Committee,
that its analyses must be considered as a whole and that selecting portions of
its analyses and certain of the factors considered by it, without considering
all analyses and factors, could create an incomplete view of the process
underlying its analyses and opinions.
Peter J. Solomon's opinion to the Special Committee addresses only the
fairness to the Public Stockholders from a financial point of view of the Offer,
and does not constitute a recommendation to any holder of Shares as to whether
or not such holder should tender Shares or
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how any such holder should vote with respect to the Merger. Peter J. Solomon has
not been requested to, and did not, solicit third party indications of interest
in acquiring all or part of the Company. Peter J. Solomon relied upon
representations made to it by the Company concerning the absence of any offer to
buy the Company or any if its assets within the last 12 months, and the
Continuing Shareholders' current intention not to entertain or accept any offer
from any party to purchase their Shares. Peter J. Solomon also relied upon the
representations made to it by the Company concerning the absence of projections
other than those furnished to Peter J. Solomon and the reasonable likelihood of
obtaining the results reflected in such projections.
In connection with the preparation of its opinion, Peter J. Solomon (i)
reviewed certain publicly available financial statements and other information
of the Company; (ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the management
of the Company; (iii) reviewed certain financial projections of the Company
prepared by the management of the Company; (iv) discussed the past and current
operations, financial condition and prospects of the Company with management of
the Company; (v) reviewed the reported prices and trading activity of the
Shares; (vi) compared the financial performance and condition of the Company and
the liquidity of the Shares with that of certain other comparable
publicly-traded companies; (vii) reviewed publicly available information
regarding the financial terms of certain transactions deemed comparable, in
whole or in part, to the Offer; (viii) participated in certain discussions among
representatives of the Company and Purchaser; (ix) reviewed the Merger
Agreement, draft of July 28, 1999 (and assumed that the final form thereof did
not vary in any regard that is material to its analysis); and (x) performed such
other analyses as it deemed appropriate.
In assessing the financial fairness of the Offer to the Company's Public
Stockholders, Peter J. Solomon: (i) independently valued the common equity of
the Company using widely accepted valuation methodologies; and (ii) analyzed the
reasonableness of the consideration being offered in the Offer.
The following summary describes the significant analyses performed by
Peter J. Solomon in arriving at its opinion:
Selected Comparable Public Company Analysis. Using public
information, Peter J. Solomon compared selected historical, operating and
stock market performance data of the Company to the corresponding data of
the following companies which Peter J. Solomon considered to be
comparable: Burke Mills, Inc., Carlyle Industries, Inc., Decorator
Industries Inc., and Lakeland Industries Inc. (the "Comparable
Companies"). With respect to the Company and the Comparable Companies,
Peter J. Solomon compared multiples of total enterprise value ("TEV")
(market value of equity, based on stock market prices as of July 28, 1999,
plus total debt less cash and cash equivalents as of their most recent
Form10-Q) and equity market value ("EMV")to latest twelve months ("LTM")
net revenue, LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA"), LTM earnings before interest and taxes ("EBIT")
and LTM net income. The Company's TEV multiples of LTM net revenue, LTM
EBITDA and LTM EBIT, based on the $7.875 offer price, were 0.3x, 3.9x and
5.5x, respectively.
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The Company's EMV multiple of LTM net income was 14.8 x. The relevant
Comparable Companies' TEV multiples of LTM net revenue, LTM EBITDA and LTM
EBIT were 0.4x to 0.5x, 3x to 5x and 5x to 7x, respectively. The relevant
Comparable Companies' EMV multiples of LTM net income were 7.5x to 9.5x.
Peter J. Solomon applied the relevant Comparable Companies' multiples to
the Company's LTM net revenue, LTM EBITDA, LTM EBIT, LTM net income and
derived an implied range of fully diluted equity values for the Company of
$7.00 to $9.75 per share. Peter J. Solomon noted that the Offer Price fell
within this range.
Comparable Transaction Analysis. Using public information,
Peter J. Solomon reviewed multiples of TEV and EMV to LTM net revenue, LTM
EBITDA, LTM EBIT and LTM Net Income for companies which consummated or
announced going private transations from January 1, 1997 through July 28,
1999 where the TEV of the transaction was between $10 million and $50
million (the "Going Private Companies"). For purposes of this analysis,
Peter J. Solomon analyzed seven transations. The Company's TEV multiples
of LTM net revenue, LTM EBITDA and LTM EBIT, based on the $7.875 offer
price were .3x, 3.9x and 5.5x, respectively. The Company's EMV multiple of
LTM net income was 14.8x. The relevant Going Private Companies' TEV
multiples of LTM net revenue, LTM EBITDA and LTM EBIT were .35x to .45x,
3.5x to 5.0x and 5.0x to 7.0x, respectively. The relevant Going Private
Companies' EMV multiple of LTM net income was 7.0x to 11.0x. Peter J.
Solomon applied the relevant Going Private Company multiples to the
Company's LTM net revenue, LTM EBITDA, LTM EBIT and LTM net inocme and
derived an implied range of fully diluted equity values of $7.00 to $9.75
per share. Peter J. Solomon noted that the Offer Price fell within this
range.
Discounted Cash Flow Analysis: Peter J. Solomon analyzed the
Company's projected after-tax free cash flows through August 31, 2003,
based on the Company's estimates provided by management to Peter J.
Solomon, utilizing a range of discount rates and terminal value multiples.
Peter J. Solomon assumed terminal value exit multiple ranges in August
2003 based on EBITDA multiples of 4x to 6x, and assumed a discount rate
range of 9% to 11%. These discount rates were determined through the use
of the capital asset pricing model and, in conducting its analysis, Peter
J. Solomon reviewed with the Company's management the Company's projected
financial performance and the risks associated with the Company's business
to derive what Peter J. Solomon believed were appropriate discount rates.
Based on the foregoing, Peter J. Solomon derived an implied range of fully
diluted equity values for the Company of $6 to $7 per share. Peter J.
Solomon noted that the Offer Price was above the top of this range.
Peter J. Solomon also compared the Offer Price and the unaffected trading
price of the Class A Shares and Class B Shares on July 28, 1999, the day prior
to the announcement of the Offer. Peter J. Solomon noted that the acquisition
premium represented by the Offer Price was 40% relative to the closing price of
$5.625 for the Class A Shares and Class B Shares on such date.
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Peter J. Solomon assumed and relied upon the accuracy and completeness of
the information reviewed by it for the purpose of its opinion and has not
assumed any responsibility for independent verification of such information.
With respect to the financial projections, Peter J. Solomon has assumed that the
financial projections were reasonably prepared on a basis which reflects the
best currently available estimates and judgments of the future financial
performance of the Company. Peter J. Solomon has not conducted a physical
inspection of the facilities or properties of the Company. Peter J. Solomon has
not assumed any responsibility for any independent valuation or appraisal of the
assets or liabilities of the Company, nor have they been furnished with any such
valuation or appraisal. Peter J. Solomon's opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to it as of July 29, 1999.
The Special Committee selected Peter J. Solomon to be its financial
advisor in connection with the Offer and the Merger because Peter J. Solomon is
a prominent investment banking and financial advisory firm with experience in
the valuation of businesses and their securities in connection with mergers and
acquisitions, and valuations for corporate purposes. Peter J. Solomon has had no
prior investment advisory or corporate finance relationship with the Company or
the Continuing Shareholders.
Engagement Agreement Of Financial Advisor To Special Committee. Pursuant
to the terms of a letter agreement, dated June 14, 1999, between Peter J.
Solomon and the Company (the "Peter J. Solomon Letter Agreement"), the Special
Committee retained Peter J. Solomon to serve as financial advisor to the Special
Committee and to render to the Special Committee a written opinion (the
"Opinion") relating to the fairness, from a financial point of view, to the
Company's Public Stockholders of the consideration to be paid in the proposed
transaction whereby the Company or any other entity controlled by the Continuing
Shareholders would acquire all outstanding shares other than those held by the
Continuing Shareholders (an "Engagement Transaction"). The Company agreed in the
Peter J. Solomon Letter Agreement to pay Peter J. Solomon $100,000 upon the
execution of the Peter J. Solomon Letter Agreement and an additional fee of
$140,000 upon the earlier of (i) the date upon which Peter J. Solomon advises
the Special Committee that it is prepared to render the Opinion to the Special
Committee or (ii) the date upon which Peter J. Solomon advises the Special
Committee that, having considered the matter, it is unable to reach the
conclusions necessary to render the Opinion. In addition, the Company also
agreed to reimburse Peter J. Solomon, subject to certain limitations, for all
reasonable out-of-pocket expenses incurred by Peter J. Solomon (including fees,
disbursements and other charges of counsel) in connection with the provision of
services under the Peter J. Solomon Letter Agreement, the execution and delivery
of such agreement and the consummation of any transaction contemplated thereby.
The Company also agreed to indemnify Peter J. Solomon and its affiliates,
counsel and other professional advisors, and the respective directors, officers,
controlling persons, agents and employees of each of the foregoing against
certain liabilities related to or arising out of the engagement of Peter J.
Solomon under the Peter J. Solomon Letter Agreement or any transaction or
conduct in connection therewith.
Certain Financial Projections. The Company does not as a matter of course
make public forecasts or projections as to future performance (including as to
revenues, earnings, other
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income statement items and cash flows) or financial position. However, in May
1999, the Company's management prepared full income statement projections and
certain other financial data through August 31, 2004 in connection with the
engagement of BHC (the "Original Projections"). See " - Background of the
Transaction."
In June 1999, the Company's management updated the Company's operating
plan to reflect a recent industry-wide price increase of polyester by the
fiber's largest global suppliers. The operational and financial projections
prepared by the Company in connection with the updated operating plan are
referred to in this Offer to Purchase as the "Updated Projections." The Original
Projections and the Updated Projections are referred to collectively as the
"Projections." The Projections are discussed in this Offer to Purchase solely
because they were provided to Peter J. Solomon.
Special Cautionary Notice Regarding Forward-Looking Statements. The
Projections were based upon numerous estimates and assumptions that are
inherently subject to significant uncertainties, are difficult to predict and,
in many cases, are influenced by factors beyond the Company's control. The
material assumptions used in preparing the Projections are described in the
respective Projections and footnotes to the Projections. There can be no
assurance that the projected results will be realized or that actual results
will not be significantly higher or lower than those predicted. While the
Projections were prepared in good faith by the Company's management, no
assurance can be made regarding future events. Therefore, neither the Original
Projections nor the Updated Projections can be considered a reliable prediction
of future operating results and should not be relied on as such. Additionally,
the Projections were prepared at the times indicated above and do not reflect
any subsequent results or any changes that have occurred or may occur in the
future regarding the business, assets, operations, properties, management,
capitalization, corporate structure or policies of the Company, general economic
or business conditions, or any other transaction or event that has occurred
since the respective dates of preparation, or that may occur, and were not
anticipated at the time such information was prepared. The Company does not
intend to update the Projections. The Projections were prepared by the Company
solely for internal use and not for publication or with a view to complying with
the published guidelines of either the Commission regarding projections or
forecasts or the American Institute of Certified Public Accountants' Guide for
Prospective Financial Statements, nor in accordance with generally accepted
accounting principles. The Company's independent auditors have not examined,
compiled or performed any procedures regarding the Projections, nor have they
expressed any opinion or given any assurance on such information or its
achievability and, accordingly, they assume no responsibility for the
Projections. None of the Company, Purchaser nor the Continuing Shareholders
assumes any responsibility for the validity, reasonableness, accuracy or
completeness of the Projections and makes no representation regarding the
Projections. None of the Company, Purchaser nor the Continuing Shareholders
intends to update or supplement the Projections prior to consummation of the
Offer or the Merger. Shareholders are cautioned not to place undue reliance on
the Projections.
Interests of Certain Persons in the Offer and the Merger; Potential
Conflicts of Interest. In considering the recommendation of the Special
Committee and of the Board, shareholders
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should be aware that the Continuing Shareholders and certain executive officers
and directors of the Company have certain relationships or interests in the
Offer and the Merger and the Company, including those referred to below, that
are different from the interests of Public Stockholders and that may present
actual or potential conflicts of interest. The Special Committee and the Board
were aware of these potential and actual conflicts of interest and considered
them in evaluating the proposed Merger. In particular, Alvin Weinstein, Chairman
of the Board of the Company, is Chairman of the Board of Purchaser and owns
approximately 71% of Purchaser. Earl Kramer, President of the Company, is
President of Purchaser and owns approximately 3% of Purchaser. Joan Weinstein,
Secretary of the Company and wife of Alvin Weinstein, is Secretary of Purchaser
and owns approximately 5% of Purchaser. David Weinstein, President of the
Company's Concord House Division and son of Alvin and Joan Weinstein, owns
approximately 7% of Purchaser. Jonathan Weinstein and Peter Weinstein are each
the son of Alvin and Joan Weinstein and each owns approximately 7% of Purchaser.
Following the Merger, the Continuing Shareholders will own all of the
outstanding Common Stock of the Surviving Corporation. See "Introduction."
Neither Purchaser nor any of the Continuing Shareholders will be tendering
their Shares. Purchaser has been advised by Fred Heller, the only other officer
and/or director of the Company that owns Shares, that he will be tendering the
2,500 Shares owned by him which he received upon the exercise of Company Stock
Options.
In the Merger, all outstanding Company Stock Options, including those held
by the Continuing Shareholders and the other directors and executive officers of
the Company, are to be terminated and the Company will pay to each holder
thereof, whether or not such Stock Options are then vested or exercisable, an
amount in cash equal to the excess, if any, of the Merger Consideration over the
applicable exercise price per Share of the Shares subject to the Company Stock
Option, multiplied by the number of Shares subject to such Company Stock Option.
See "Special Factors - 2. The Offer and the Merger; Merger Agreement." The
following table sets the amount of cash and the percentage of total Company
Stock Options held by the Continuing Stockholders and the other directors and
executive officers of the Company and Purchaser.
Cash to be received Percentage of
Name for Stock Options Stock Options (1)
- ---- ----------------- -----------------
Alvin Weinstein $105,375 30.8%
David Weinstein $325,000 30.8%
Richard Solar $ 25,000 4.6%
Fred Heller $ 16,875 3.8%
George Gleitman $ 13,750 3.1%
(1) Based on the total number of shares of Company Common Stock subject to all
outstanding Stock Options as of the date of this Offer to Purchase.
Directors and Officers of the Surviving Corporation. Under the terms of
the Merger Agreement, upon consummation of the Merger, the current executive
officers of the Company will remain as the initial executive officers of the
Surviving Corporation and the current directors
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of Purchaser shall be the directors of the Surviving Corporation. The Continuing
Shareholders, as owners of 100% of the capital stock of the Surviving
Corporation, will have the ability to take action to terminate any officers and
directors of the Surviving Corporation whom they choose.
Compensation of Special Committee Members. As compensation for serving on
the Special Committee, the Company agreed to pay to each member of the Special
Committee a fee of $25,000. Each member of the Special Committee is being
reimbursed for all out-of-pocket expenses incurred in performing his services.
For a discussion of certain requirements in the Merger Agreement for the
indemnification of directors and officers of the Company and the maintenance of
directors' and officers' insurance, see "Special Factors - 2. The Offer and the
Merger; Merger Agreement."
Shareholders' Agreement. The Purchaser and each of the Continuing
Shareholders are parties to a shareholders' agreement dated July 29, 1999 (the
"Shareholders' Agreement") which restricts the transfer of any shares of the
capital stock of Purchaser owned by the Continuing Shareholders by requiring
that any of them who wishes to sell or transfer any such shares to a third party
first offer the shares to Purchaser and then to other signing stockholders at
the price offered by the third party. There are certain exceptions to the
transfer restrictions for gifts and transfers to other shareholders of Purchaser
or to family members of the transferring shareholder, for sales in an
underwritten public offering and for transfers to secure indebtedness of the
Purchaser.
The Shareholders' Agreement provides that, upon the bankruptcy of a holder
of shares of Purchaser or the attachment of any such shares, the holder thereof
is deemed to have offered to sell such shares to Purchaser for a price equal to
the fair market value of such shares. The Shareholders' Agreement also provides
for (i) mandatory repurchases of shares by Purchaser upon the death of a
shareholder and (ii) the mandatory repurchase by Purchaser and sale by Earl
Kramer of the shares of Purchaser held by Mr. Kramer upon his termination or
retirement from Purchaser, his disability for a period of at least six months or
the sale of the Knit Division of the Company, in each case at a price equal to
the book value of such shares as of the end of the month in which the event
giving rise to such repurchase occurs. Under the Shareholders' Agreement, Alvin
Weinstein and Joan Weinstein may require Purchaser to purchase in five equal
annual installments the shares of Purchaser owned by each of them at a price
equal to the book value of such shares as of the end of the month immediately
preceding the Merger beginning on or any time after the third anniversary of the
date of the Shareholders' Agreement. Alvin Weinstein and/or Joan Weinstein may
require Purchaser to accelerate such repurchase upon the sale of either the Knit
Division or the Concord House Division of the Company. The Shareholders'
Agreement also grants to Alvin Weinstein (and under some circumstances Joan
Weinstein and David Weinstein) the right to require the other holders to sell
their shares in connection with the sale of Purchaser as a going concern. The
Shareholders' Agreement grants certain registration rights to the holders of
shares of Purchaser. Holders of shares of Purchaser are also entitled to
pre-emptive rights under the Shareholders' Agreement.
The parties to the Shareholders' Agreement have agreed to elect to treat
Purchaser as an
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"S corporation" for Federal income tax purposes and have agreed that Purchaser
shall pay dividends to the then shareholders of Purchaser in order to enable
them to pay income taxes to be borne by them as a result of that election.
If the Merger is consummated, the Company as the Surviving Corporation
shall by operation of law become a party to the Shareholders' Agreement and the
shares of capital stock of the Company which will then be held by the Continuing
Shareholders shall be subject to, and the Continuing Shareholders shall be bound
by and entitled to the benefits of, the Shareholders' Agreement.
2. THE OFFER AND MERGER; MERGER AGREEMENT
The Merger Agreement
The following is a summary of the Merger Agreement, a copy of which is
filed as an Exhibit to the Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") filed by Purchaser with the Commission in connection with the
Offer. Such summary does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement. Capitalized terms used in this
"Special Factors - 2. The Offer and Merger; Merger Agreement" but not otherwise
defined shall have the meanings ascribed to them in the Merger Agreement.
The Offer. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, Purchaser will commence the Offer as promptly as
reasonably practicable, but in no event later than five business days after the
initial public announcement of Purchaser's intention to commence the Offer. The
obligation of Purchaser to accept for payment Shares tendered pursuant to the
Offer is subject to the satisfaction of the Minimum Condition and certain other
conditions that are described in "The Tender Offer - 9. Conditions to the
Offer." Purchaser has agreed that no change in the Offer may be made which
waives the Minimum Condition, and no change may be made which decreases the
price per Share payable in the Offer, which changes the form of consideration,
which reduces the maximum number of Shares to be purchased in the Offer, which
makes changes to the Offer which are otherwise adverse to the Company or the
Public Stockholders or which imposes conditions to the Offer in addition to
those set forth in "The Tender Offer - 9. Conditions to the Offer" hereof
without the prior consent of the Company.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with Delaware Law, at the Effective
Time, Purchaser shall be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Purchaser will cease and the Company
will continue as the Surviving Corporation of the Merger. At the Effective Time,
by virtue of the Merger and without any action on the part of Purchaser, the
Company or holders of any Shares, (a) each Share issued and outstanding
immediately prior to the Effective Time (other than any Shares held in the
treasury of the Company, or owned by Purchaser, any Affiliate of Purchaser or
any direct or indirect subsidiary of the Company and any Shares which are held
by stockholders who have not voted in favor of the Merger or consented thereto
in writing and who shall have demanded properly in writing appraisal for such
Shares in accordance with Delaware Law) shall be cancelled and converted
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automatically into the right to receive $7.875 per Share in cash or such higher
price paid in the Offer (the "Merger Consideration") payable, after reduction
for any required Tax withholding, without interest, to the holder of such Share,
upon surrender, in the manner provided in the Letter of Transmittal, of the
certificate that formerly evidenced such Share; (b) each Share held in the
treasury of the Company and each Share owned by Purchaser, any Affiliate of
Purchaser or any direct or indirect wholly owned subsidiary of the Company
immediately prior to the Effective Time shall be canceled without any conversion
thereof and no payment or distribution will be made with respect thereto; and
(c) each share of Class A Common Stock, par value $.01 per share, of Purchaser
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Class A Common Stock, par value $.50 per share, of the
Surviving Corporation, and each share of Class B Common Stock, par value $.01
per share, of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of Class B Common Stock, par value $.50 per
share, of the Surviving Corporation.
The Merger Agreement provides that the directors of Purchaser immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation and that the officers of the Company immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified. The Merger Agreement provides that, at the Effective Time, the
Certificate of Incorporation of the Company restated in the form attached to the
Merger Agreement will be the Certificate of Incorporation of the Surviving
Corporation. The Merger Agreement also provides that the By-laws of the Company,
as in effect immediately prior to the Effective Time, will be the By-laws of the
Surviving Corporation.
The Merger Agreement provides that each Company Stock Option outstanding
at the Effective Time under the Company Stock Option Plan shall be canceled by
the Company immediately prior to the Effective Time, and each holder of a
canceled Company Stock Option shall be entitled to receive at the Effective Time
or as soon as practicable thereafter from the Company in consideration for the
cancellation of such Company Stock Option an amount equal to the product of (i)
the number of Shares previously subject to such Company Stock Option, and (ii)
the excess, if any, of the Merger Consideration over the exercise price per
share of Shares previously subject to such Company Stock Option, which shall be
paid in cash, after reduction for applicable tax withholding.
The Merger Agreement provides that notwithstanding any provision of the
Merger Agreement to the contrary, Shares that are outstanding immediately prior
to the Effective Time and which are held by stockholders who shall have not
voted in favor of the Merger or consented thereto in writing and who shall have
demanded properly in writing appraisal for such Shares in accordance with
Section 262 of Delaware Law shall not be converted into or represent the right
to receive the Merger Consideration. Such stockholders shall be entitled to
receive payment of the appraised value of such Shares held by them in accordance
with the provisions of such Section 262, except that all Dissenting Shares held
by stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such Shares
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under such Section 262 shall thereupon be deemed to have been converted into and
to have become exchangeable for, as of the Effective Time, the right to receive
the Merger Consideration, without any interest thereon, upon surrender, in the
manner provided in the Merger Agreement, of the certificate or certificates that
formerly evidenced such Shares.
Agreements of Purchaser and the Company. Pursuant to the Merger Agreement,
the Company shall, if required by applicable law in order to consummate the
Merger, duly call, give notice of, convene and hold an annual or special meeting
of its stockholders as soon as practicable following consummation of the Offer
for the purpose of considering and taking action on the Merger Agreement and the
transactions contemplated thereby (the "Stockholders' Meeting"). The Merger
Agreement also provides that subject to its fiduciary duties under applicable
law as advised by independent counsel, if the Minimum Condition shall not have
been satisfied and such condition shall have been waived by Purchaser, at the
Stockholders' Meeting Purchaser will cause all Shares then owned by it and the
Shares under its control to be voted in favor of the Merger.
The Merger Agreement provides that, notwithstanding the preceding
paragraph, in the event that Purchaser shall acquire at least 90 percent of the
then outstanding Shares of each class, subject to certain conditions, Purchaser
and the Company agree to take all necessary and appropriate action to cause the
Merger to become effective in accordance with Section 263 of Delaware Law as
soon as reasonably practicable after such acquisition, without a meeting of the
Company's stockholders.
The Merger Agreement provides that the Company will, if required by
applicable law, as soon as practicable following consummation of the Offer, file
an information or proxy statement (the "Proxy Statement") with the under the
Exchange Act, and use best efforts to have the Proxy Statement cleared by the
Commission. Purchaser and the Company will cooperate with each other in the
preparation of the Proxy Statement, and the Company will notify Purchaser of the
receipt of any comments of the Commission with respect to the Proxy Statement.
The Merger Agreement further provides that the Certificate of
Incorporation of the Surviving Corporation shall contain provisions no less
favorable with respect to indemnification than are set forth in Article Eighth
of the Certificate of Incorporation of the Company, which provisions shall not
be amended, repealed or otherwise modified for a period of ten years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at the Effective Time were directors, officers, employees,
fiduciaries or agents of the Company, unless such modification shall be required
by law.
The Merger Agreement provides that the Company shall, to the fullest
extent permitted under applicable law and regardless of whether the Merger
becomes effective, indemnify and hold harmless, and, after the Effective Time,
the Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless, each present and former director,
officer, employee, fiduciary and agent of the Company (collectively, the
"Indemnified Parties") against all costs and expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit,
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proceeding or investigation (whether arising before or after the Effective
Time), whether civil, criminal, administrative or investigative, arising out of
or pertaining to any action or omission in their capacity as an officer,
director, employee, fiduciary or agent, whether occurring before or after the
Effective Time, for a period of ten years after the date hereof.
The Merger Agreement provides that the Surviving Corporation shall use its
best efforts to maintain in effect for six years from the Effective Time, if
available, the current directors' and officers' liability insurance policies
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not materially less favorable) with respect to matters
occurring prior to the Effective Time; provided, however, that in no event shall
the Surviving Corporation be required to expend pursuant to this provision: for
the period beginning at the Effective Time and ending three years thereafter,
more than an amount per year equal to 300% of current annual premiums (the
"Current Annual Premiums") paid by the Company for such insurance, and (ii) for
the period beginning on the third anniversary of the Effective Time and ending
three years thereafter, more than an amount per year equal to 200% of the
Current Annual Premiums.
The Merger Agreement provides that Purchaser will use its reasonable best
efforts to obtain the financing required to satisfy the Financing Condition as
defined in "The Tender Offer - 9. Conditions to the Offer" hereof on terms and
conditions no less favorable to Purchaser than those described in the Chase
Commitment Letter. See "The Tender Offer - 8. Sources and Amounts of Funds." The
Company will cooperate with, and use its reasonable best efforts to assist,
Purchaser in obtaining such financing. The Merger Agreement provides that,
subject to its terms and conditions, each of the parties thereto will use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by the Merger Agreement, including, without
limitation, using all reasonable efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company and the Subsidiaries as
are necessary for the consummation of the Transactions and to fulfill the
conditions to the Offer and the Merger.
In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of the Merger Agreement, the
proper officers and directors of each party to the Merger Agreement are required
to use their reasonable best efforts to take all such action.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations by the Company as to organization and qualification,
capitalization, authority to enter into the transactions contemplated by the
Merger Agreement, no conflicts between the Merger Agreement and the Company's
organizational documents and contracts or any laws and the absence of required
filings and consents.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of
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the following conditions: (a) the Merger Agreement and the transactions
contemplated thereby shall have been approved and adopted by the affirmative
vote of the stockholders of the Company to the extent required by Delaware Law
and the Certificate of Incorporation of the Company; (b) no United States or
state governmental authority or other agency or commission or United States or
state court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
then in effect and has the effect of making the Merger unlawful or otherwise
preventing or prohibiting consummation of the Transactions; and (c) Purchaser or
its permitted assignee shall have purchased all Shares validly tendered and not
withdrawn pursuant to the Offer; provided, however, that, with certain
limitations, this condition may be waived by Purchaser.
Termination: Fees and Expenses. The Merger Agreement provides that it may
be terminated and the Merger and the other Transactions may be abandoned at any
time prior to the Effective Time, notwithstanding any requisite approval and
adoption of the Merger Agreement and the Transactions by the stockholders of the
Company: (a) by mutual written consent duly authorized by the Board of Directors
of Purchaser and the Board of Directors of the Company; (b) if any court of
competent jurisdiction in the United States or other United States governmental
authority shall have issued an order, decree, ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable;
provided that each of the parties shall have used reasonable efforts to prevent
the entry of any such injunction or order and to appeal as promptly as possible
any injunction or order that may be rendered; (c) by Purchaser if (i) due to an
occurrence or circumstance that would result in a failure to satisfy any
condition listed in "The Tender Offer - 9. Conditions to the Offer," Purchaser
shall have (A) failed to commence the Offer within five Business Days following
the date of the Merger Agreement, (B) terminated the Offer without having
accepted any Shares for payment thereunder or (C) failed to pay for Shares
pursuant to the Offer within 90 calendar days following the commencement of the
Offer, unless such failure to pay for Shares shall have been caused by or
resulted from the failure of Purchaser to perform in any material respect any
material covenant or agreement of it contained in the Merger Agreement or the
material breach by Purchaser of any material representation or warranty of it
contained in the Merger Agreement; or (ii) prior to the Purchase of Shares
pursuant to the Offer, the Board or any committee thereof shall have withdrawn
or modified in a manner adverse to Purchaser or its approval or recommendation
of the Offer, the Merger Agreement, the Merger or any other Transaction or shall
have recommended another merger, consolidation, business combination with, or
acquisition of, the Company or its assets or another tender offer for Shares, or
shall have resolved to do any of the foregoing; or (d) by the Company, upon
approval of the Board, if (i) Purchaser shall have (A) prior to the date by
which it is required to commence the Offer, failed to furnish the Company with
an executed commitment letter of a financial institution evidencing its
commitment, subject to customary conditions, to provide the financing referred
to in the Financing Condition, (B) failed to commence the Offer within five
Business Days following the date of the Merger Agreement, (C) terminated the
Offer without having accepted any Shares for payment thereunder or (D) failed to
pay for Shares pursuant to the Offer within 90 days following the commencement
of the Offer, unless such failure to pay for Shares shall have been caused by or
resulted from the failure of the Company to perform in any
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material respect any material covenant or agreement of it contained in the
Merger Agreement or the material breach by the Company of any material
representation or warranty of it contained in the Merger Agreement; or (ii)
prior to the purchase of Shares pursuant to the Offer, the Board shall have
withdrawn or modified in a manner adverse to Purchaser its approval or
recommendation of the Offer, the Merger Agreement, the Merger or any other
Transaction or shall have recommended another merger, consolidation, business
combination, business combination with, or acquisition of, the Company or its
assets or another tender offer for Shares, or shall have resolved to do any of
the foregoing (a "Company Board Termination").
In the event of the termination of the Merger Agreement, the Merger
Agreement provides that it shall forthwith become void and there shall be no
liability thereunder on the part of any party thereto except; (i) under the
provisions of the Merger Agreement related to fees and expenses described below
and under certain other provisions of the Merger Agreement which survive
termination; and (ii) nothing in the Merger Agreement shall relieve any party
from liability for any willful breach thereof.
If the Merger Agreement is terminated pursuant to a Company Board
Termination and Purchaser is not in material breach of its material covenants
and agreements contained in the Merger Agreement or its representations and
warranties contained in the Merger Agreement, the Company shall reimburse
Purchaser (and its stockholders and Affiliates) not later than one Business Day
after submission of statements therefor for all out-of-pocket expenses and fees
up to $1 million in the aggregate (including, without limitation, fees and
expenses payable to all banks, investment banking firms, other financial
institutions and other persons and their respective agents and counsel, for
arranging, committing to provide or providing any financing for the Transactions
or structuring the Transactions and all fees of counsel, accountants, experts
and consultants to Purchaser (and its stockholders and Affiliates), and all
printing and advertising expenses) actually incurred or accrued by it or on its
behalf in connection with the Transactions, including, without limitation, the
financing thereof, and actually incurred or accrued by banks, investment banking
firms, other financial institutions and other persons and assumed by Purchaser
in connection with the negotiation, preparation, execution and performance of
the Merger Agreement, the structuring and financing of the Transactions and any
financing commitments or agreements relating thereto (all the foregoing being
referred to herein collectively as the "Expenses").
Except as set forth in the Merger Agreement, the Merger Agreement provides
that all costs and expenses incurred in connection with the Merger Agreement and
the Transactions shall be paid by the party incurring such expenses, whether or
not any Transaction is consummated.
The Merger Agreement provides that in the event that the Company shall
fail to pay any Expenses when due, the term "Expenses" shall be deemed to
include the costs and expenses actually incurred or accrued by Purchaser (and
its stockholders and Affiliates) (including, without limitation, fees and
expenses of counsel) in connection with the collection under and enforcement of
Section 7.03 of the Merger Agreement, together with interest on such unpaid
Expenses, commencing on the date that such Expenses became due, at a rate equal
to the rate of interest publicly announced by The Chase Manhattan Bank, from
time to time, in the City of
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New York, as such bank's Base Rate plus 2%.
The Merger Agreement provides that any action permitted or required to be
taken thereunder by the Board of Directors of the Company, including without
limitation any termination of the Merger Agreement, any amendment of the Merger
Agreement or any waiver thereunder, and any consent, approval or determination
permitted or required to be made or given by the Company pursuant to the Merger
Agreement, shall be made, taken or given, as the case may be, only with the
concurrence, or at the direction, of the Special Committee.
3. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY
Purpose of the Offer and the Merger. The purpose of the Offer and the
Merger is to enable the Continuing Shareholders to become the sole owners of the
Company. While the Company would have been able to consummate the Merger through
a proxy solicitation to all holders of Shares seeking approval of the Merger,
the Offer, as the first step in the acquisition of the Company, will allow
Purchaser to acquire all the outstanding Shares and will provide cash to the
Public Stockholders of Company who tender their Shares more promptly than would
the Merger and will enable the Merger to be consummated more promptly than a
proxy solicitation if Purchaser acquires a sufficient number of Shares (at least
90% of each class of outstanding Shares) to enable it to effect the Merger under
Delaware Law without a vote of the Company's stockholders. The Purchaser
currently intends, as soon as practicable following consummation of the Offer,
to propose and seek to consummate the Merger. After consummation of the Offer,
the Company may continue to assess various aspects of its business and
operations to maximize its strengths in implementing its long-term strategy.
The purpose of the Merger is to acquire all Shares not tendered and
purchased pursuant to the Offer or otherwise and to enable the acquisition or
cancellation of all other equity interests in the Company. Pursuant to the
Merger, each then issued and outstanding Share (other than Dissenting Shares)
not owned by Purchaser or the Company will be converted into and represent the
right to receive an amount in cash equal to the price per Share paid by the
Purchaser pursuant to the Offer. Under Delaware Law, the approval of the Board
and the affirmative vote or written consent of a majority of each class of the
outstanding Shares is required to approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Merger. The Board of Directors
of the Company has unanimously approved and adopted the Merger Agreement and the
transactions contemplated thereby, and, unless the Merger is consummated
pursuant to the short-form merger provisions under Delaware Law described below,
the only remaining required corporate action of the Company is the approval and
adoption of the Merger Agreement and the transactions contemplated thereby by
the affirmative vote of the holders of a majority of each class of the Shares.
Purchaser currently has sufficient voting power to cause the approval and
adoption of the Merger Agreement and the transactions contemplated thereby
without the affirmative vote of any other stockholder. Purchaser has agreed,
subject to its fiduciary duties under applicable law as advised by independent
counsel that, if sufficient Shares are not tendered and purchased pursuant to
the Offer to satisfy the Minimum Condition and such condition is waived by
Purchaser with the consent of the Company, Purchaser will vote all Shares owned
or controlled by it in favor of the Merger.
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In the Merger Agreement, the Company has agreed to take all action
necessary to convene a meeting of its stockholders as soon as practicable after
the consummation of the Offer for the purpose of considering and taking action
on the Merger Agreement and the transactions contemplated thereby, if such
action is required by Delaware Law. Under Delaware Law, if Purchaser acquires,
pursuant to the Offer or otherwise, at least 90% of each class of the
outstanding Shares, Purchaser will be able to approve the Merger without a vote
of the Company's stockholders. In such event, Purchaser and the Company have
agreed in the Merger Agreement to take all necessary and appropriate action to
cause the Merger to become effective as soon as reasonably practicable after
such acquisition, without a meeting of the Company's stockholders. If, however,
Purchaser does not acquire at least 90% of each class of the outstanding Shares
pursuant to the Offer or otherwise and a vote of the Company's stockholders is
required under Delaware Law, a significantly longer period of time would be
required to effect the Merger.
The Continuing Shareholders believe that causing the Company to be closely
held will:
o Afford the Public Stockholders an opportunity to dispose of their
Common Stock at a premium over the market price of the Common Stock
on May 25, 1999, the date the Continuing Shareholders made the
Initial Proposal;
0 Enable the Company's management to focus on long-term growth rather
than, as most publicly held companies, on short-term results;
0 Provide the Continuing Shareholders with increased flexibility in
dealing with matters of succession and estate planning;
0 Afford the Company's management with greater operational
flexibility, simplification of the management reporting process and
reduction of overhead and compliance costs;
0 Enable the Company to elect to be taxed under the provisions of
Subchapter S under the Internal Revenue Code of 1986, as amended
(the "Code"), to avoid the double tax on distributions that
presently exists on dividends paid by the Company (although each
stockholder is taxed on his share of the Company's income whether or
not it is distributed); and
0 Reduce costs associated with publishing and distributing to its
shareholders annual and quarterly reports and proxy statements and
other costs associated with a publicly held Company, which the
Continuing Shareholders estimate will result in annual savings to
the Company of approximately $300,000, since the Company will no
longer be subject to the proxy solicitation rules under the Exchange
Act.
Appraisal Rights. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated, stockholders will have certain
rights under Delaware Law to dissent and demand appraisal of, and to receive
payment in cash of the fair value of, their Shares. Such rights to dissent, if
the statutory procedures are complied with, could lead to a judicial
determination of the fair value of the Shares, as of the day prior to the date
on which the
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stockholders' vote was taken approving the Merger or similar business
combination (excluding any element of value arising from the accomplishment or
expectation of the Merger), required to be paid in cash to such dissenting
holders for their Shares. In addition, such dissenting stockholders would be
entitled to receive payment of a fair rate of interest from the date of
consummation of the Merger on the amount determined to be the fair value of
their Shares. In determining the fair value of the Shares, the court is required
to take into account all relevant factors. Accordingly, such determination could
be based upon considerations other than, or in addition to, the market value of
the Shares, including, among other things, going concern values, asset values
and earning capacity. Therefore, the value so determined in any appraisal
proceeding could be the same, more or less than the purchase price per Share in
the Offer or the Merger Consideration.
In addition, several decisions by Delaware courts have held that, in
certain circumstances, a controlling stockholder of a company involved in a
merger has a fiduciary duty to other stockholders which requires that the merger
be fair to such other stockholders. In determining whether a merger is fair to
minority stockholders, Delaware courts have considered, among other things, the
type and amount of consideration to be received by the stockholders and whether
there was fair dealing among the parties. The Delaware Supreme Court has stated
that the remedy ordinarily available to minority stockholders in a cash-out
merger is the right to appraisal described above. However, a damages remedy or
injunctive relief may be available if a merger is found to be the product of
procedural unfairness, including fraud, misrepresentation or other misconduct.
The foregoing summary of the rights of dissenting stockholders does not
purport to be a complete statement of the procedures to be followed by
stockholders desiring to exercise any available appraisal rights and is
qualified in its entirety by reference to the full text of Section 262 of the
Delaware Law included in Schedule III attached hereto. The preservation and
exercise of appraisal rights are conditioned on strict adherence to such Section
262.
Plans for the Company. It is expected that, initially following the
Merger, the business and operations of the Company will, except as set forth in
this Offer to Purchase, be continued by the Company substantially as they are
currently being conducted. Except as indicated in this Offer to Purchase, the
Continuing Shareholders do not have any present plans or proposals which relate
to or would result prior to the Merger in an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Company or any subsidiary, a sale or transfer of a material amount of assets of
the Company or any subsidiary to a third party, any change in the present
capitalization or dividend policy or any other material changes in the Company's
corporate structure or business, or the composition of the Board except that the
Board of the Surviving Corporation shall be as provided in the Merger Agreement.
The Purchaser has represented in the Merger Agreement that it has no current
intention to sell or otherwise transfer or dispose of the business of the
Company or any material part thereof, but there can be no assurance that the
Surviving Corporation will not cause such a transfer in the future. The
Continuing Shareholders intend, from time to time, to evaluate and review the
Company's business, operations, properties, management and other personnel,
corporate structure and capitalization, and to make such changes as are deemed
appropriate under the circumstances.
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The Continuing Shareholders also intend to continue to explore joint ventures
and other opportunities to expand the Company's business. In that regard, the
Continuing Shareholders, after consummation of the Offer and the Merger, may
review proposals or may propose the acquisition or disposition of assets or
other changes in the Company's business, corporate structure, capitalization,
management or dividend policy which they consider to be in the best interests of
the Company and its then shareholders. The Company and the Continuing
Shareholders anticipate that the indebtedness to be incurred in connection with
the Offer and the Merger will be repaid primarily with cash on hand. However,
subject to the terms of the debt financing and market and other conditions, the
Company may, in the future, consider such other means of repaying such
indebtedness as the Company and the Continuing Shareholders may determine in
their sole and absolute discretion.
If the Merger is consummated, the Continuing Shareholders currently intend
to cause the Company to change the Company's fiscal year to a calendar year and
to elect to be taxed under the provisions of Subchapter S of the Code commencing
as soon as is practicable and in no event later than calendar year 2000. The
Shareholders' Agreement contemplates that distributions will be made to the then
shareholders of the Company in order to enable them to pay income taxes to be
borne by them as a result of that election.
4. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; EXCHANGE ACT LISTING;
EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS
The purchase of Shares by Purchaser pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly and may reduce the number
of holders of Shares, which could adversely affect the liquidity and market
value of the remaining Shares held by stockholders other than Purchaser.
Purchaser cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on the
market price for or marketability of the Shares or whether it would cause future
market prices to be greater or less than the Offer Price.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the AMEX for continued listing and
may, therefore, be delisted from such exchange. According to the AMEX's
published guidelines, the AMEX could consider delisting the Shares if, among
other things, the number of publicly held Shares (excluding Shares held by
officers, directors, their immediate families and other concentrated holdings of
10% or more) were less than 200,000, there were less than 300 holders of at
least 100 Shares or the aggregate market value of the publicly held Shares was
less than $1 million. If, as a result of the purchase of Shares pursuant to the
Offer, the Shares no longer meet the requirements of the AMEX for continued
listing and the listing of Shares on such exchange is discontinued, the market
for the Shares could be adversely affected.
If the AMEX were to delist the Shares, it is possible that the Shares
would trade on another securities exchange or in the over-the-counter market and
that price quotations for the Shares would be reported by such exchange or
through Nasdaq or other sources. The extent of the public market for the Shares
and the availability of such quotations would, however, depend
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upon such factors as the number of holders and/or the aggregate market value of
the publicly held Shares at such time, the interest in maintaining a market in
the Shares on the part of securities firms, the possible termination of
registration of the Shares under the Exchange Act as described below, and other
factors. The Continuing Shareholders currently have no intention to seek a
listing of the Shares on any other exchange or on Nasdaq.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the collateral of the Shares. Depending upon factors similar to those
described above regarding listing and market quotations, it is possible that,
following the Offer, the Shares would no longer constitute "margin securities"
for the purposes of the margin regulations of the Federal Reserve Board and
therefore could no longer be used as collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Registration
of the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if the Shares are neither listed on a national
securities exchange nor held by 300 or more holders of record. Termination of
registration of the Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to its stockholders and to
the Commission and would make certain provisions of the Exchange Act no longer
applicable to the Company, such as the short-swing profit recovery provisions of
Section 16(b) of the Exchange Act, the requirement of furnishing a proxy
statement pursuant to Section 14(a) of the Exchange Act in connection with
stockholders' meetings and the related requirement of furnishing an annual
report to stockholders and the requirements of Rule 13e-3 under the Exchange Act
with respect to "going private" transactions. Further, the ability of
"affiliates" of the Company and persons holding "restricted securities" of the
Company to dispose of such securities pursuant to Rule 144 or 144A promulgated
under the Securities Act may be impaired or eliminated.
In the Merger Agreement, the Company has agreed that until the Effective
Time it will use all commercially reasonably efforts to maintain the AMEX
listing of the Shares, maintain the Exchange Act registration of the Shares and
comply with the rules and regulations of the SEC.
5. MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following summary addresses the material federal income tax
consequences to holders of Shares who sell their Shares in the Offer or the
Merger. The summary does not address all aspects of federal income taxation that
may be relevant to particular holders of Shares and thus, for example, may not
be applicable to holders of Shares who are not citizens or residents of the
United States, who acquired their Shares pursuant to the exercise of
compensatory stock options, or who are entities that are otherwise subject to
special tax treatment under the Internal Revenue Code of 1986, as amended (the
"Code") (such as insurance companies, tax-exempt entities and regulated
investment companies); nor does this summary address the effect of any
applicable state, local, foreign or other tax laws. The discussion assumes that
each holder of Shares holds such Shares as a capital asset within the meaning of
Section 1221 of the Code. The federal income tax discussion set forth below is
included for
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general information only and is based upon present law. The precise tax
consequences of the Offer or the Merger will depend on the particular
circumstances of the holder. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO THEM OF THE PROPOSED TRANSACTION.
The receipt of cash for Shares pursuant to the Offer or the Merger will be
a taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign tax laws. In general, a
stockholder who receives cash for Shares pursuant to the Offer or the Merger
will recognize gain or loss for federal income tax purposes equal to the
difference between the amount of cash received in exchange for the Shares sold
and such stockholder's adjusted tax basis in such Shares. Such gain or loss will
be capital gain or loss and may be taxed at the maximum federal tax rate of
39.6% if the Shares were held by the holder for one year or less, or 20% if the
Shares were held by the holder for more than one year.
Amounts received in exchange for a holder's Shares pursuant to the Offer
or the Merger will not generally be subject to federal income tax withholding.
Withholding at the rate of 31% ("back up withholding"), however, will be
required if a holder fails to comply with certain reporting and certification
requirements. In order to prevent such backup withholding each holder tendering
Shares pursuant to the Offer must provide the Depositary with such holder's
correct taxpayer identification number and certify that such holder is not
subject to backup withholding by completing and filing the Substitute form W-9
included in the Letter of Transmittal (see Instruction 10 of the Letter of
Transmittal) or a Form W-9 with the Depositary prior to the time any payments
are made pursuant to the Offer. Certain holders (including among others,
corporations and certain foreign persons) are not subject to backup withholding
provided they establish their status when required to do so. If the holder is a
nonresident alien or foreign entity not subject to backup withholding, the
holder must give the Depositary a completed Form W-8, "Certificate of Foreign
Status," prior to the time any such payments are made.
A stockholder who does not sell Shares in the Offer or the Merger and who
exercises and perfects such stockholder's rights under Delaware Law to demand
fair value for such Shares will recognize capital gain or loss (and may
recognize an amount of interest income) attributable to any payment received
pursuant to the exercise of such rights based upon the principles described
above. See "Special Factors - 3. Purpose of the Offer and the Merger; Plans for
the Company."
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND NOT INTENDED TO BE A SUBSTITUTE FOR CAREFUL TAX PLANNING.
MOREOVER, THE DISCUSSION IS BASED UPON PRESENT LAW AND IT IS IMPOSSIBLE TO
PREDICT THE EFFECT, IF ANY, THAT FUTURE LEGISLATION COULD HAVE ON THE TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION. STOCKHOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OFFER
AND THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE
MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS.
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THE TENDER OFFER
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including if
the Offer is extended or amended, the terms and conditions of such extension or
amendment), Purchaser will accept for payment and pay for all Shares which are
validly tendered prior to the Expiration Date (as hereinafter defined) and not
withdrawn in accordance with the provisions set forth in "The Tender Offer - 4.
Withdrawal Rights" herein at a price of $7.875 per Share, net to the Seller in
cash. The term "Expiration Date" means 12:00 midnight, New York City time, on
August 31, 1999, unless and until Purchaser, in its sole discretion (but subject
to the terms of the Merger Agreement), shall have extended the period of time
during which the Offer is open, in which event the term "Expiration Date" shall
refer to the latest time and date at which the Offer, as so extended by
Purchaser, shall expire.
Purchaser expressly reserves the right, in its sole discretion (but
subject to the terms and conditions of the Merger Agreement), at any time and
from time to time, to extend for any reason the period of time during which the
Offer is open, including the occurrence of any of the conditions specified in
"The Tender Offer - 9. Conditions to the Offer," by giving oral or written
notice of such extension to the Depositary. During any such extension, all
Shares previously tendered and not withdrawn will remain subject to the Offer,
subject to the rights of a tendering stockholder to withdraw his Shares. See
"The Tender Offer - 4. Withdrawal Rights."
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Condition. The Offer is also subject to Purchaser having obtained
sufficient financing to enable it to purchase the Shares to be purchased by it
and to pay the fees and expenses of the Offer and the Merger and to certain
other conditions set forth in "The Tender Offer - 9. Conditions to the Offer."
The Merger Agreement provides that, without the consent of the Company,
Purchaser will not (i) waive the Minimum Condition, (ii) change the form of
consideration, (iii) decrease the price per Share payable in the Offer, (iv)
reduce the maximum number of Shares to be purchased in the Offer, or (v) impose
conditions to the Offer in addition to those set forth in "The Tender Offer - 9.
Conditions to the Offer," or (vi) make changes to the Offer which are otherwise
adverse to the Company or the Public Stockholders.
Notwithstanding the foregoing, Purchaser may, without the consent of the
Company, (i) extend the Offer beyond the scheduled Expiration Date if, at the
scheduled Expiration Date, any of the conditions to Purchaser's obligation to
accept for payment, and to pay for, the Shares, shall not be satisfied or
waived, (ii) extend the Offer for any period required by any rule, regulation or
interpretation of the Commission or the staff thereof applicable to the Offer,
or (iii) extend the Offer for any aggregate period of not more than 20 business
days beyond the latest applicable date that would otherwise be permitted under
clause (i) or (ii), if as of such date, all of the conditions to Purchaser's
obligations to accept for payment, and to pay for, the Shares are satisfied or
waived, but the number of Shares validly tendered and not withdrawn pursuant to
the Offer is less than 90 percent of the outstanding Shares of each class on a
fully diluted basis; provided, however, that if any condition remains
unsatisfied on the initial Expiration Date, at the
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request of the Company, Purchaser shall extend the Offer from time to time until
five business days after such condition is satisfied (provided that Purchaser
shall not be required to extend the Offer beyond 35 calendar days after such
initial scheduled Expiration Date).
Purchaser reserves the right to extend, delay, terminate or amend the
Offer but only as, when and to the extent permitted by the Merger Agreement or
any amendment to the Merger Agreement. Any such extension, delay, amendment,
waiver, or termination will be followed as promptly as practicable by public
announcement thereof, such announcement in the case of an extension to be issued
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. Subject to applicable law (including Rules
14d-4(c), 14d-6(d) and 14e-1(d) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) and without limiting the manner in which Purchaser
may choose to make any public announcement, Purchaser shall have no obligation
to publish, advertise or otherwise communicate any such public announcement
other than by issuing a press release to the Dow Jones News Service.
If Purchaser extends the Offer, or if Purchaser (whether before or after
its acceptance for payment of Shares) is delayed in its purchase of or payment
for Shares or is unable to pay for Shares pursuant to the Offer for any reason,
then, without prejudice to Purchaser's rights under the Offer, the Depositary
may retain tendered Shares on behalf of Purchaser, and such Shares may not be
withdrawn except to the extent tendering stockholders are entitled to withdrawal
rights as described in "The Tender Offer - 4. Withdrawal Rights." However, the
ability of Purchaser to delay the payment for Shares which Purchaser has
accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which
requires that a bidder pay the consideration offered or return the securities
deposited by or on behalf of holders of securities promptly after the
termination or withdrawal of the Offer.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including the Minimum Condition), subject to the Merger Agreement, Purchaser
will disseminate additional tender offer materials and extend the Offer if and
to the extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act.
The minimum period during which the Offer must remain open following material
changes in the terms of the Offer or information concerning the Offer, other
than a change in price or a change in percentage of securities sought, will
depend upon the facts and circumstances, including the relative materiality of
the terms or information. With respect to a change in price or a change in
percentage of securities sought, a minimum ten business day period from the day
of such change is generally required to allow for adequate dissemination to
stockholders and investor response. Subject to the terms of the Merger
Agreement, if, prior to the Expiration Date, Purchaser should decide to decrease
or increase the price per Share being offered in the Offer, such decrease or
increase will be applicable to all stockholders whose Shares are accepted for
payment pursuant to the Offer. As used in this Offer to Purchase, "business day"
means any day other than a Saturday, Sunday or a federal holiday and consists of
the time period from 12:01 a.m. through 12:00 midnight, New York City time, as
computed in accordance with Rule 14d-1 under the Exchange Act.
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The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares and will be furnished to brokers, banks and
similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing for subsequent transmittal to beneficial
owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the terms of the Merger Agreement and the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), Purchaser will accept
for payment, and will pay for promptly after the Expiration Date, all Shares
validly tendered and not properly withdrawn prior to the Expiration Date as soon
as practicable after (i) the Expiration Date, and (ii) the date of satisfaction
or waiver of the conditions of the Offer set forth in "The Tender Offer - 9.
Conditions to the Offer." Subject to applicable rules of the Commission,
Purchaser expressly reserves the right to delay acceptance for payment of, or
payment for, Shares in order to comply in whole or in part with any applicable
law.
In all cases, payment for Shares accepted for payment pursuant to the
Offer will be made only after timely receipt by the Depositary of (i)
certificates evidencing such Shares (the "Stock Certificates") or timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Shares into the Depositary's account at one of the Book-Entry Transfer
Facilities (as defined herein, see "The Tender Offer - 3. Procedures for
Accepting the Offer and Tendering Shares"), (ii) a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) or, in the case of a
book-entry transfer, an Agent's Message (as defined herein, see "The Tender
Offer - 3. Procedures for Accepting the Offer and Tendering Shares") and (iii)
any other required documents by the Letter of Transmittal. For a description of
the procedure for tendering Shares pursuant to the Offer, see "The Tender Offer
- - 3. Procedures for Accepting the Offer and Tendering Shares." Accordingly,
payment may be made to tendering stockholders at different times if delivery of
the Shares and other required documents occur at different times.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn if, as and when Purchaser gives oral or written notice to the
Depositary of its acceptance for payment of such Shares. Upon the terms and
subject to the conditions of the Offer, payment for Shares accepted for payment
pursuant to the Offer will be made by deposit of the purchase price therefor
with the Depositary, which will act as agent for tendering stockholders for the
purpose of receiving payment from Purchaser and transmitting such payments to
tendering stockholders whose Shares have been accepted for payment. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID BY PURCHASER ON THE CONSIDERATION PAID FOR
SHARES PURSUANT TO THE OFFER, REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT.
Purchaser will pay all stock transfer taxes, if any, payable on the transfer
shares of the Company purchased by it pursuant to the Offer, except as set forth
in Instruction 6 of the Letter of Transmittal.
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<PAGE>
Purchaser reserves the right to transfer or assign, in whole or from time
to time in part, to one or more of its affiliates (as defined in Rule
13e-3(a)(1) under the Exchange Act) the right to purchase Shares tendered
pursuant to the Offer, but any such transfer or assignment will not relieve
Purchaser of its obligations under the Offer or prejudice the rights of
tendering stockholders to receive payment for Shares validly tendered and
accepted for payment.
If Purchaser increases the consideration offered to stockholders pursuant
to the Offer, such increased consideration will be paid to all stockholders
whose Shares are purchased pursuant to the Offer, whether or not such Shares
were tendered or accepted for payment prior to such increase in consideration.
If any tendered Shares are not accepted for payment for any reason
pursuant to the Offer, or if Stock Certificates are submitted for more Shares
than are tendered, Stock Certificates evidencing Shares not purchased or
tendered will be returned (or, in the case of Shares tendered by book-entry
transfer, such Shares will be credited to an account maintained at the
Book-Entry Transfer Facility (as defined in "The Tender Offer - 3. Procedures
for Accepting the Offer and Tendering Shares")), without expense to the
tendering stockholder, as promptly as practicable after the expiration or
termination of the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES
Valid Tender. To validly tender Shares pursuant to the Offer, either (a) a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees or an Agent's Message (in the
case of any book-entry transfer), and any other documents required by the Letter
of Transmittal must be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date,
and either (i) the Stock Certificates evidencing such Shares to be tendered must
be received by the Depositary at such address along with the Letter of
Transmittal, or (ii) such Shares must be delivered to the Depositary pursuant to
the procedures for book-entry transfer described below and a Book-Entry
Confirmation (as defined below) must be received by the Depositary, including an
Agent's Message, in each case prior to the Expiration Date, or (b) the tendering
stockholder must comply with the guaranteed delivery procedures described below.
The term "Agent's Message" means a message transmitted by The Depositary Trust
Company (the "Book-Entry Transfer Facility") and received by the Depositary and
forming a part of Book-Entry Confirmation, which states that such Book-Entry
Transfer Facility has received an express acknowledgment from the participant in
such Book-Entry Transfer Facility tendering the Shares which are the subject of
such Book-Entry Confirmation, that such participant has received and agrees to
be bound by the terms of the Letter of Transmittal and that Purchaser may
enforce such agreement against such participant.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may make book-entry delivery of Shares by causing a Book-Entry Transfer
Facility to transfer such Shares into the Depositary's account in accordance
with the
37
<PAGE>
procedures of such Book-Entry Transfer Facility. However, although delivery of
Shares may be effected through book-entry transfer, the Letter of Transmittal
(or facsimile thereof) properly completed and duly executed, together with any
required signature guarantees or an Agent's Message in lieu of the Letter of
Transmittal, and any other required documents, must, in any case, be received by
the Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase on or prior to the Expiration Date, or the guaranteed delivery
procedures described below must be complied with. DELIVERY OF THE LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or by a
commercial bank or trust company having an office or correspondent in the United
States (each of the foregoing, an "Eligible Institution"), except in cases where
(a) the Letter of Transmittal is signed by the registered holder of the Shares
tendered therewith and such holder has not completed the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on the
Letter of Transmittal, or (b) such Shares are tendered for the account of an
Eligible Institution. If a Stock Certificate is registered in the name of a
person other than the signer of the Letter of Transmittal, or if payment is to
be made, or a Stock Certificate not accepted for payment or not tendered is to
be returned, to a person other than the registered holder(s), then the Stock
Certificate must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s) appear on
the Stock Certificate, with the signature(s) on such Stock Certificate or stock
powers guaranteed as described above. See Instructions 1 and 5 of the Letter of
Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Stock Certificates evidencing such Shares are
not immediately available or time will not permit all required documents to
reach the Depositary on or prior to the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, such Shares may
nevertheless be tendered if all the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by Purchaser, is received by the
Depositary on or prior to the Expiration Date as provided below; and
(iii) the Stock Certificates for such Shares, in proper form for transfer
(or a Book-Entry Confirmation), together with a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees (or in the case of a book-entry transfer, an
Agent's Message), and any other documents required by the Letter of
Transmittal, are received by the Depositary within three trading days
after the date of execution of the Notice of Guaranteed Delivery. A
"trading day" is any day on which The American
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<PAGE>
Stock Exchange Inc. (the "AMEX") is open for business.
The Notice of Guaranteed Delivery may be delivered by hand, transmitted by
facsimile transmission or mailed to the Depositary and must include a guarantee
by an Eligible Institution in the form set forth in the Notice of Guaranteed
Delivery.
In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made only after a timely receipt by the Depositary
of the Stock Certificates evidencing such Shares, or a Book-Entry Confirmation
of the delivery of such Shares, and the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees or an Agent's message in connection with a book-entry transfer, and
any other documents required by the Letter of Transmittal.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS, INCLUDING THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY.
Back-Up Federal Income Tax Withholding. Under the federal income tax laws,
the Depositary will be required to withhold 31% of the amount of any payments
made to certain stockholders pursuant to the Offer. In order to avoid such
backup withholding, each tendering stockholder must provide the Depositary with
such stockholder's correct taxpayer identification number and certify that such
stockholder is not subject to back-up federal income tax withholding by
completing the Substitute Form W-9 included in the Letter of Transmittal (see
Instruction 10 of the Letter of Transmittal) or by filing a Form W-9 with the
Depositary prior to any such payments. If the stockholder is a nonresident alien
or foreign entity not subject to backup withholding, the stockholder must give
the Depositary a completed Form W-8 Certificate of Foreign Status prior to
receipt of any payments. See "Special Factors - 5. Material Federal Income Tax
Considerations."
Appointment as Proxy. By executing a Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of Purchaser as
the stockholder's attorneys-in-fact and proxies, in the manner set forth in the
Letter of Transmittal, each with full power of substitution, to the full extent
of the stockholder's rights with respect to the Shares tendered by the
stockholder and accepted for payment by Purchaser (and any and all other Shares
or other securities or property issued or issuable in respect of such Shares on
or after the date of the Merger Agreement). All such proxies and powers of
attorney shall be irrevocable and coupled with an interest in the tendered
Shares. Such appointment is effective only upon acceptance for payment of the
Shares by Purchaser. Upon such acceptance for payment, all prior proxies and
consents given by the stockholder with respect to such Shares (and such other
Shares and other securities) will, without further action, be revoked, and no
subsequent proxies may be given nor
39
<PAGE>
any subsequent written consent executed by such stockholder (and, if given or
executed, will not be deemed to be effective) with respect thereto. The
designees of Purchaser will, with respect to the Shares and other securities for
which the appointment is effective, be empowered to exercise all voting and
other rights of such stockholder as they in their sole discretion may deem
proper at any annual or special meeting of the Company's stockholders, or any
adjournment or postponement thereof, by written consent or otherwise. Purchaser
reserves the right to require that, in order for Shares to be deemed validly
tendered, immediately upon Purchaser's acceptance for payment of such Shares,
Purchaser is able to exercise full voting and other rights with respect to such
Shares (including voting at any meeting of stockholders then scheduled or acting
by written consent without a meeting).
A tender of Shares pursuant to any one of the procedures described above
will constitute the tendering stockholder's acceptance of the terms and
conditions of the Offer, as well as the tendering stockholder's representation
and warranty that such stockholder has the full power and authority to tender
and assign the Shares tendered, as specified in the Letter of Transmittal.
Purchaser's acceptance for payment of Shares tendered pursuant to the Offer will
constitute a binding agreement between the tendering stockholder and Purchaser
upon the terms and subject to the conditions of the Offer.
Determination of Validity. All questions as to the form of documents and
the validity, eligibility (including time of receipt) and acceptance for payment
of any tendered Shares will be determined by Purchaser in its sole discretion,
which determination shall be final and binding on all parties. Purchaser
reserves the absolute right to reject any or all tenders of any Shares
determined by it not to be in proper form or the acceptance for payment of, or
payment for which may, in the opinion of Purchaser's counsel, be unlawful.
Purchaser also reserves the absolute right to waive any defect or irregularity
in any tender of Shares of any particular stockholder, whether or not similar
defects or irregularities are waived in the case of other stockholders. No
tender of Shares will be deemed to have been validly made until all defects and
irregularities relating thereto have been cured or waived. None of Purchaser,
the Depositary, the Dealer Manager, the Information Agent or any other person
will be under any duty to give notification of any defects or irregularities in
tenders or will incur any liability for failure to give any such notification.
Purchaser's interpretation of the terms and conditions of the Offer in this
regard (including the Letter of Transmittal and the Instructions thereto) will
be final and binding.
4. WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date (or such later date as may apply in case the Offer
is extended). Thereafter, such tenders are irrevocable, except that they may be
withdrawn at any time after November 2, 1999 if they have not previously been
accepted for payment as provided in this Offer to Purchase. If Purchaser extends
the Offer, is delayed in its acceptance for payment of Shares or is unable to
accept Shares for payment pursuant to the Offer for any reason, then, without
prejudice to Purchaser's rights under the Offer, the Depositary may,
nevertheless, on behalf of the Purchaser, retain tendered Shares, and such
Shares may not be withdrawn except to the extent that tendering stockholders are
entitled to withdrawal rights as described herein. Any such delay will be an
40
<PAGE>
extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase. Any such notice
of withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the name of the registered
holder, if different from that of the person who tendered such Shares. If Stock
Certificates evidencing Shares to be withdrawn have been delivered to the
Depositary, a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution (except in the case of Shares tendered by an Eligible
Institution), must be submitted prior to the release of such Shares. In
addition, such notice must specify, in the case of Shares tendered by delivery
of Stock Certificates, the name of the registered holder (if different from that
of the tendering stockholder) and the serial numbers shown on the particular
Stock Certificates evidencing the Shares to be withdrawn, or, in the case of
Shares tendered by book-entry transfer as set forth in "The Tender Offer - 3.
Procedures for Accepting the Offer and Tendering Shares," the name and number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Shares.
Withdrawals may not be rescinded, and Shares withdrawn will thereafter be
deemed not validly tendered for purposes of the Offer. However, withdrawn Shares
may be retendered by again following one of the procedures described in "The
Tender Offer - 3. Procedures for Accepting the Offer and Tendering Shares" at
any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. None of Purchaser, the
Depositary, the Dealer Manager, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
5. PRICE RANGE OF SHARES; DIVIDENDS
The Class A Shares are listed on the AMEX under the symbol "CIS" and the
Class B Shares are listed on the AMEX under the symbol "CISB." The following
table sets forth, for the indicated fiscal periods, the reported high and low
sale prices per share for the Shares.
Class A Shares Class B Shares
-------------- --------------
Fiscal Year Ended August 31, 1997: High Low High Low
---- --- ---- ---
First Quarter $61 5/16 $6 $6 5/8 $5 3/4
Second Quarter $6 3/4 $5 7/8 $6 1/8 $6 5/8
Third Quarter $6 7/8 $5 7/8 $6 1/2 $6
Fourth Quarter $7 1/2 $6 1/4 $7 $6 1/8
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<PAGE>
Fiscal Year Ended August 30, 1998:
First Quarter $9 5/8 $6 3/4 $9 $6 5/8
Second Quarter $9 5/8 $8 3/16 $9 $8 5/8
Third Quarter $10 7/8 $9 $10 5/8 $8 13/16
Fourth Quarter $9 5/8 $6 1/8 $9 1/2 $6 7/8
Fiscal Year Ended August 29, 1999:
First Quarter $7 7/8 $5 15/16 $7 3/8 $6
Second Quarter $6 7/8 $5 7/8 $6 3/8 $5 5/8
Third Quarter $6 1/4 $4 $5 7/8 $4 3/8
Fourth Quarter (through July 28, 1999) $6 $4 5/16 $5 3/4 $4 3/8
The Company has not paid cash dividends for many years. The payment of
dividends by the Company is subject to restrictions under the terms of the Note
Purchase Agreement (the "Note Agreement") between the Company and John Hancock
Mutual Life Insurance Company ("John Hancock"). Under the Note Agreement,
cumulative payments for cash dividends and redemption of capital stock are
limited to $3,000,000 plus 50% of Consolidated Net Income (as defined)
subsequent to August 28, 1994 plus net cash proceeds from the sale of stock;
$5,827,000 was available for such payments as of May 30, 1999. In connection
with the Offer and the Merger, John Hancock has agreed to certain modifications
of financial covenants in the Note Agreement, including the dividend covenant,
and to permit the Surviving Corporation to make a Subchapter S election for
Federal income tax purposes.
On June 30, 1999, approximately one month prior to the public announcement
of the execution of the Merger Agreement, the last reported sales price per
Share on the AMEX for the Class A Shares was $5.875 and for the Class B Shares
was $4.375. On July 29, 1999, the last full trading day for the Class A Shares
prior to the announcement of the terms of the Merger Agreement, the last
reported sales price per Share on the AMEX for the Class A Shares was $5.625 and
on July 27, 1999, the last full trading day for the Class B shares prior to the
announcement of the terms of the Merger Agreement, the last reported price per
Share for the Class B Shares was $5.625. On August 3, 1999, the last full
trading day prior to the commencement of the Offer, the last reported sales
price per Share on the AMEX for the Class A Shares was $7.6875 and for the Class
B Shares was $7.50.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET
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<PAGE>
QUOTATION FOR THE SHARES.
6. CERTAIN INFORMATION CONCERNING THE COMPANY
General. The Company is a Delaware corporation with its principal
executive offices located at 1359 Broadway, New York, New York 10018. The
Company's principal business is developing, designing and producing, in its own
facility and through unaffiliated contractors, woven and knitted fabrics of
natural and synthetic fibers in a wide variety of colors and patterns, for sale
to manufacturers and to retailers for resale to the home sewing market.
Available Information. The Company is subject to the informational
requirements of the Exchange Act, and in accordance therewith, is required to
file reports, proxy statements and other information with the Commission
relating to its business, financial condition and other matters. Information, as
of particular dates, concerning the Company's directors and officers, their
remuneration, stock options granted to them, the principal holders of the
Company's securities and any material interest of such persons in transactions
with the Company is required to be described in periodic proxy statements
distributed to the Company's stockholders and filed with the Commission. Such
reports, proxy statements, and other information, including (i) the Company's
Annual Report on Form 10-K for the fiscal year ended August 30, 1998 (the
"Company 10-K") and (ii) the Company's Quarterly Reports on Form 10-Q for the
quarters ended November 29, 1998, February 28, 1999 and May 30, 1999, should be
available for inspection and copying at the Commission's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of this material may also be obtained by mail, upon
payment of the Commission's customary fees, from the Commission's principal
office. Such material should also be available for inspection at the offices of
the AMEX, 86 Trinity Place, New York, New York 10006. The Commission also
maintains an Internet site on the worldwide web at http://www.sec.gov that
contains reports and other information.
A copy of this Offer to Purchase, and certain of the agreements referred
to herein, are attached to Purchaser's Tender Offer Statement on Schedule 14D-1,
dated August 4, 1999 (the "Schedule 14D-1"), which has been filed with the
Commission. The Schedule 14D-1 and the exhibits thereto, along with such other
documents as may be filed by Purchaser with the Commission, may be examined and
copied from the offices of the Commission in the manner set forth above.
Certain Financial Information for the Company. The following table sets
forth certain summary consolidated financial information with respect to the
Company and its subsidiaries excerpted or derived from the audited financial
statements contained in the Company 10-K and the unaudited financial information
contained in the Company's Quarterly Report on Form 10-Q for the thirty-nine
weeks ended May 30, 1999 (the "Company 10-Q"). More comprehensive financial
information is included in such reports (including management's discussion and
analysis of financial condition and results of operation) and other documents
filed by the
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<PAGE>
Company with the Commission, and the following summary is qualified in its
entirety by reference to such documents (which may be inspected and obtained as
described above), including the financial statements and related notes contained
therein. In addition, a copy of the financial statements contained in the
Company 10-K and the Company 10-Q are reproduced as Schedule IV hereto.
CONCORD FABRICS INC.
Selected Consolidated Financial Information
<TABLE>
<CAPTION>
YEAR ENDED THIRTY NINE WEEKS ENDED
August 30, 1998 August 31, 1997 May 30, 1999 May 31, 1998
<S> <C> <C> <C> <C>
Income Statement Data
Net sales $101,296,721 $108,820,287 $ 65,809,885 $ 76,462,685
Cost of sales 70,644,721 76,302,759 44,691,217 52,780,855
Merchandising expenses 7,520,710 6,933,616 4,739,378 5,769,593
Selling and shipping expenses 7,706,088 8,979,360 6,026,743 5,890,367
General and administrative expenses 9,067,241 9,143,052 6,676,195 6,672,090
Provision for doubtful accounts 298,000 901,000 345,000 439,000
Interest expense (net) 777,133 1,101,775 520,707 569,504
Loss on sale of property 500,000* 86,849
Total $ 96,513,893 $103,361,562 $ 63,086,089 $ 72,121,409
Earnings before income
taxes and extraordinary item 4,782,828 5,458,725 2,723,796 4,341,276
Income tax provision (benefit) 2,030,000 2,100,000 1,249,000 1,758,000
NET EARNINGS $ 2,752,828 $ 3,358,725 $ 1,474,796 $ 2,583,276
Earnings per share:
Basic $ .75 $ .92 $ .40 $ .70
Diluted $ .72 $ .90 $ .40 $ .68
Average number of shares
used in computing earnings
per share:
Basic 3,673,788 3,661,591 3,658,382 3,670,015
Diluted 3,820,285 3,749,718 3,708,906 3,814,804
Balance Sheet Data
Working capital
$ 49,699,041 $ 50,792,826 $ 48,719,989 $ 49,965,812
Long-term debt (less current portion) $ 17,150,000 $ 20,000,000 $ 14,300,000 $ 17,150,000
Total assets $ 75,884,130 $ 73,034,106 $ 71,871,933 $ 76,609,002
Stockholders' equity $ 47,073,491 $ 44,228,163 $ 47,945,290 $ 46,903,939
Book value per share $ 12.77 $ 12.07 $ 13.27 $ 12.73
</TABLE>
* Consists of provision for impairment of property held for sale in fiscal
1998.
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<PAGE>
Pro Forma. The pro forma financial statements assume the repurchase of all
of the Shares of the Company not owned by stockholders of the Purchaser, the
cancellation of treasury stock, the increase in interest costs resulting from
the disbursement of funds to effect the repurchase and payment of all related
costs and the elimination of general and administrative expenses associated with
being a publicly held company.
PRO FORMA
THIRTY NINE
YEAR ENDED WEEKS ENDED
August 30, 1998 May 30, 1999
Income Statement Data
Net sales $101,296,721 $ 65,809,885
Cost of sales 70,644,721 44,691,217
Merchandising expenses 7,520,710 4,739,378
Selling and shipping expenses 7,706,088 6,026,743
General and administrative expenses 8,767,241 6,451,195
Provision for doubtful accounts 298,000 345,000
Interest expense (net) 1,464,633 1,036,332
Other Gain on sale of property 500,000 86,849
Total $ 96,901,393 $ 63,376,714
Earnings before income
taxes and extraordinary item 4,395,328 2,433,171
Income tax provision (benefit) 1,865,000 1,116,000
NET EARNINGS $ 2,530,328 $ 1,317,171
Earnings per share:
Basic $ 1.11 $ .58
Diluted $ 1.11 $ .58
Average number of shares
used in computing earnings
per share:
Basic 2,281,498 2,281,498
Diluted 2,281,498 2,281,498
Balance Sheet Data
Working capital 36,976,541 35,839,864
Long-term debt (less current portion) $ 17,150,000 $ 14,300,000
Total assets $ 63,161,630 $ 58,858,808
Stockholders' equity $ 34,350,991 $ 35,065,165
Stockholder's equity per share $ 15.06 $ 15.37
* Consists of provision for impairment of property held for sale in fiscal
1998.
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<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEETS
ASSETS May 30, 1999 August 30, 1998
Current Assets:
Cash and cash equivalents $ 0 $ 0
Held to maturity investments
(at cost) $ 8,025,739 $10,383,778
Accounts receivable (less
allowance for doubtful accounts
of $1,665,000 on May 30,
1999, $1,350,000 on August 30,
1998) 18,134,884 18,003,495
Inventories 15,223,419 16,015,819
Prepaid and refundable income
taxes 0 165,000
Prepaid expenses and other
current assets 1,528,216 1,289,839
Deferred income taxes 1,706,000 1,935,000
Total Current Assets $44,618,258 $47,792,931
Property, plant and equipment
(at cost, less accumulated
depreciation and amortization of
$8,904,321 on May 30,
1999, $7,538,169 on August 30,
1998) 9,281,224 9,159,596
Property and plant leased to
others 0 1,737,052
Property, plant, & equipment held
for sale 1,674,332 1,352,319
Other assets 3,284,994 3,119,732
TOTAL $58,858,808 $63,161,630
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<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEETS
LIABILITIES May 30, 1999 August 30, 1998
Current liabilities:
Current portion of notes payable
insurance company $ 2,850,000 $ 2,850,000
Accounts payable 3,673,386 4,608,507
Accrued expenses and taxes 1,946,008 3,298,883
Income taxes payable 309,000 59,000
Total current liabilities $ 8,778,394 $10,816,390
Notes payable - insurance
company 14,300,000 17,150,000
Deferred income taxes 288,000 288,000
Other liabilities 427,249 556,249
Total liabilities
commitments and contingencies $23,793,643 $28,810,639
STOCKHOLDERS' EQUITY
Common stock: (Note E & F)
Class A - $.50 par value
authorized 4,000,000 shares,
issued 1,168,699 shares at
May 30, 1999, 1,118,699
shares at August 30, 1998 584,350 559,350
Class B - $.50 par value
authorized 4,000,000 shares,
issued 1,112,799 shares at
May 30, 1999, and at
August 30, 1998 556,399 556,399
Retained earnings 33,924,416 33,235,242
Total Stockholders' Equity $35,065,165 $34,350,991
TOTAL $58,858,808 $63,161,630
7. CERTAIN INFORMATION CONCERNING PURCHASER
General. Purchaser is a newly incorporated Delaware corporation organized
in connection with the Offer and the Merger and has not carried on any
activities other than
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<PAGE>
in connection with the Offer and the Merger. The principal offices of Purchaser
are located at 1359 Broadway, New York, New York 10018.
Until immediately prior to the time that Purchaser will purchase Shares
pursuant to the Offer, it is not anticipated that Purchaser will have any
significant assets or liabilities or engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Offer and the Merger. Because Purchaser is newly formed and has minimal
assets and capitalization (other than the Continuing Shareholder Shares), no
meaningful financial information regarding Purchaser is available.
The name, citizenship, business address, principal occupation or
employment, and five-year employment history for each of the directors and
executive officers of Purchaser and certain other information are set forth in
Schedule II hereto.
Beneficial Ownership and Transactions in Shares. The following table sets
forth certain information as of June 30, 1999, with respect to the beneficial
ownership of Shares by each officer and director of Purchaser and the Company
and each person controlling Purchaser and controlling the Company.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Class A Class B
- -----------------------------------------------------------------------------------------------
Name Number of Percent of Number of Percent of
Shares Class Shares Class
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alvin Weinstein*, Chairman of the
Board of Purchaser and of the Company 817,310(1) 39.70% 842,460(2) 58.35%
David Weinstein*, Vice President of
Purchaser and President of the Concord
House Division of the Company 144,463(3) 6.48% 70,113 4.85%
Earl Kramer*, President of Purchaser
and the Company 78,000 3.59%
Joan Weinstein*, Secretary of
Purchaser and the Company 60,000(4) 2.77% 60,000(5) 4.15%
Richard Solar, Director of the Company 7,500(6) (7)
Fred Heller, Director of the Company 7,500(8) (7)
George Gleitman, Director of the
Company 2,500(9) (7)
Peter Weinstein* 84,463 3.8% 70,113 4.85%
Jonathan Weinstein* 84,463 3.89% 70,113 4.85%
- -----------------------------------------------------------------------------------------------
</TABLE>
* Such person is a Continuing Shareholder and could be deemed to be a
controlling person of Purchaser or a member of a control group of Purchaser.
(1) Does not include 60,000 Class A Shares owned of record and beneficially by
Joan Weinstein, Mr. Weinstein's wife, and 313,389 of Class A Shares, or
14.05% of the class, owned of record and beneficially by Mr. Weinstein's
children. David Weinstein is the only child who has an interest exceeding
5% of the class. Mr. Weinstein disclaims beneficial ownership of all of
the shares owned by his spouse and children. Includes 40,000 Class A
Shares which Mr. Weinstein has the right to acquire under Company Stock
Options.
(2) Does not include 60,000 Class B Shares owned of record and beneficially by
Joan Weinstein, and 210,339 Class B Shares, or 14.56% of the class, owned
of record and beneficially by Mr. Weinstein's children, none of whom
individually have an interest
48
<PAGE>
exceeding 5% of the class. Mr. Weinstein disclaims beneficial ownership of
all of these shares owned by his spouse and children.
(3) Includes 60,000 Class A Shares which Mr. Weinstein has the right to
acquire under Company Stock Options.
(4) Does not include 817,310 of Class A Shares owned of record and
beneficially by Alvin Weinstein, Mrs. Weinstein's husband and 313,389 of
Class A Shares, or 14.05% of the class, owned of record and beneficially
by Mrs. Weinstein's children. David Weinstein is the only child who has an
interest exceeding 5% of the class. Mrs. Weinstein disclaims beneficial
ownership of all of the shares owned by her spouse and children.
(5) Does not include 842,460 Class B Shares owned of record and beneficially
by Alvin Weinstein, and 210,339 Class B Shares, or 14.56% of the class,
owned of record and beneficially by Mrs. Weinstein's children, none of
whom individually have an interest exceeding 5% of the class. Mrs.
Weinstein disclaims beneficial ownership of all of these shares owned by
her spouse and children.
(6) Consists of 7,500 Class A Shares which Mr. Solar has the right to acquire
under Company Stock Options.
(7) Represents less than 1% of the class outstanding.
(8) Includes 5,000 Class A Shares which Mr. Heller has the right to acquire
under Company Stock Options.
(9) Consists of 2,500 Class A Shares which Mr. Gleitman has the right to
acquire under Company Stock Options.
On July 29, 1999, each of the Continuing Shareholders transferred
the shares owned by him or her to Purchaser. The transfer of such Shares was in
exchange for shares of the capital stock of Purchaser in connection with the
organization of Purchaser. The Continuing Shareholders have not engaged in any
other transactions in the Shares within the last 60 days.
Purchaser beneficially owns an aggregate of 2,281,498 Shares, representing
approximately 63% of the 3,614,215 Shares outstanding at July 30, 1999, all of
which were contributed to Purchaser by the Continuing Shareholders in exchange
for shares of the capital stock of Purchaser as described above.
Except as described in this Offer to Purchase, (i) neither Purchaser nor,
to the best knowledge of Purchaser, the Company or any of the persons listed in
Schedule II to this Offer to Purchase or any other executive officer or director
of the Company or associate or majority-owned subsidiary of any of the foregoing
owns or has any right to acquire, directly or indirectly, any Shares, and (ii)
neither Purchaser nor, to the best knowledge of Purchaser, any of the persons or
entities referred to above nor any director, executive officer or subsidiary of
any of the
49
<PAGE>
foregoing has effected any transaction in the Shares during the past 60 days. On
August 31, 1998, the Company's Board of Directors authorized the repurchase by
the Company of up to 300,000 Shares. As of July 31, 1999, 120,892 Shares had
been repurchased by the Company in open market transactions at prices ranging
from $5.5625 per Share to $6.75 per Share. For each of the first three fiscal
quarters of the Company following the commencement of such repurchases, the
amount of the Class A Shares purchased, the range of prices paid for such Shares
and the average purchase price during each such period is as follows:
Number of Shares Purchased Price Range Average Price
-------------------------- ----------- -------------
First Quarter 12,503 $6.25 - $6.438 $ 6.00
Second Quarter 104,763 $6.00 - $6.75 $ 6.20
Third Quarter 3,626 $5.5625 - $6.25 $ 6.16
No such repurchases have been made by the Company since the beginning of its
fourth fiscal quarter.
Except as provided in the Merger Agreement and as otherwise described in
this Offer to Purchase, none of Purchaser, nor, to the best knowledge of
Purchaser, any of the persons listed in Schedule II to this Offer to Purchase,
has any contract, arrangement, understanding or relationship with any other
person with respect to any securities of the Company, including, but not limited
to, any contract, arrangement, understanding or relationship concerning the
transfer or voting of such securities, finder's fees, joint ventures, loan or
option arrangements, puts or calls, guaranties of loans, guaranties against loss
guarantees of profits, division of profits or loss, or the giving or withholding
of proxies. Except as set forth in this Offer to Purchase, since September 4,
1995, neither Purchaser nor, to the best knowledge of Purchaser, any of the
persons listed on Schedule II hereto, has had any business relationship or
transaction with the Company or any of its executive officers, directors or
affiliates that is required to be reported under the rules and regulations of
the Commission applicable to the Offer. Except as set forth in this Offer to
Purchase, since September 4, 1995, there have been no contacts, negotiations or
transactions between Purchaser, or any of its subsidiaries or, to the best
knowledge of Purchaser, any of the persons listed in Schedule II to this Offer
to Purchase, on the one hand, and the Company or its affiliates, on the other
hand, concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, an election of directors or a sale or other transfer
of a material amount of assets.
8. SOURCES AND AMOUNTS OF FUNDS
Purchaser estimates that $12.5 million will be required to purchase the
number of Shares that are outstanding pursuant to the Offer, to pay holders of
Company Stock Options cash equal
50
<PAGE>
to the difference between the option prices and the Offer price following
consummation of the Merger, and estimated fees and expenses of the contemplated
transactions. It is anticipated that the sources of required funds will
ultimately be the Company's cash and marketable securities. Initially, however,
it is expected that up to $12.5 million will be obtained through borrowings by
the Purchaser under new senior secured credit facilities with aggregate
availability of $12.5 million (the "New Credit Facility"). Borrowings of
Purchaser under the New Credit Facility will become the obligation of, and will
be repaid by, the Company following consummation of the Merger.
In connection with the Offer, Purchaser has received a commitment from The
Chase Manhattan Bank ("Chase"), specified in a commitment letter dated August 3,
1999 (the "Chase Commitment Letter") for a senior credit facility in the amount
of $12.5 million to initially pay the expenses of the Offer and the Merger. This
information relating to the New Credit Facility is qualified in its entirety by
reference to the complete text of the documents to be entered into in connection
therewith (the "Credit Documentation"). The following is a description of the
expected general terms of the New Credit Facility.
Borrowings under the New Credit Facility will be available for multiple
drawings during the period beginning on the date on which Purchaser accepts
Shares for payment (excluding Continuing Shareholder Shares) pursuant to the
terms of the Offer (the "Closing Date") and ending on the fifth business day
following the Closing Date, subject, among other things, to the Closing Date
occurring on or before October 31, 1999.
Alvin Weinstein, Joan Weinstein and David Weinstein will give unlimited
joint and several guarantees of the obligations of Purchaser under the New
Credit Facility and Jonathan Weinstein, Peter Weinstein and Earl Kramer will
provide limited recourse guarantees, with recourse limited exclusively to the
capital stock of Purchaser owned by each of them. The obligations of Purchaser
under the New Credit Facility will be secured by a first priority security
interest in all of the capital stock of Purchaser and all Shares owned by
Purchaser, whether acquired pursuant to the Tender Offer or otherwise.
Loans under the New Credit Facility (the "Loans") will bear interest at
the rate of interest publicly announced by Chase as its "Prime Rate." The Loans
are subject to mandatory prepayment by the Purchaser. If, at any time, the
aggregate amount of the outstanding Loans, together with accrued interest
thereon, exceeds 50% of the aggregate value of all Shares which have been
pledged by Purchaser to Chase (such value based on a per Share value of $7.875)
then Purchaser shall be required to prepay the Loans in an amount sufficient to
eliminate such excess.
The Loans will be repayable upon the earliest to occur of (i) the date
that the Merger is consummated, and (ii) the date that is 120 days after the
Closing Date. The Loans may be prepaid by the Purchaser without penalty; such
prepayments may not be reborrowed.
The Credit Documentation will contain negative covenants which, among
other things, limit indebtedness, liens, guarantee obligations, mergers,
consolidations, liquidations and dissolutions (but permitting the Merger), asset
sales, leases, dividends and other payments, capital expenditures, investments,
loans and advances, modifications of agreements, transactions
51
<PAGE>
with affiliates, sale-leasebacks, changes in fiscal year, negative pledges,
change in lines of business, and changes in passive holding company status of
Purchaser.
The Credit Documentation will contain customary representations and
warranties, including financial statements (including pro forma financial
statements); absence of undisclosed liabilities; no material adverse change;
corporate existence; compliance with law; corporate power and authority;
enforceability of Credit Documentation; no conflict with law or contractual
obligations; no material litigation; no default; ownership of property; no third
party indebtedness or liens; no burdensome restrictions; intellectual property;
taxes; Federal Reserve regulations; ERISA; Investment Company Act; subsidiaries;
environmental matters; solvency; labor matters; year 2000 matters; accuracy of
disclosure; and creation and perfection of liens in favor of Chase.
The Credit Documentation will also require affirmative covenants,
including delivery of financial statements, reports, officer's certificates and
other materials and information requested by Chase; payment of obligations;
continuation of business and maintenance of existence, rights and privileges;
compliance with laws and contractual obligations; maintenance of property and
insurance; maintenance of books and records; notices of defaults, litigation and
other material events; and further assurances (including, without limitation,
with respect to security interests in favor of Chase in after-acquired
property).
The Credit Documentation will contain customary events of default,
including nonpayment of principal, interest, fees or other amounts when due;
material inaccuracies in representations and warranties; violation of covenants;
cross-defaults; bankruptcy events; certain ERISA events; material judgments; and
actual or asserted invalidity of any guaranty, security document or security
interest provision and change of control.
Purchaser will agree to pay all of the reasonable expenses and charges of
Chase and releases and agrees to indemnify Chase, its officers, directors,
employees, advisors, agents and affiliates from any claims and losses arising
out of the New Credit Facility, except those arising out of the gross negligence
or willful misconduct of the indemnified party.
9. CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) the condition (the "Minimum
Condition") that a number of Shares which constitutes at least a majority of
each class the Shares outstanding on a fully diluted basis not then owned,
beneficially or of record, by Purchaser shall have been tendered shall not have
been satisfied, (ii) Purchaser shall not have obtained sufficient financing to
enable it to purchase the Shares to be purchased by it and to pay fees and
expenses of the Offer and the Merger, including, without limitation, fees and
expenses incurred or to be incurred in connection with the financing (the
"Financing Condition") or (iii) at any time on or after the date of the Merger
Agreement, and prior to the acceptance for payment of Shares, any of the
following conditions shall exist:
(a) there shall have been instituted or be pending any action or
proceeding before any court
52
<PAGE>
or governmental, administrative or regulatory authority or agency,
domestic or foreign, (i) challenging or seeking to make illegal,
materially delay or otherwise directly or indirectly restrain or prohibit
or make materially more costly the making of the Offer, the acceptance for
payment of, or payment for, any Shares by Purchaser or the consummation of
any other Transaction, or seeking to obtain material damages in connection
with any Transaction; (ii) seeking to prohibit or limit materially the
ownership or operation by Purchaser of all or any material portion of the
business or assets of the Company, or to compel Purchaser, to dispose of
or hold separate all or any material portion of the business or assets of
Purchaser as a result of the Transactions; (iii) seeking to impose or
confirm limitations on the ability of Purchaser or any of its Affiliates
to exercise effectively full rights of ownership of any Shares, including,
without limitation, the right to vote any Shares acquired by Purchaser
pursuant to the Offer or otherwise on all matters properly presented to
the Company's stockholders, including, without limitation, the approval
and adoption of the Merger Agreement and the Transactions, (iv) seeking to
require divestiture by Purchaser or any of its Affiliates of any Shares;
or (v) which is reasonably likely to materially adversely affect the
business, operations, properties, condition (financial or otherwise),
assets or liabilities (including, without limitation, contingent
liabilities) or prospects of Purchaser or any of its Affiliates;
(b) there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to (i) Purchaser, the Company or any subsidiary or Affiliate of
Purchaser or the Company, or (ii) any Transaction, by any legislative
body, court, government or governmental, administrative or regulatory
authority or agency, domestic or foreign, which is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (v) of paragraph (a) above;
(c) there shall have occurred any change, condition, event or development
that has a Material Adverse Effect;
(d) there shall have occurred (i) any general suspension of, or limitation
on prices for, trading in securities on the AMEX, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in
the United States, (iii) any limitation (whether or not mandatory) by any
government or governmental, administrative or regulatory authority or
agency, domestic or foreign, on, or other event that, in the reasonable
judgment of Purchaser, might affect, the extension of credit by banks or
other lending institutions, (iv) a commencement of a war or armed
hostilities or other national or international calamity directly or
indirectly involving the United States or (v) in the case of any of the
foregoing existing on the date hereof, a material acceleration or
worsening thereof which materially effects the Company;
(e) (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes
of this paragraph as set forth in Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of the then outstanding Shares has been
acquired by any person, other than Purchaser or any of its Affiliates, or
53
<PAGE>
(ii) (A) the Board or any committee thereof shall have withdrawn or
modified in a manner adverse to Purchaser the approval or recommendation
of the Offer, the Merger, the Merger Agreement, or approved or recommended
any takeover proposal or any other acquisition of Shares other than the
Offer, the Merger or the Merger Agreement, or (B) the Board or any
committee thereof shall have resolved to do any of the foregoing;
(f) any representation or warranty of the Company in the Merger Agreement
which is qualified as to materiality shall not be true and correct or any
such representation or warranty that is not so qualified shall not be true
and correct in any material respect, in each case as if such
representation or warranty was made as of such time on or after the date
of the Merger Agreement;
(g) the Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under the
Merger Agreement;
(h) the Merger Agreement shall have been terminated in accordance with its
terms; or
(i) Purchaser and the Company shall have agreed that Purchaser shall
terminate the Offer or postpone the acceptance for payment of or payment
for Shares thereunder;
which, in the sole judgment of Purchaser in any such case, and regardless of the
circumstances giving rise to any such condition, makes it inadvisable to proceed
with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition or may be waived by Purchaser in whole or in part at any time and from
time to time in its sole discretion, except that the Minimum Condition may only
be waived by Purchaser with the prior approval of the Company. The failure by
Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right; the waiver of any such right with respect to
particular facts and other circumstances shall not be deemed a waiver with
respect to any other facts and circumstances; and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to time.
10. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
General. Except as described in this "The Tender Offer - 12. Certain Legal
Matters; Regulatory Approvals," Purchaser is not aware of any license or
regulatory permit that appears to be material to the business of the Company and
its subsidiaries, taken as a whole, that might be adversely affected by the
acquisition of Shares by Purchaser pursuant to the Offer, the Merger or
otherwise or, except as set forth below, of any approval or other action by any
governmental, administrative or regulatory agency or authority, domestic or
foreign, that would be required for the acquisition of or ownership shares by
Purchaser the Merger or otherwise. Should any such approval or other action be
required, Purchaser currently contemplates that such approval of action will be
sought. Except as otherwise expressly described in this "The Tender Offer - 12.
54
<PAGE>
Certain Legal Matters; Regulatory Approvals," Purchaser does not currently
intend to delay the acceptance for payment of Shares tendered pursuant to the
Offer pending the outcome of any such matter (subject to Purchaser's right to
decline to purchase Shares if any of the conditions in "The Tender Offer - 9.
Conditions to the Offer" have occurred), Purchaser is unable to predict whether
it may determine that it is required to delay the acceptance for payment of
Shares tendered pursuant to the Offer pending the outcome of any such matter.
There can be no assurance that any such approval or other action, if needed,
would be obtained or would be obtained without substantial conditions or that
adverse consequences might not result to the business of the Company or that
certain parts of the business of the Company might not have to be disposed of or
other substantial conditions complied with in order to obtain such approval or
other action or in the event that such approvals were not obtained or any other
actions were not taken. Purchaser's obligation under the Offer to accept for
payment and pay for Shares is subject to certain conditions, including
conditions relating to certain of the legal matters discussed in this "The
Tender Offer - 12. Certain Legal Matters; Regulatory Approvals." See "The Tender
Offer - 9. Conditions to the Offer."
Federal Reserve Board Regulations. The margin regulations promulgated by
the Federal Reserve Board place restrictions on the amount of credit that may be
extended for the purpose of purchasing margin stock (including the Shares) if
such credit is secured directly or indirectly by margin stock. Purchaser and the
Company believe that the financing of the acquisition of the Shares will not
violate the margin regulations.
11. FEES AND EXPENSES
First Union Capital Markets Corp. is acting as the Dealer Manager in
connection with the Offer and BHC, a division of First Union Capital Markets
Corp., has provided certain financial advisory services in connection with the
proposed Offer and Merger. In connection with such financial advisory services,
the Company has agreed to pay a fee of up to $450,000 and to reimburse BHC for
certain reasonable out-of-pocket expenses, including reasonable attorneys' fees,
incurred in connection with such services. In exchange for its services as
Dealer Manager, Purchaser has agreed to pay First Union Capital Markets Corp.
$100,000 and to reimburse the Dealer Manager for certain reasonable
out-of-pocket expenses, including reasonable attorneys' fees. The Company will
also indemnify BHC and the Dealer Manager against certain liabilities and
expenses in connection with the Offer, including certain liabilities under the
federal securities laws.
Purchaser has retained American Stock Transfer & Trust Company to act as
the Information Agent and The ChaseMellon Shareholder Services, LLC to serve as
the Depositary in connection with the Offer. The Dealer Manager and the
Information Agent may contact holders of Shares by mail, telephone, telex,
telecopy, telegraph and personal interview and may request banks, brokers,
dealers and other nominee stockholders to forward materials relating to the
Offer to beneficial owners. The Information Agent and the Depositary each will
receive reasonable and customary compensation for their services, be reimbursed
for certain reasonable out-of-pocket expenses and be indemnified against certain
liabilities and expenses in connection therewith, including certain liabilities
and expenses under the federal securities laws.
55
<PAGE>
The following table sets forth the estimated expenses incurred in
connection with the Offer and the Merger by the Company, Purchaser and the
Continuing Shareholders:
Investment banking fees - Bowles Hollowell Conner $ 450,000
Investment banking fees - Peter J. Solomon 240,000
Dealer Manager - First Union Capital Markets Corp 100,000
Debt financing discounts and commissions 125,000
Legal fees 300,000
SEC filing fee 2,000
Printing and mailing expenses 10,000
Information Agent fees 5,000
Independent Directors 50,000
Depositary fees 25,000
Special Committee fees and expenses 50,000
Miscellaneous (including out-of-pocket expenses
of professionals) 75,000
Total $1,432,000
The above fees and expenses include fees and expenses incurred by or on
behalf of Purchaser and/or the Continuing Shareholders in connection with the
Offer and the Merger that will, in effect, be borne by the Company if the Merger
is consummated, since, by operation of law, in a merger, the Surviving
Corporation assumes and becomes liable for the obligations of the entity merging
into it.
The Merger Agreement provides that, except in certain circumstances, in
the event of termination of the Merger Agreement without consummation of the
Merger, the Company, on the one hand, and Purchaser, on the other hand, will pay
their own expenses. The fees and expenses to be borne by the Company will
include those of financial advisors (including BHC and Peter J. Solomon),
accountants and counsel for the Company and the Special Committee, and fees and
expenses for the preparation, printing, mailing and filing of documents used in
connection with the Offer and the Merger. The fees and expenses of Purchaser
will include any commitment and other fees or expenses of any person providing
or proposing to provide debt financing and fees and expenses of counsel for
Purchaser. If termination of the Merger Agreement is not due to a breach by
Purchaser of its representations, warranties or covenants in the Merger
Agreement, then the Company is to reimburse Purchaser for the fees and expenses
incurred by it in connection with the Merger, with the maximum reimbursement by
the Company being $1,000,000. See "Special Factors - 2. The Offer and Merger;
Merger Agreement." For information regarding payment of fees and expenses to the
Special Committee, see "Special Factors - 1. Background of the Offer; Contacts
with the Company." Interests of Certain Persons in the Merger and the Company."
For information regarding Peter J. Solomon's engagement by the Company and the
payment of fees and expense in connection with that engagement, see "Special
Factors - 1. Background of the Offer; Contacts with the Company."
Neither Purchaser nor the Continuing Shareholders will pay any fees or
commissions to any broker or dealer or other person or entity (other than as
described in the preceding paragraph)
56
<PAGE>
in connection with the solicitation of tenders of Shares pursuant to the Offer.
Brokers, dealers, commercial banks and trust companies will be reimbursed by
Purchaser upon request for customary mailing and handling expenses incurred by
them in forwarding material to their customers.
12. MISCELLANEOUS
Purchaser is not aware of any jurisdiction in which the making of the
Offer is not in compliance with applicable law. If Purchaser becomes aware of
any jurisdiction in which the making of the Offer would not be in compliance
with applicable law, Purchaser will make a good faith effort to comply with any
such law. If, after such good faith effort, Purchaser cannot comply with any
such law, the Offer will not be made to (nor will tenders be accepted from or on
behalf of) the holders of Shares residing in such jurisdiction. In those
jurisdictions whose securities or blue sky laws require the Offer to be made by
a licensed broker or dealer, the Offer is being made on behalf of Purchaser by
the Dealer Managers or one or more registered brokers or dealers which are
licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER NOT CONTAINED IN THIS OFFER TO PURCHASE OR
IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Purchaser has filed with the Commission the Tender Offer Statement on
Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act, together with
exhibits, furnishing certain additional information with respect to the Offer,
and may file amendments thereto. Such Schedule 14D-1 and any amendments thereto,
including exhibits, should be available for inspection and copies should be
obtainable in the manner set forth in "The Tender Offer - 6. Certain Information
Concerning the Company" (except that such material will not be available at the
regional offices of the Commission).
Concord Merger Corp.
August 4, 1999
57
<PAGE>
SCHEDULE I
[LETTERHEAD OF PETER J. SOLOMON COMPANY LIMITED]
July 29, 1999
Special Committee of the Board of Directors
Concord Fabrics Inc.
1359 Broadway
New York, NY 10018
Ladies and Gentlemen:
You have asked us to advise you with respect to the fairness to the
shareholders of Concord Fabrics Inc. (the "Company") other than Concord Merger
Corp. ("Merger Corp.") and its affiliates from a financial point of view of the
consideration proposed to be paid by Merger Corp. pursuant to the terms of the
Agreement and Plan of Merger (the "Agreement"), draft of July 28, 1999, between
the Company and Merger Corp.
We understand that Merger Corp. has been formed by an investor group that
includes Alvin Weinstein, the Chairman of the Company, Earl Kramer, the
President of the Company, David Weinstein, the President of the Company's
Concord House Division, and other members of the Weinstein family (the "Investor
Group") and has made an offer to purchase all of the Class A and Class B common
shares (the "Common Shares") and common share equivalents of the Company not
owned by Merger Corp., the members of the Investor Group and their affiliates
for a price of $7.875 per share (the "Transaction"). We understand that,
pursuant to the Agreement, Merger Corp. will commence a tender offer for the
outstanding Common Shares not owned by Merger Corp. and its affiliates and, upon
completion thereof, intends to merge itself with and into the Company. We
further understand that Merger Corp. and the Investor Group currently own
approximately 63% of the outstanding Common Shares.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the
management of the Company;
(iii) reviewed certain financial projections of the Company prepared
by the
<PAGE>
management of the Company;
(iv) discussed the past and current operations, financial condition
and prospects of the Company with management of the Company;
(v) reviewed the reported prices and trading activity of the Common
Shares;
(vi) compared the financial performance and condition of the Company
and the liquidity of the Common Shares with that of certain other
comparable publicly-traded companies;
(vii) reviewed publicly available information regarding the
financial terms of certain transactions deemed comparable, in whole or in
part, to the Transaction;
(viii) participated in certain discussions among representatives of
the Company and Merger Corp.;
(ix) reviewed the Agreement, draft of July 28, 1999 (and we have
assumed that the final form thereof will not vary in any regard that is
material to our analysis); and
(x) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information.
With respect to the financial projections, we have assumed, with your
permission, that the financial projections were reasonably prepared on a basis
which reflects the best currently available estimates and judgements of the
future financial performance of the Company. We have not conducted a physical
inspection of the facilities or properties of the Company. We have not assumed
any responsibility for any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with any such valuation
or appraisal. For purposes of rendering this opinion, we have assumed and relied
upon, in all respects material to our analysis, the following: that the
representations and warranties of each party contained in the Agreement are true
and correct; that each party will perform all of the covenants and agreements
required to be performed by it and that all of the conditions to the Transaction
will be satisfied without waiver thereof. We have assumed, with your permission,
for purposes of this opinion that the proposed consummation of the Transaction
as set forth in the Agreement complies in all material respects with all
statutory, common and other applicable law. We have also assumed that all
material governmental, regulatory and other consents and approvals will be
obtained and that in the course of obtaining any of the foregoing, as
contemplated by the Agreement, no restrictions or conditions will be imposed or
waivers made that would have any material effect on the Transaction. We have
relied as to all legal matters on advice of counsel to the Special Committee of
the Board of Directors of the Company (the "Special Committee"). Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, July 29, 1999.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest
<PAGE>
from any party with respect to the sale or other business combination
transaction involving the Company or any of its assets. The Company represented
to us that it had not received any expressions of interest or offers from any
party with respect to any such transaction. Further, the members of the Investor
Group represented to us that they would not entertain or accept any offers from
any party to purchase their Common Shares. Our opinion is predicated on these
bases.
We have acted as financial advisor to the Special Committee in connection
with the Transaction and will receive a fee from the Company for our services, a
portion of which is payable upon the delivery of this opinion.
This letter is provided solely for the information of the Special
Committee and is not expressed on behalf of and is not intended to confer rights
or remedies upon any other entity or persons, and may not be used for any other
purpose without our prior written consent (except that this letter may be
included in its entirety in any filings made with respect to the Transaction
with the Securities and Exchange Commission). This letter does not constitute a
recommendation to any holder of Common Shares as to whether or not such holder
should tender shares or how any such holder should vote on the Transaction.
Based on, and subject to, the foregoing, we are of the opinion that on the
date hereof, the consideration to be received by the shareholders of the Company
other than Merger Corp. and its affiliates in connection with the Transaction is
fair from a financial point of view to the shareholders of the Company other
than Merger Corp. and its affiliates.
Very truly yours,
PETER J. SOLOMON COMPANY LIMITED
<PAGE>
SCHEDULE II
DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER
The name, business address, present principal occupation or employment and
five-year employment history of each director and executive officer of Purchaser
and certain other information are set forth below. The address of each director
and officer is c/o Concord Fabrics Inc., 1359 Broadway, New York, New York
10018. Unless otherwise indicated, each occupation set forth below an
individual's name refers to employment with Concord Fabrics Inc. (the
"Company"). All directors and executive officers listed below are citizens of
the United States. Unless otherwise indicated, each such person has held his or
her present occupation as set forth below, or has been an executive officer of
the Company, or the organization indicated, for the past five years.
DIRECTORS AND EXECUTIVE OFFICER OF PURCHASER
Present Principal Occupation Employment;
Name, Citizenship Material Positions Held During the Past Five
and Certain Business Address Years and Business Addresses Thereof
- ---------------------------- ------------------------------------
Alvin Weinstein Chairman of the Board of Directors of the Company
Chairman of the Board of Directors of
Concord Merger Corp. since July 29, 1999
David Weinstein President of the Concord House Division
of Concord Fabrics, Inc.
Vice President of Concord Merger Corp. since July
29, 1999
Joan Weinstein Secretary of the Company
Secretary of Concord Merger Corp. since July 29,
1999
Earl Kramer President of the Company
President of Concord Merger Corp. since July 29,
1999
<PAGE>
SCHEDULE III
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Section 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to section 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's
shares of stock under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word "stockholder" means
a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and
include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with
the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation
to be effected pursuant to section 251 (other than a merger effected
pursuant to section 251(g) of this title), section 252, section 254,
section 257, section 258, section 263 or section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof,
at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of section 251 of
this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of
any class or series of stock of a constituent corporation if
the holders thereof are required by the terms of
<PAGE>
an agreement of merger or consolidation pursuant to sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under section 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for
the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section,
shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for
the approval at a meeting of stockholders, the corporation,
not less than 20 days prior to the meeting, shall notify each
of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of
the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand
the appraisal of such stockholder's shares shall deliver to
the corporation, before the taking of the vote on the merger
or consolidation, a
<PAGE>
written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
stockholder's shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days
after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
section 228 or Section 253 of this title, each constituent
corporation, either before the effective date of the merger or
consolidation or within ten days thereafter, shall notify each
of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such
class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of
the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any
class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given
on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of
the effective date of the merger or consolidation, either (i)
each such constituent corporation shall send a second notice
before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after
such effective date; provided, however, that if such second
notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant
secretary or
<PAGE>
of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in
the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date
shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record
date shall be the close of business on the day next preceding
the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal
and to accept the terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor
of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within
10 days after such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register
in Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
<PAGE>
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such direction,
the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors.
In determining the fair rate of interest, the Court may consider all
relevant factors, including the rate of interest which the surviving or
resulting corporation would have had to pay to borrow money during the
pendency of the proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal prior to
the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or
resulting corporation pursuant to subsection (f) of this section and who
has submitted such stockholder's certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation
to the stockholders entitled thereto. Interest may be simple or compound,
as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and
the case of holders of shares represented by certificates upon the
surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation
be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose
or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record
at a
<PAGE>
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholder's demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection
(e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall
cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the
Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting corporation.
<PAGE>
SCHEDULE IV
CERTAIN FINANCIAL STATEMENTS OF THE COMPANY
<PAGE>
<PAGE>
[LETTERHEAD OF EISNER & LUBIN LLP]
Independent Auditors' Report
To the Board of Directors and Stockholders
Concord Fabrics Inc.
We have audited the accompanying consolidated balance sheet of Concord
Fabrics Inc. and Subsidiaries as at September 1, 1996, and the related
consolidated statements of stockholders' equity, operations and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Concord Fabrics Inc. and
Subsidiaries as at September 1, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
The audit of the financial statements was made for the purpose of forming
an opinion on those statements taken as a whole. The schedule listed in the
index of financial statement schedules is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. The information in this schedule for the year ended
September 1, 1996 has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states, in
all material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Eisner & Lubin LLP
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
November 13, 1996
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 30, 1998 AND AUGUST 31, 1997
<TABLE>
<CAPTION>
August 30, August 31,
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,678,053 $ 7,381,044
Investments in held-to-maturity securities (Note 1) 14,593,225 13,522,758
Accounts receivable (less doubtful accounts of $1,350,000 in
1998 and 1997) 18,003,495 21,311,977
Inventories (Notes 1 and 2) 16,015,819 12,903,902
Prepaid and refundable income taxes -- 255,000
Prepaid expenses and other current assets 1,289,839 1,416,839
Deferred income taxes (Note 5) 1,935,000 1,773,000
----------- -----------
Total current assets 60,515,431 58,564,520
PROPERTY, PLANT AND EQUIPMENT, net (Notes 1 and 3) 9,159,596 7,438,260
PROPERTY, PLANT AND EQUIPMENT HELD FOR SALE, at estimated disposal value (Note 16) 1,352,319 1,936,969
PROPERTY AND PLANT LEASED TO OTHERS (Note 14) 1,737,052 1,889,212
OTHER ASSETS (Note 4) 3,119,732 3,205,145
----------- -----------
Total assets $75,884,130 $73,034,106
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 2,850,000 $ --
Accounts payable 4,608,507 4,293,207
Accrued expenses (Note 7) 3,298,883 3,478,487
Income taxes payable 59,000 --
----------- -----------
Total current liabilities 10,816,390 7,771,694
NOTES PAYABLE (Note 9) 17,150,000 20,000,000
DEFERRED INCOME TAXES (Note 5) 288,000 550,000
OTHER LIABILITIES 556,249 484,249
----------- -----------
Total liabilities 28,810,639 28,805,943
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock-
Class A - $.50 par value, authorized $4,000,000 shares,
issued 2,237,656 shares in 1998 and 2,209,006 shares in 1997 1,118,828 1,104,503
Class B - $.50 par value, authorized 4,000,000 shares, issued 1,447,451
shares in 1998 and 1,456,101 shares in 1997 723,726 728,051
Additional paid-in capital 9,274,561 9,192,061
Retained earnings 35,956,376 33,203,548
----------- -----------
Total stockholders' equity 47,073,491 44,228,163
----------- -----------
Total liabilities and stockholders' equity $75,884,130 $73,034,106
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
23
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED AUGUST 30, 1998, AUGUST 31, 1997 AND SEPTEMBER 1, 1996
<TABLE>
<CAPTION>
August 30, August 31, September 1,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $101,296,721 $108,820,287 $146,561,416
------------ ------------ ------------
EXPENSES:
Cost of sales 70,644,721 76,302,759 108,814,265
Merchandising expenses 7,520,710 6,933,616 9,070,758
Selling and shipping expenses 7,706,088 8,979,360 12,189,783
General and administrative expenses 9,067,241 9,143,052 11,890,945
Provision for doubtful accounts 298,000 901,000 1,070,000
Interest expense, net (Note 11) 777,133 1,101,775 1,811,747
Provision for impairment in value of property held for sale (Note 16) 500,000 -- --
------------ ------------ ------------
Total expenses 96,513,893 103,361,562 144,847,498
------------ ------------ ------------
Earnings before income tax provision 4,782,828 5,458,725 1,713,918
INCOME TAX PROVISION (Note 5) 2,030,000 2,100,000 776,000
------------ ------------ ------------
Net earnings $ 2,752,828 $ 3,358,725 $ 937,918
============ ============ ============
BASIC EARNINGS PER SHARE (Notes 1 and 13) $ 0.75 $ 0.92 $ 0.26
------------ ------------ ------------
DILUTED EARNINGS PER SHARE $ 0.72 $ 0.90 $ 0.26
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTING BASIC
EARNINGS PER SHARE 3,673,788 3,661,591 3,630,329
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTING DILUTED
EARNINGS PER SHARE 3,820,285 3,749,718 3,675,364
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 30, 1998, AUGUST 31, 1997 AND SEPTEMBER 1, 1996
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
------------------------------------------------
Number Dollar Number Dollar
of Shares Value of Shares Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE, September 3, 1995 2,105,611 $1,052,805 1,509,451 $ 754,726
Net earnings -- -- -- --
Conversion from Class B shares to Class A shares 50 25 (50) (25)
Exercise of stock options (Note 13) 41,295 20,648 -- --
--------- ---------- ---------- ---------
BALANCE, September 1, 1996 2,146,956 1,073,478 1,509,401 754,701
Net earnings -- -- -- --
Conversion from Class B shares to Class A shares 53,300 26,650 (53,300) (26,650)
Exercise of stock options (Note 13) 8,750 4,375 -- --
--------- ---------- ---------- ---------
BALANCE, August 31, 1997 2,209,006 1,104,503 1,456,101 728,051
Net earnings -- -- -- --
Conversion from Class B shares to Class A shares 8,650 4,325 (8,650) (4,325)
Exercise of stock options (Note 13) 20,000 10,000 -- --
--------- ---------- ---------- ---------
BALANCE, August 30, 1998 2,237,656 $1,118,828 1,447,451 $ 723,726
========= ========== ========== =========
<CAPTION>
Additional Total
Paid-in Retained Stockholders'
Capital Earnings Equity
---------- ----------- -----------
<S> <C> <C> <C>
BALANCE, September 3, 1995 $9,062,885 $28,906,905 $39,777,321
Net earnings -- 937,918 937,918
Conversion from Class B shares to Class A shares -- -- --
Exercise of stock options (Note 13) 103,238 -- 123,886
---------- ----------- -----------
BALANCE, September 1, 1996 9,166,123 29,844,823 40,839,125
Net earnings -- 3,358,725 3,358,725
Conversion from Class B shares to Class A shares -- -- --
Exercise of stock options (Note 13) 25,938 -- 30,313
---------- ----------- -----------
BALANCE, August 31, 1997 9,192,061 33,203,548 44,228,163
Net earnings -- 2,752,828 2,752,828
Conversion from Class B shares to Class A shares -- -- --
Exercise of stock options (Note 13) 82,500 -- 92,500
---------- ----------- -----------
BALANCE, August 30, 1998 $9,274,561 $35,956,376 $47,073,491
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 30, 1998, AUGUST 31, 1997 AND SEPTEMBER 1, 1996
<TABLE>
<CAPTION>
August 30, 1998 August 31, September 1,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,752,828 $ 3,358,725 $ 937,918
Adjustments to reconcile net earnings to net cash provided
by operating activities-
Depreciation and amortization 1,865,161 1,724,099 1,813,123
Deferred income taxes (424,000) 365,000 370,000
Provision for doubtful accounts 298,000 901,000 1,070,000
Loss on sale of equipment -- -- 52,569
Loss on disposal of equipment 12,820 -- --
Loss on disposal of leasehold improvements -- 51,000 --
Provision for impairment in value of property held for
sale 500,000 -- --
Change in assets and liabilities-
Decrease (increase) in-
Accounts receivable 3,010,482 4,884,129 (257,400)
Inventories (3,111,917) 4,419,277 6,748,247
Prepaid and refundable income taxes 255,000 168,200 1,627,800
Prepaid expenses and other current assets 127,000 203,480 732,084
Other assets 50,109 (783,691) (112,236)
Increase (decrease) in-
Accounts payable 315,300 (2,639,270) (1,990,962)
Accrued expenses (179,604) (889,544) (1,002,044)
Income taxes payable 59,000 -- --
Other liabilities 72,000 60,000 63,159
------------ ------------ ------------
Net cash provided by operating activities 5,602,179 11,822,405 10,052,258
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity securities (21,507,767) (45,193,998) --
Proceeds from sales of held-to-maturity securities 20,437,300 31,671,240 --
Purchases of property, plant and equipment (3,411,853) (942,328) (1,695,758)
Proceeds from sale of equipment 84,650 250,390 900,520
------------ ------------ ------------
Net cash used in investing activities (4,397,670) (14,214,696) (795,238)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable - banks, net -- -- (2,000,000)
Issuance of Class A common stock pursuant to stock options
exercised 92,500 30,311 123,885
------------ ------------ ------------
Net cash provided by (used in) financing
activities 92,500 30,311 (1,876,115)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 1,297,009 (2,361,980) 7,380,905
CASH AND CASH EQUIVALENTS, beginning of year 7,381,044 9,743,024 2,362,119
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 8,678,053 $ 7,381,044 $ 9,743,024
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 30, 1998, AUGUST 31, 1997 AND SEPTEMBER 1, 1996
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Business of the Company
The Company's principal business is the manufacture and distribution of woven
and knitted fabrics for sale to manufacturers (primarily of home furnishing and
apparel), and to retailers (including chains, department stores and
independently owned fabric stores) for resale to the home sewing market.
Principles of Consolidation
The financial statements include the accounts of Concord Fabrics Inc. and its
wholly owned subsidiaries (the "Company"). All intercompany investments,
advances and transactions have been eliminated.
Inventories
Inventories are stated at lower of cost or market using the first-in, first-out
method. Inventory costs comprise material, direct labor and overhead.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost.
Depreciation is computed principally by the straight-line method for financial
reporting purposes and by accelerated methods for income tax purposes. Deferred
income taxes are provided for the difference between depreciation expense for
financial reporting purposes and for income tax purposes. Leasehold improvements
are amortized over the shorter of the life of the related asset or the life of
the lease.
Investments
The Company's investments are in debt securities and stated at amortized cost.
The Company has the positive intent and ability to hold the securities to
maturity.
27
<PAGE>
Cash Equivalents
For reporting purposes, the Company considers all highly liquid debt investments
purchased with a maturity of three months or less to be cash equivalents. Cash
equivalents including commercial paper aggregate $5,700,000 at August 30, 1998
and $5,600,000 at August 31, 1997.
Stock Options
In 1995, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." This statement establishes a fair market value based method of
accounting for an employee stock option or similar equity instrument but allows
companies to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Companies electing to continue using the accounting under APB Opinion No. 25
must, however, make pro forma disclosures of net income and earnings per share
as if the fair value based method of accounting defined in SFAS No. 123 had been
applied (Note 13). The Company has elected to continue accounting for its
stock-based compensation awards to employees and directors under the accounting
prescribed by APB Opinion No. 25 and to provide the disclosures required by SFAS
No. 123.
Earnings Per Share
In 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share gives effect to all potentially dilutive common shares that
were outstanding during the period under the Company stock option Incentive
Program (Note 13). All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the SFAS No. 128
requirements.
Fiscal Year
The Company operated on a 52-53 week year ending on the Sunday closest to August
31. The years ended August 30, 1998, August 31, 1997 and September 1, 1996 were
comprised of fifty-two weeks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
28
<PAGE>
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
August 30, August 31,
1998 1997
----------- -----------
<S> <C> <C>
Finished goods $ 8,844,722 $ 8,164,772
Work-in-process 2,596,291 2,527,339
Greige goods and yarn 4,574,806 2,211,791
----------- -----------
$16,015,819 $12,903,902
=========== ===========
</TABLE>
At August 30, 1998, the Company had outstanding commitments to purchase greige
goods aggregating approximately $4,500,000.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
August 30, August 31, Useful Life
1998 1997 (in years)
----------- ----------- -------------
<S> <C> <C> <C>
Land $ 78,503 $ 78,503 --
Buildings 2,568,195 2,568,195 19 to 40
Machinery and equipment 9,442,309 7,414,592 5 to 9
Furniture and fixtures 2,021,457 1,650,269 3 to 8
Leasehold improvements 2,587,301 2,126,870 Term of lease or life of asset
----------- -----------
16,697,765 13,838,429
Less- Accumulated depreciation and
amortization 7,538,169 6,400,169
----------- -----------
Net $ 9,159,596 $ 7,438,260
=========== ===========
</TABLE>
4. OTHER ASSETS
The Company maintains several insurance policies on the lives of its officers
and directors with a total face value of $9,843,000. At August 30, 1998 and
August 31, 1997, the cash surrender value on these policies aggregated
$2,641,000 and $2,456,000, respectively, and are included in other assets in the
accompanying consolidated balance sheets.
29
<PAGE>
5. INCOME TAXES
Income tax provision (benefit) on the consolidated statements of income consists
of the following:
<TABLE>
<CAPTION>
August 30, August 31, September 1,
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal $1,970,000 $1,480,000 $346,000
State and local 484,000 255,000 60,000
Deferred:
Federal (361,000) 216,000 284,000
State and local (63,000) 149,000 86,000
---------- ---------- --------
$2,030,000 $2,100,000 $776,000
========== ========== ========
</TABLE>
Income taxes computed at the statutory Federal income tax rate are reconciled to
income tax provision (benefit) on the consolidated statements of income as
follows:
<TABLE>
<CAPTION>
August 30, August 31, September 1,
1998 1997 1996
---------- ---------- ------------
<S> <C> <C> <C>
Income taxes at statutory Federal income
tax rate $1,630,000 $1,856,000 $583,000
Effect of:
State and local income taxes (net of
Federal income taxes) 278,000 270,000 96,000
Nondeductible expenses 122,000 (12,000) 107,000
Foreign sales corporation -- (14,000) (10,000)
---------- ---------- ----------
$2,030,000 $2,100,000 $776,000
========== ========== ========
</TABLE>
30
<PAGE>
Deferred tax assets and liabilities are comprised of the following elements:
<TABLE>
<CAPTION>
August 30, August 31,
1998 1997
----------- -----------
<S> <C> <C>
Gross deferred assets:
Excess of tax over financial statement basis of property and
plant leased to others $ 171,500 $ 173,000
Estimated doubtful accounts 540,000 540,000
Excess of tax over financial statement basis of inventory 1,051,700 941,000
Accruals deductible for tax purposes when paid 427,500 421,000
----------- -----------
Gross deferred assets 2,190,700 2,075,000
----------- -----------
Excess of financial statement over tax basis of property, plant
and equipment 325,700 431,000
Excess of financial statement over tax basis of property, plant
and equipment held for sale 218,000 421,000
----------- -----------
Gross deferred liabilities 543,700 852,000
----------- -----------
Net deferred taxes $ 1,647,000 $ 1,223,000
=========== ===========
Reflected on consolidated balance sheets:
Current deferred asset, net $ 1,935,000 $ 1,773,000
Noncurrent deferred (liability), net (288,000) (550,000)
----------- -----------
Net deferred taxes $ 1,647,000 $ 1,223,000
=========== ===========
</TABLE>
6. NOTES PAYABLE - BANKS
The Company has total bank lines of credit aggregating $20,000,000. Amounts
borrowed are generally due in 30 to 90 days. The line of credit arrangements are
informal and are cancelable at the banks' option and provide for borrowings at
the prime lending rate. There were no borrowings under these arrangements at
August 30, 1998 and August 31, 1997.
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
August 30, August 31,
1998 1997
---------- ----------
<S> <C> <C>
Interest $ 474,425 $ 474,425
Salaries, commissions and other performance-
related compensation 1,484,085 1,685,795
Profit sharing (Note 8) 335,000 345,000
Miscellaneous expenses 1,005,373 973,267
---------- ----------
$3,298,883 $3,478,487
========== ==========
</TABLE>
31
<PAGE>
8. PROFIT SHARING PLAN
The Company has a noncontributory profit sharing plan, for the benefit of
eligible full-time employees, which provides for a minimum annual contribution
to a trust fund based on percentages of pretax profits (as defined). The Board
of Directors may increase such minimum annual contribution at its sole
discretion, but all contributions are limited to the maximum amount deductible
for federal income tax purposes. Contributions of $335,000, $345,000 and
$150,000 were made for the years ended August 30, 1998, August 31, 1997 and
September 1, 1996, respectively.
9. NOTES PAYABLE
On November 30, 1994, the Company borrowed $20,000,000 from an insurance
company. In December 1996, the insurance company sold $10,000,000 of the above
amount to a financial institution.
The unsecured loans bear interest at 9.31% a year and are repayable in seven
equal annual installments commencing November 30, 1998. A portion of the loan
proceeds was used to prepay a previous outstanding loan.
The loan agreement requires maintenance of tangible net worth of approximately
$39,700,000 at August 30, 1998. The Company must also maintain, at each fiscal
quarter end, ratios of current assets to current liabilities and current assets
to total liabilities of not less than 1.5 to 1 and 1.4 to 1, respectively, and
may not permit debt for borrowed money to exceed 55% of capitalization (as
defined). The agreement also prohibits the pledging of assets and restricts
dividends and redemptions of capital stock to $3,000,000 plus 50% of
consolidated net income (as defined) subsequent to August 28, 1994.
At August 30, 1998, $5,843,000 was available for such payments. The Company was
in compliance with these covenants as of August 30, 1998.
10. LEASES
The Company leases showroom and office space and various equipment under leases
expiring at various dates to 2003.
Minimum rental payments under long-term leases in effect at August 30, 1998 are
as follows:
<TABLE>
<CAPTION>
Year ending:
<S> <C>
1999 $ 835,000
2000 701,000
2001 651,000
2002 651,000
2003 271,000
----------
$3,109,000
==========
</TABLE>
Rent expense aggregated $1,396,000 in 1998, $1,467,000 in 1997 and $1,925,000 in
1996.
32
<PAGE>
11. INTEREST EXPENSE
Interest expense, net on the consolidated statements of income, consists of the
following:
<TABLE>
<CAPTION>
August 30, August 31, September 1,
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Interest expense $ 1,862,000 $1,856,896 $1,950,121
Interest income (1,084,867) (755,121) (138,374)
----------- ---------- ----------
Net $ 777,133 $1,101,775 $1,811,747
=========== ========== ==========
</TABLE>
12. COMMON STOCK
The Class A and Class B shares principally differ as follows:
a. The Class A shares have a 15% dividend preference and a 10%
liquidation preference with respect to the Class B shares.
b. Holders of Class A shares are entitled to one vote a share whereas
holders of Class B shares are entitled to ten votes a share.
c. Holders of Class A shares, voting as a separate class, are entitled to
elect 25% of the Company's directors and holders of Class B shares,
voting as a separate class, are entitled to elect the remaining
directors.
d. Class B shares are convertible into Class A shares on the basis of one
share of Class A shares for each share of Class B shares; Class A
shares have no conversion rights. During the years ended August 30,
1998, August 31, 1997 and September 1, 1996, 8,650, 53,300 and 50
Class B shares, respectively, were converted to an equal number of
Class A shares.
13. STOCK OPTIONS
Pursuant to an Incentive Program adopted on January 10, 1989, and amended on
December 4, 1996, awards (as defined) may be granted to key employees and
directors of the Company up to a maximum of 500,000 shares of the Company's
Class A common stock.
On January 10, 1989, options to purchase an aggregate of 150,000 shares of the
Company's Class A common stock at $3 a share (fair market value at such date)
were granted to three employees. The options are exercisable in five annual
installments commencing January 10, 1995, and expire ten years from the date of
grant.
On March 1, 1994, an option to purchase 10,000 shares of the Company's Class A
common stock at $9.50 a share (fair market value at such date) was granted to an
employee. The option was canceled upon the employee's termination of employment
during the year ended September 3, 1995.
On January 9, 1996, options to purchase an aggregate of 200,000 shares of the
Company's Class A common stock at $4.625 a share (fair market value at such
date), were granted to two employees. The options are exercisable in five annual
installments commencing January 9, 1997 and expire ten years from the date of
the grant.
33
<PAGE>
On January 9, 1996, options to purchase 5,000 shares of the Company's Class A
stock at $4.625 (fair market value at such date) were granted to two outside
directors. The options became exercisable one year from the date of grant and
terminate the sooner of five years, or two years after a director's termination.
On September 2, 1996, additional options to purchase 5,000 shares of the
Company's Class A common stock at $6.625 (fair market value at such date) were
granted to the above outside directors.
On January 14, 1997, the Company granted an option to the Chairman of the Board
of Directors to purchase an aggregate of 70,000 shares of the Company's Class A
common stock at $7.0125 a share (110% of the fair market value on such date).
This option is exercisable in five annual installments commencing January 14,
1998, and expires five years from the date of grant. The Chairman was also
granted an option to purchase 30,000 shares of the Company's Class A common
stock at $6.375 (fair market at such date). The option is exercisable in five
annual installments commencing January 14, 1998 and expires ten years from the
date of grant.
On January 13, 1998, options to purchase 7,500 shares of the Company's Class A
stock at $8.875 (fair market value at such date) were granted to three outside
directors. The options are exercisable January 13, 1999 and expire five years
from the date of grant.
The following table reflects activity under the plan:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------
Weighted
Average
Shares Available Exercise
for Grant Shares Amount Price
---------------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
At September 3, 1995 350,000 100,000 $ 300,000 $ 3.00
Granted (205,000) 205,000 948,125 4.63
Exercised (1) -- (41,295) (123,886) (3.00)
Canceled 2,455 (2,455) (7,365) (3.00)
---------------- ------------- ------------- ---------
At September 1, 1996 147,455 261,250 1,116,874 4.28
Granted (105,000) 105,000 715,250 6.81
Exercised (1) -- (8,750) (30,313) (3.46)
---------------- ------------- ------------- ---------
At August 31, 1997 42,455 357,500 1,801,811 5.04
Granted (7,500) 7,500 66,563 8.88
Exercised (1) -- (20,000) (92,500) (4.63)
---------------- ------------- ------------- ---------
At August 30, 1998 34,955 345,000 $ 1,775,874 $ 5.15
================ ============= ============ =========
</TABLE>
(1) The excess of the exercise price over the par value of the Class A
common stock issued has been credited to additional paid-in capital
as follows:
<TABLE>
<CAPTION>
Year-End Amount
-------- --------
<S> <C>
August 30, 1998 $ 82,500
August 31, 1997 25,938
September 1, 1996 103,238
</TABLE>
34
<PAGE>
The Company accounts for equity-based awards granted to employees and directors
under APB Opinion No. 25 under which no compensation cost has been recognized
for stock options granted at fair market value. Had compensation cost for these
stock options been determined consistent with SFAS No. 123, the Company's net
earnings and basic earnings per share would have decreased to the following pro
forma amounts:
<TABLE>
<CAPTION>
Year Ended
August 30, 1998 August 31, 1997 September 1, 1996
--------------- --------------- -----------------
<S> <C> <C> <C>
Net earnings:
As Reported $ 2,752,828 $ 3,358,725 $ 937,918
Pro Forma 2,675,716 3,285,025 890,718
Basic EPS:
As Reported $ 0.75 $ 0.92 $ 0.26
Pro Forma 0.73 0.90 0.25
</TABLE>
The SFAS No. 123 method of accounting has not been applied to options granted
prior to September 3, 1995. The resulting pro forma compensation expense may not
be indicative of pro forma expense in future years.
The fair value of each stock option grant is estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rates 6.00% 6.00% 6.00%
Expected lives 5 years 6 years 5 years
Expected volatility 39.00% 38.00% 40.00%
Expected dividend yields 0.00% 0.00% 0.00%
</TABLE>
For options granted at an exercise price equal to fair market value, the
weighted average fair value of such options is $4.99 and the weighted average of
the exercise price of such options is $3.67.
For an option granted during fiscal 1997 at an exercise price greater than fair
market value, the fair value of such option is $6.38 and the exercise price is
$4.92.
The following table summarizes information about stock options outstanding at
August 30, 1998:
<TABLE>
<CAPTION>
Outstanding Options Exercisable
- - -------------------------------------------------------------------------- ------------------------------------
Number Weighted Average Weighted Average Number Weighted Average
Exercise Outstanding at Remaining Exercise Exercisable at Exercise
Price August 30, 1998 Contractual Life Price August 30, 1998 Price
- - ---------- --------------- ----------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 3.0000 50,000 1.0 $ 3.0000 50,000 $ 3.0000
4.6250 182,500 8.0 4.6250 62,500 4.6250
6.6250 5,000 3.0 6.6250 5,000 6.6250
6.3750 30,000 8.0 6.3750 6,000 6.3750
7.0125 70,000 3.0 7.0125 14,000 7.0125
8.8750 7,500 5.0 8.8750 -- 8.8750
------------- ------------
345,000 137,500
============= ============
</TABLE>
35
<PAGE>
14. PROPERTY AND PLANT LEASED TO OTHERS
In February 1994, the Company sold its Chino, California machinery and equipment
and leased the land and building for a five-year period at an annual net rental
of $297,000. The lessee was also granted the option to purchase the land and
building during the lease period for $2,900,000. If the lessee does not exercise
its purchase option, the Company intends to put the property up for sale.
15. ACQUISITION OF KAT-EM INTERNATIONAL, INC.
On April 18, 1994, the Company purchased all of the capital stock of Kat-Em
International, Inc. (Kat-Em), an importer of printed and solid finished fabrics
used in the apparel industry.
During 1996, the Company decided to wind down the Kat-Em operations and in
August 1996, Kat-Em was merged into Concord Fabrics Inc.
16. PROPERTY, PLANT AND EQUIPMENT HELD FOR SALE
The Company decided to dispose of its Washington, Georgia dyeing and finishing
plant and is actively searching for a buyer; manufacturing operations ceased
October 6, 1995. At such time, the Company estimated the net realizable value of
the facility and accrued expenses for an estimated disposition period.
In fiscal 1998, the Company reevaluated the facility and, accordingly, recorded
a charge of $500,000 reflecting the estimated impairment in value. During fiscal
1997, the Company repaired the facility's roof at a cost of $130,000 which was
charged to operations.
17. SUPPLEMENTAL INFORMATION -
CONSOLIDATED STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
August 30, August 31, September 1,
1998 1997 1996
------------ ---------- -------------
<S> <C> <C> <C>
Cash paid (refunded) for:
Interest $ 1,862,000 $ 1,862,000 $ 1,984,000
Income taxes 2,139,000 1,671,000 (1,229,000)
</TABLE>
18. CONCENTRATION OF CREDIT RISK
Cash in banks, based on bank statement balances, exceeded federally insured
limits by approximately $1,110,000 and $2,675,000 at August 30, 1998 and 1997,
respectively. The Company's investment in commercial paper at August 30, 1998
and August 31, 1997 were with financial institutions.
36
<PAGE>
Accounts receivable from manufacturers and retailers aggregated approximately
$12,585,000 and $6,768,000 at August 30, 1998, and $14,604,000 and $8,059,000 at
August 31, 1997, respectively. The Company performs ongoing credit evaluations
of its customers' financial condition and, generally, requires no collateral
from its customers.
19. FAIR VALUES OF
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, temporary investments and
debt. The following summarizes the methods used to estimate the fair market
value of these financial instruments.
The carrying values of cash and temporary investments approximate their fair
values due to their short-term maturities.
The carrying value of the $20,000,000 notes payable at August 30, 1998
approximates fair value based on their future cash flows discounted at a current
rate for debt with similar terms and maturities.
At August 30, 1998 and August 31, 1997, letters of credit amounting to
approximately $627,000 and $260,000, respectively, relating to purchase
commitments issued to foreign suppliers were outstanding.
37
<PAGE>
Item 1. Financial Statements
--------------------
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Note A)
<TABLE>
<CAPTION>
For the Thirty-Nine Weeks Ended For the Thirteen Weeks Ended
------------------------------- ----------------------------
May 30, May 31, May 30, May 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales ..................... $65,809,885 $76,462,685 $23,237,307 $25,617,436
----------- ----------- ----------- -----------
Cost of Sales ................. 44,691,217 52,780,855 15,525,106 17,719,965
Merchandising Expenses ........ 4,739,378 5,769,593 1,588,162 1,987,002
Selling and Shipping Expenses . 6,026,743 5,890,367 2,108,511 2,036,796
General and Administrative
Expenses ................... 7,021,195 7,111,090 2,308,627 2,196,152
Interest Expense (Net) ........ 520,707 569,504 167,116 216,349
Loss on sale of plant ......... 86,849 -0- 86,849 -0-
----------- ----------- ----------- -----------
Total ................... $63,086,089 $72,121,409 $21,784,371 $24,156,264
----------- ----------- ----------- -----------
Earnings before income taxes .. 2,723,796 4,341,276 1,452,936 1,461,172
Income tax provision .......... 1,249,000 1,758,000 705,000 598,000
----------- ------------ ----------- -----------
Net Earnings .................. $ 1,474,796 $ 2,583,276 $ 747,936 $ 863,172
=========== =========== =========== ===========
Basic Earnings Per Share ...... $.40 $.70 $.20 $.23
=========== =========== =========== ===========
Diluted Earnings Per Share .... $.40 $.68 $.20 $.22
=========== =========== =========== ===========
Weighted average shares used in
computing basic earnings per
share ...................... 3,658,382 3,670,015 3,669,490 3,679,832
=========== =========== =========== ===========
Weighted average shares used in
computing diluted earnings
per share .................. 3,708,906 3,814,804 3,675,038 3,842,129
=========== =========== =========== ===========
Dividend per Common Share ..... NONE NONE NONE NONE
=========== =========== =========== ===========
The attached notes are made a part hereof.
</TABLE>
3 of 18
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Note A)
August 30,
1998
(Derived from
May 30, Audited May 31,
1999 Financial 1998
A S S E T S (Unaudited) Statements) (Unaudited)
- ----------- ------------ ------------ ------------
Current Assets:
Cash and cash equivalents ..... $ 6,525,042 $ 8,678,053 $ 1,827,699
Held to maturity investments
(at cost) .................. 14,513,822 14,593,225 18,028,507
Accounts receivable (less
allowance for doubtful accounts
of $1,665,000 on May 30,
1999, $1,350,000 on August 30,
1998, and $1,791,000 on
May 31, 1998) .............. 18,134,884 18,003,495 18,508,161
Inventories (Note B) .......... 15,223,419 16,015,819 19,980,668
Prepaid and refundable income
taxes ...................... -0- -0- 255,000
Prepaid expenses and other
current assets .............. 1,528,216 1,289,839 1,413,091
Deferred income taxes ......... 1,706,000 1,935,000 1,419,500
----------- ----------- -----------
Total Current Assets .......... $57,631,383 $60,515,431 $61,432,626
Property, plant and equipment
(at cost, less accumulated
depreciation and amortization of
$8,904,321 on May 30,
1999, $7,538,169 on August 30,
1998, and $7,603,173 on
May 31, 1998) ................. 9,281,224 9,159,596 8,553,478
Property and plant leased to others
(Note H) ...................... -0- 1,737,052 1,775,092
Property, plant, & equipment held
for sale (Notes H & I) ........ 1,674,332 1,352,319 1,877,319
Other assets ..................... 3,284,994 3,119,732 2,970,487
----------- ----------- -----------
T O T A L .................. $71,871,933 $75,884,130 $76,609,002
=========== =========== ===========
The attached notes are made a part hereof.
4 of 18
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Note A)
August 30,
1998
(Derived from
May 30, Audited May 31,
1999 Financial 1998
L I A B I L I T I E S (Unaudited) Statements) (Unaudited)
- --------------------- ------------ ------------ ------------
Current Liabilities:
Current portion of notes payable
insurance company (Note D) . $ 2,850,000 $ 2,850,000 $ 2,850,000
Accounts payable .............. 3,673,386 4,608,507 6,192,913
Accrued expenses and taxes .... 1,946,008 3,298,883 2,270,901
Income taxes payable .......... 442,000 59,000 153,000
----------- ----------- -----------
Total Current Liabilities ..... $ 8,911,394 $10,816,390 $11,466,814
Notes payable - insurance
company (Note D) .............. 14,300,000 17,150,000 17,150,000
Deferred income taxes ............ 288,000 288,000 550,000
Other liabilities ................ 427,249 556,249 538,249
----------- ----------- -----------
Total Liabilities ............. $23,926,643 $28,810,639 $29,705,063
Commitments and contingencies ----------- ----------- -----------
(Notes B and C)
S T O C K H O L D E R S ' E Q U I T Y
- --------------------------------------
Common stock: (Notes E & F)
Class A - $.50 par value
authorized 4,000,000 shares,
issued 2,290,656 shares at
May 30, 1999, 2,237,656
shares at August 30, 1998
and 2,236,356 shares at
May 31, 1998 ............... 1,145,328 1,118,828 1,118,178
Class B - $.50 par value
authorized 4,000,000 shares,
issued 1,444,451 shares at
May 30, 1999, 1,447,451
shares at August 30, 1998
and 1,448,751 shares at
May 31, 1998 ............... 722,226 723,726 724,376
Additional paid-in capital ....... 9,399,561 9,274,561 9,274,561
Retained earnings ................ 37,431,172 35,956,376 35,786,824
Treasury stock at cost
120,892 shares (Note J) ....... (752,997) -0- -0-
----------- ----------- -----------
Total Stockholders' Equity .... $47,945,290 $47,073,491 $46,903,939
----------- ----------- -----------
T O T A L .................. $71,871,933 $75,884,130 $76,609,002
=========== =========== ===========
The attached notes are made a part hereof.
5 of 18
<PAGE>
CONCORD FABRICS INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock Additional Retained Total
Number Dollar Number Dollar Paid-in Earnings Stockhold-
of Shares Value of Shares Value Capital ers' Equity
-------------------- ------------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
September 1, 1996 2,146,956 $1,073,478 1,509,401 $754,701 $9,166,123 $29,844,823 $40,839,125
Net Earnings 3,358,725 3,358,725
Conversion from
Class B shares
to Class A
shares 53,300 26,650 (53,300) (26,650)
Exercise of stock
options 8,750 4,375 25,938 30,313
-------------------- ------------------ ---------- ----------- -----------
August 31, 1997 2,209,006 1,104,503 1,456,101 728,051 9,192,061 33,203,548 44,228,163
Net Earnings 2,752,828 2,752,828
Conversion from
Class B shares
to Class A
shares 8,650 4,325 (8,650) (4,325)
Exercise of stock
options 20,000 10,000 82,500 92,500
-------------------- ------------------ ---------- ----------- -----------
August 30, 1998 2,237,656 1,118,828 1,447,451 723,726 9,274,561 35,956,376 47,073,491
Net Earnings 1,474,796 1,474,796
Conversion from
Class B shares
to Class A
shares 3,000 1,500 (3,000) (1,500)
Exercise of stock
options 50,000 25,000 125,000 150,000
-------------------- ------------------ ---------- ----------- -----------
Balance 2,290,656 $1,145,328 1,444,451 $722,226 $9,399,561 $37,431,172 $48,698,287
-------------------- ------------------ ---------- -----------
Less purchase of Treasury Stock
in Fiscal 1999 (752,997)
-----------
May 30, 1999 $47,945,290
===========
The data reflecting Changes in Stockholders' Equity for the period August 30,
1998 to May 30, 1999 is unaudited.
</TABLE>
The attached notes are made a part hereof.
6 of 18
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Note A)
<TABLE>
<CAPTION>
For the Thirty-Nine Weeks Ended
--------------------------------
May 30, May 31,
1999 1998
Cash flows from operating activities: ------------ ------------
<S> <C> <C>
Net earnings .................................... $ 1,474,796 $ 2,583,276
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization ............. 1,257,716 1,217,124
Deferred income tax ....................... 229,000 353,500
Provision for doubtful accounts ........... 344,997 438,649
Loss on sale of Washington Plant .......... 86,849 -0-
Changes in assets:
Decrease (increase) in:
Accounts receivable ................. (476,386) 2,365,167
Inventories ......................... 792,400 (7,076,766)
Prepaid expenses and other
current assets .................... (238,377) 3,748
Other assets ........................ 129,433 234,658
Changes in liabilities:
Increase (decrease) in:
Accounts payable .................... (935,121) 1,899,706
Accrued expenses and taxes .......... (1,352,875) (1,207,586)
Income taxes payable ................ 383,000 153,000
Other liabilities ................... (129,000) 54,000
------------ ------------
Net cash provided by operating activities: 1,566,432 1,018,476
------------ ------------
Cash flows from investing activity:
Proceeds from sales of held to maturity
securities ................................... 26,628,149 15,522,758
Purchases of held to maturity securities ........ (26,548,746) (20,028,507)
Purchases of property, plant, and equipment ..... (1,328,624) (2,218,222)
Proceeds from sale of machinery and equipment ... 71,950 59,650
Net proceeds from the sale of the Washington Plant 1,205,520 -0-
Purchase of assets of an United Kingdom business (294,695) -0-
------------ ------------
Net cash (used in) investing activities ............ (266,446) (6,664,321)
------------ ------------
Cash flows from financing activities:
Scheduled payment of notes payable - insurance co. (2,850,000) -0-
Issuance of common stock (stock options exercised) 150,000 92,500
Repurchase of Class A Common Stock at cost ...... (752,997) -0-
------------ ------------
Net cash (used in) provided by financing activities (3,452,997) 92,500
NET (DECREASE) IN CASH AND CASH EQUIVALENTS ........ (2,153,011) (5,553,345)
------------ ------------
Cash and cash equivalents - beginning of period .... 8,678,053 7,381,044
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD .......... $ 6,525,042 $ 1,827,699
============ ============
</TABLE>
The attached notes are made a part hereof.
7 of 18
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Note A)
<TABLE>
<CAPTION>
Continued
For the Thirty-Nine Weeks Ended
--------------------------------
May 30, May 31,
1999 1998
------------ ------------
Supplemental Information:
Cash Paid for:
<S> <C> <C>
Interest ...................................... 1,729,332 1,832,000
Income taxes .................................. 792,000 1,515,500
The attached notes are made a part hereof.
</TABLE>
8 of 18
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT May 30, 1999
(Unaudited)
Note A
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments of a normal recurring nature considered necessary
for a fair presentation have been included. Operating results for the
thirty-nine weeks ended May 30, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending August 29, 1999. These
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's annual report to shareholders and Form 10-K
for the fiscal year ended August 30, 1998.
Note B - Inventories:
Inventories are summarized by as follows:
May 30, August 30, May 31,
1999 1998 1998
------------ ----------- ------------
Finished goods......... $ 8,727,829 $ 8,844,722 $ 9,658,672
Work-in-process........ 2,665,046 2,596,291 4,622,406
Greige goods and yarn.. 3,830,544 4,574,806 5,699,590
------------ ----------- ------------
Total............... $15,223,419 $16,015,819 $19,980,668
============ =========== ============
The foregoing inventory amounts at May 30, 1999 and May 31, 1998 were derived
from perpetual inventory records maintained by the Company.
At May 30, 1999, the Company had outstanding commitments to purchase greige
goods aggregating $200,000.
Note C - Notes Payable - Banks:
At May 30, 1999, the Company was free of bank debt and had total unused bank
lines of credit aggregating $20,000,000.
The Company had approximately $461,000 of letters of credit for the purchase of
finished goods outstanding as at May 30, 1999.
Note D - Notes Payable - Insurance Company:
On November 30, 1994, the Company obtained a $20,000,000 loan from John.
9 of 18
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT MAY 30, 1999
(Unaudited)
Continued
Hancock Mutual Life Insurance Company. This unsecured loan bears interest at
9.31% a per annum and is repayable in seven equal annual installments commencing
on November 30, 1998. The first annual installment of $2,850,000 was paid on
November 30, 1998.
The loan agreement requires maintenance of certain financial ratios and
maintenance of tangible net worth of approximately $40,429,000. The agreement
also prohibits the pledging of assets and restricts dividends and redemptions of
capital stock to $3,000,000 plus 50% of net earnings subsequent to August 28,
1994; the cumulative amount available for such payments aggregated approximately
$5,827,000 at May 30, 1999.
Note E - Common Stock:
The Class A and Class B shares principally differ as follows:
(1) The Class A shares have a 15% dividend preference and a 10% liquidation
preference with respect to the Class B shares.
(2) Holders of Class A shares are entitled to one vote a share whereas holders
of Class B shares are entitled to ten votes a share.
(3) Holders of Class A shares voting as a separate class are entitled to elect
25% of the Company's directors and holders of Class A shares and Class B shares
voting together are entitled to elect the remaining directors.
(4) Class B shares are convertible into Class A shares on the basis of one share
of Class A shares for each share of Class B shares; Class A shares have no
conversion rights.
Note F - Stock Options:
Pursuant to an Incentive Program adopted on January 10, 1989, and amended on
December 4, 1996, awards (as defined) may be granted to key employees and
directors of the Company up to a maximum of 500,000 shares of the Company's
Class A common stock.
On January 9, 1996, options to purchase an aggregate of 200,000 shares of the
Company's Class A common stock at $4.625 a share (fair market value at such
10 of 18
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT MAY 30, 1999
(Unaudited)
Continued
date) were granted to two employees. The options are exercisable in four annual
installments commencing January 9, 1997 and expire ten years from the date of
the grant.
On January 9, 1996 options to purchase 5,000 shares of the Company's Class A
common stock at $4.625 (fair market value at such date) were granted to two
outside directors. On September 2, 1996, options to purchase an additional 5,000
shares of the Company's Class A common stock at $6.625 (fair market value at
such date) were granted to those directors.
On January 14, 1997, the Company granted an option to the Chairman of the Board
of Directors to purchase an aggregate of 70,000 shares of the Company's Class A
common stock at $7.0125 a share (110% of the fair market value at such date).
This option is exercisable in five annual installments commencing January 14,
1998, and expires five years from the date of grant; the Chairman was also
granted an option to purchase 30,000 shares of the Company's Class A common
stock at $6.375 a share. This option is exercisable in five annual installments
commencing January 14, 1998 and expires ten years from the date of grant.
On January 13, 1998 options to purchase 7,500 shares of the Company's Class A
common stock at $8.875 (fair market value at such date) were granted to three
outside directors. The options are exercisable January 13, 1999 and expire five
years from the date of grant.
On November 10, 1998 options to purchase 30,000 shares of the Company's Class A
common stock at $6.50 (fair market value at such date) were granted to three
outside directors (10,000 shares each). The options are exercisable over a four
year period commencing November 10, 1999 at 25% per year and expire five years
from the date of grant.
The Company accounts for equity - based awards granted to employees and
directors under APB Opinion No. 25 under which no compensation cost has been
recognized for stock options granted at fair market value. Had compensation cost
for these stock options been determined consistent with SFAS No. 123, the
decrease in the Company's net earnings and net earnings per share would have not
been material.
Note G - Earnings Per Share:
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 replaced the calculation of primary and
11 of 18
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT MAY 30, 1999
(Unaudited)
Continued
fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share gives effect to all
potentially dilutive common shares that were outstanding during the period under
the Company stock option Incentive Program (Note F). All earnings per share
amounts for all periods have been presented and, where appropriate, restated to
conform to the SFAS No. 128 requirements.
Note H - Chino, California Facility:
In February 1994, the Company leased the land and building at its Chino,
California facility for a five year period at an annual net rental of $297,000;
the lessee was also granted the option to purchase the land and building during
the lease period for $2,900,000. In the first quarter of fiscal 1999 the lessee
chose not to exercise its purchase option and the Company put the property up
for sale. The property has been reclassified from property and plant leased to
others to property, plant, and equipment held for sale. The estimated market
value of this asset exceeds its book value which at May 30, 1999 was $1,674,000.
Note I - Washington, Georgia Facility:
In the fourth quarter of fiscal 1995 the Company decided to dispose of its
Washington, Georgia dyeing and finishing plant and had been actively searching
for a buyer; manufacturing operations ceased October 6, 1995. At such time, the
Company reclassified the facility to property, plant and equipment held for sale
and estimated the net realizable value of the facility and accrued expenses for
an estimated disposition period.
In fiscal 1998, the Company reevaluated the facility and, in that connection,
recorded a charge of $500,000 reflecting the estimated impairment in value.
On March 9, 1999, the Company sold the Washington plant and equipment for
$1,340,000 cash. The sale resulted in a loss of $86,849.
12 of 18
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT MAY 30, 1999
(Unaudited)
Continued
Note J - Stock Repurchase:
In September, 1998, the Company's Board of Directors authorized the repurchase
of up to 300,000 shares of the Company's common stock. The repurchases were to
be made at the discretion of Concord's management depending upon financial and
market conditions and in accordance with rules provided by the Securities and
Exchange Commission and the American Stock Exchange. At May 30, 1999, 120,892
shares had been repurchased at an average cost of $6.23 per share and are
recorded in the Stockholders' Equity section of the Balance Sheet as Treasury
Stock.
Note K - Concord Fabrics (UK) Limited:
Concord Fabrics (UK) Limited, a wholly owned subsidiary of Concord Fabrics Inc.
was incorporated on February 19, 1999. It acquired inventory and other assets of
an United Kingdom business for $294,695. The transaction closed March 31, 1999
and will not have a material impact on the Company's Balance Sheet or its
results of operations for fiscal 1999.
13 of 18
<PAGE>
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each stockholder of the Company or his
broker, dealer, commercial bank or other nominee to the Depository at one of its
addresses set forth below.
The Depositary for the Offer is:
CHASEMELLON
SHAREHOLDER SERVICES, LLC
--------------------------
Facsimile Transmission: (201) 296-4293
(For Eligible Institutions Only)
Confirmation Facsimile Only: (201) 296-4860
------------------------
By Mail: By Overnight Delivery: By Hand:
-------- ---------------------- --------
ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C. Services, L.L.C.
Post Office Box 3301 85 Challenger Road-Mail 120 Broadway, 13th Floor
South Hackensack, NJ 07606 Drop-Reorg New York, NY 10271
Attn: Reorganization Ridgefield Park, NJ 07660 Attn: Reorganization
Department Attn: Reorganization Department
Department
Any questions or requests for assistance or additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Information Agent at its telephone numbers and
location listed below. You may also contact your broker, dealer, commercial bank
or trust company or nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 Wall Street
46th Floor
New York, NY 10005
or
CALL TOLL FREE: (800) 937-5449 or (212) 936-5100
The Dealer Manager for the Offer is:
FIRST UNION CAPITAL MARKETS CORP.
901 East Byrd Street
3rd Floor
Richmond, VA 23219
EXHIBIT (a)(2)
LETTER OF TRANSMITTAL
To Tender Shares of Common Stock
of
CONCORD FABRICS INC.
at $7.875 Net Per Share
Pursuant to the Offer to Purchase Dated August 4, 1999 by
Concord Merger Corp., a Delaware corporation
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON AUGUST 31, 1999, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each stockholder of the Company or his
broker, dealer, commercial bank or other nominee to the Depository at one of its
addresses set forth below.
The Depository for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier Delivery: By Hand:
85 Challenger Road-Mail
Post Office Box 3301 Drop-Reorg 120 Broadway, 13th Floor
South Hackensack, NJ 07606 Ridgefield Park, NJ 07660 New York, NY 10271
Attn.: Reorganization Department Attn.: Reorganization Department Attn.: Reorganization Department
By Facsimile Transmission:
(201) 329-8936
Confirm by Telephone:
(201) 296-4860
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE
SUBSTITUTE FORM W-9 PROVIDED BELOW. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF
TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS
COMPLETED.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) Share Certificate(s) and Share(s)
(Please fill in, if blank, exactly as name(s) appear(s) on Share Certificate(s) Tendered (Attach additional list if
and Share(s) Tendered) necessary) necessary)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Number
Share of Shares Number
Certificate Represented of Shares
Number(s)* by Certificates** Tendered
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
Total Number of
Common Shares
- ------------------------------------------------------------------------------------------------------------------------
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to the
Depository are being tendered hereby. See Instruction 4.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
This Letter of Transmittal is to be completed by stockholders either
if certificates are to be forwarded herewith or if delivery is to be made by
book-entry transfer to the Depository's account at The Depository Trust Company
or Philadelphia Depository Trust Company (each, a "Book-Entry Transfer Facility"
and collectively, the "Book-Entry Transfer Facilities") pursuant to the
procedures set forth in "The Tender Offer - 3. Procedures for Accepting the
Offer and Tendering Shares" of the Offer to Purchase (as defined below).
DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITORY. BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY.
Stockholders whose certificates evidencing Shares ("Share
Certificates") are not immediately available or who cannot deliver their Share
Certificates and all other documents required hereby to the Depository prior to
the Expiration Date (as defined in "The Tender Offer - 1. Terms of the Offer" of
the Offer to Purchase) or who cannot comply with the book-entry transfer
procedures on a timely basis must tender their Shares according to the
guaranteed delivery procedure set forth in "The Tender Offer - 3. Procedures for
Accepting the Offer and Tendering Shares" of the Offer to Purchase. See
Instruction 2.
|_| CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BOOK-ENTRY TRANSFER MADE
TO THE ACCOUNT MAINTAINED BY THE DEPOSITORY WITH ONE OF THE BOOK-ENTRY
TRANSFER FACILITIES AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _________________________________________________
Check Box of Book-Entry Transfer Facility (check one):
|_| The Depository Trust Company |_| Philadelphia Depository
Trust Company
Account Number: ________________________________________________________________
<PAGE>
Transaction Code Number: _______________________________________________________
|_| CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY SENT TO THE DEPOSITORY PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s): ________________________________________________
Window Ticket Number (if any): _________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ____________________________
Name of Institution that Guaranteed Delivery: __________________________________
The names and addresses of the registered holders should be printed, if
not already printed above, exactly as they appear on the certificates
representing Shares tendered hereby. The certificates and number of Shares that
the undersigned wishes to tender should be indicated in the appropriate boxes.
|_| CHECK HERE IF TENDER IS BEING MADE PURSUANT TO LOST, STOLEN, DESTROYED OR
MUTILATED SECURITIES. SEE INSTRUCTION 11.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Concord Merger Corp., a Delaware
corporation ("Purchaser"), the above-described shares of Common Stock, par value
$0.50 per share (collectively, the "Shares"), of Concord Fabrics Inc., a
Delaware corporation (the "Company"), at $7.875 per Share, net to the seller in
cash, without interest, upon the terms and subject to the conditions set forth
in the Offer to Purchase dated August 4, 1999 (the "Offer to Purchase"), receipt
of which is hereby acknowledged, and in this Letter of Transmittal (which, as
amended or supplemented from time to time, together constitute the "Offer"). The
undersigned understands that Purchaser reserves the right to transfer or assign,
in whole or in part from time to time, to one or more of its affiliates, the
right to purchase Shares tendered pursuant to the Offer.
Subject to and effective upon acceptance for payment of the Shares
tendered herewith in accordance with the terms and subject to the conditions of
the Offer, the undersigned hereby sells, assigns and transfers to, or upon the
order of, Purchaser all right, title and interest in and to all of the Shares
that are being tendered hereby and irrevocably appoints the Depository the true
and lawful agent and attorney-in-fact of the undersigned with respect to such
Shares with full power of substitution (such power of attorney being deemed to
be an irrevocable power coupled with an interest), to (a) deliver Share
Certificates evidencing such Shares, or transfer ownership of such Shares on the
account books maintained by any of the Book-Entry Transfer Facilities, together,
in either case, with all accompanying evidences of transfer and authenticity, to
or upon the order of Purchaser, upon receipt by the Depository, as the
undersigned's agent, of the purchase price (adjusted, if appropriate, as
provided in the Offer to Purchase), (b) present such for transfer on the books
of the Company, and (c) receive all benefits and otherwise exercise all rights
of beneficial ownership of such Shares, all in accordance with the terms of the
Offer.
<PAGE>
The undersigned hereby irrevocably appoints Purchaser or any other
designees of Purchaser, the attorneys and proxies of the undersigned, each with
full power of substitution, to the full extent of the undersigned's rights,
including to exercise such voting and other rights as each such attorney and
proxy or his (or her) substitute shall, in his (or her) sole discretion, deem
proper, and otherwise act (including pursuant to written consent), with respect
to all of the Shares tendered hereby which have been accepted for payment by
Purchaser, which the undersigned is entitled to vote at any meeting of
stockholders of the Company (whether annual or special and whether or not an
adjourned meeting), or written consent in lieu of such meeting, or otherwise.
This proxy and power of attorney is coupled with an interest in the Shares
tendered hereby and is irrevocable and is granted in consideration of, and is
effective upon, the acceptance for payment of such Shares by Purchaser in
accordance with the terms of the Offer. Such acceptance for payment shall,
without further action, revoke all prior proxies and consents granted by the
undersigned with respect to such Shares, and no subsequent proxy or power of
attorney or written consent shall be given (and if given or executed, shall be
deemed not to be effective) with respect thereto by the undersigned. Purchaser
reserves the right to require that, in order for Shares to be deemed validly
tendered, immediately upon Purchaser's acceptance for payment of such Shares,
Purchaser is able to exercise full voting and other rights with respect to such
Shares (including voting at any meeting of stockholders then scheduled or acting
by written consent without a meeting).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby, and that when such Shares are accepted for payment by
Purchaser, Purchaser will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances,
and that none of such Shares will be subject to any adverse claim. The
undersigned, upon request, shall execute and deliver any signature guarantees or
additional documents deemed by the Depository or Purchaser to be necessary or
desirable to complete the sale, assignment and transfer of the Shares tendered
hereby.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned. Except as stated in
the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in "The Tender Offer - 3. Procedures for Accepting the
Offer and Tendering Shares" of the Offer to Purchase and in the instructions
hereto will constitute a binding agreement between the undersigned and Purchaser
upon the terms and subject to the conditions of the Offer. The undersigned
recognizes that under certain circumstances set forth in the Offer to Purchase,
Purchaser may not be required to accept for payment any of the Shares tendered
hereby.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any Share
Certificates evidencing Shares not tendered or not accepted for payment in the
name(s) of the registered holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the check for the purchase price and/or return any
Share Certificates evidencing Shares not tendered or accepted for payment (and
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) appearing under "Description of Shares Tendered." In the event that
both the Special Delivery Instructions and the Special Payment Instructions are
completed, please issue the check for the purchase price and/or return any Share
Certificates evidencing Shares not purchased (together with accompanying
documents as appropriate) in the name(s) of, and deliver said check and/or
return such Share Certificates to, the person or persons so indicated.
Stockholders tendering Shares by book-entry transfer may request that any
Shares not accepted for payment be returned by crediting the account at the
Book-Entry Transfer Facility designated above or as such stockholder may
designate by making an appropriate entry under "Special Payment Instructions."
The undersigned recognizes that Purchaser has no obligation pursuant to the
Special Payment Instructions to transfer any Shares from the name of the
registered holder(s) thereof if Purchaser does not accept for payment any of the
Shares so tendered.
<PAGE>
================================================================================
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 1, 5, 6, and 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Share Certificates evidencing Shares not tendered or not purchased
are to be issued in the name of someone other than the undersigned.
Issue: |_| Check and/or |_| Certificate(s)
To:
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
(Please Print)
________________________________________________________________________________
(Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security Number)
(See Substitute Form W-9)
|_| Check here if any of the Share Certificates that you own and wish to tender
have been lost, destroyed or stolen. (See Instruction 11.)
Number of Shares represented by lost, destroyed or stolen certificates:
================================================================================
================================================================================
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 5 and 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Share Certificates evidencing Shares not tendered or not purchased
are to be mailed to someone other than the undersigned, or to the undersigned at
an address other than that shown under "Description of Shares Tendered."
Mail: |_| Check and/or |_| Certificate(s)
To:
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
(Please Print)
________________________________________________________________________________
(Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security Number)
(See Substitute Form W-9)
================================================================================
(Please also complete the enclosed Substitute Form W-9 herein)
<PAGE>
================================================================================
STOCKHOLDERS SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 INCLUDED HEREIN)
X_______________________________________________________________________________
X_______________________________________________________________________________
SIGNATURE(S) OF STOCKHOLDER(S)
Dated:____________________________________________________________________, 1999
Name(s)_________________________________________________________________________
________________________________________________________________________________
(Please Type or Print)
Capacity (full title):__________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No.:____________________________________________________
Employer Identification or Social Security Number:______________________________
GUARANTEE OF SIGNATURE(S)
(If Required - See Instructions 1 and 5)
________________________________________________________________________________
AUTHORIZED SIGNATURE
__________________________________ ____________________________________
FULL TITLE NAME OF FIRM
________________________________________________________________________________
ADDRESS (INCLUDE ZIP CODE)
________________________________________________________________________________
AREA CODE AND TELEPHONE NUMBER
Date:_______________________________, 1997
================================================================================
<PAGE>
INSTRUCTIONS
(FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER)
1. Guarantee of Signatures. All signatures on this Letter of
Transmittal must be guaranteed by a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., or by a commercial bank or trust company having an office or
correspondent in the United States (each of the foregoing, an "Eligible
Institution"), except in cases where (a) the Letter of Transmittal is signed by
the registered holder of the Shares tendered therewith and such holder has not
completed the box entitled "Special Payment Instructions" or the box entitled
"Special Delivery Instructions" on the Letter of Transmittal, or (b) such Shares
are tendered for the account of an Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Certificates; Guaranteed
Delivery Procedures. This Letter of Transmittal is to be completed by
stockholders either if Share Certificates are to be forwarded herewith or if a
tender of Shares is to be made pursuant to the procedures for delivery by
book-entry transfer set forth in "The Tender Offer - 3. Procedures for Accepting
the Offer and Tendering Shares" of the Offer to Purchase. Share Certificates
evidencing all physically tendered Shares, or confirmation ("Book-Entry
Confirmation") of any book-entry transfer into the Depository's account at a
Book-Entry Transfer Facility of Shares delivered by book-entry transfer as well
as a properly completed and duly executed Letter of Transmittal, must be
received by the Depository, at one of the addresses set forth herein prior to
the Expiration Date (as defined in "The Tender Offer - 1. Terms of the Offer" of
the Offer to Purchase). If Share Certificates are forwarded to the Depository in
multiple deliveries, a properly completed and duly executed Letter of
Transmittal must accompany each such delivery. Stockholders whose Share
Certificates are not immediately available, who cannot deliver their Share
Certificates and all other required documents to the Depository prior to the
Expiration Date or who cannot comply with the book-entry transfer procedures on
a timely basis may tender their Shares by properly completing and duly executing
a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure
set forth in "The Tender Offer - 3. Procedures for Accepting the Offer and
Tendering Shares" of the Offer to Purchase. Pursuant to such procedure, (i) such
tender must be made by or through an Eligible Institution, (ii) a properly
completed and duly executed Notice of Guaranteed Delivery, substantially in the
form provided by Purchaser, must be received by the Depository prior to the
Expiration Date and (iii) the Share Certificates evidencing all physically
tendered Shares (or Book-Entry Confirmation with respect to such Shares), as
well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees and any other
documents required by this Letter of Transmittal, must be received by the
Depository within three American Stock Exchange trading days after the date of
execution of such Notice of Guaranteed Delivery, all as provided in "The Tender
Offer - 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer
to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARES AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITORY. IF
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES AND DOCUMENTS BE
SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted.
All tendering stockholders, by execution of this Letter of Transmittal (or
facsimile thereof), waive any right to receive any notice of the acceptance of
their Shares for payment.
3. Inadequate Space. If the space provided herein under "Description
of Shares Tendered" is inadequate, the certificate numbers and/or the number of
Shares tendered should be listed on a separate signed schedule and attached
hereto.
<PAGE>
4. Partial Tenders. (Not applicable to stockholders who tender by
book-entry transfer.) If fewer than all the Shares evidenced by any Share
Certificate submitted are to be tendered, fill in the number of Shares which are
to be tendered in the box entitled "Number of Shares Tendered." In such case,
new Share Certificate(s) evidencing the remainder of the Shares that were
evidenced by the old Share Certificate(s) will be sent to the registered holder,
unless otherwise provided in the appropriate box on this Letter of Transmittal,
as soon as practicable after the Expiration Date. All Shares represented by
Share Certificates delivered to the Depository will be deemed to have been
tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the Share Certificate(s) without alteration, enlargement
or any change whatsoever. If any of the Shares tendered hereby are held of
record by two or more persons, all such persons must sign this Letter of
Transmittal.
If any tendered Shares are registered in different names on several Share
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of such Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares evidenced by Share Certificates listed and transmitted hereby, no
endorsements of Share Certificates or separate stock powers are required unless
payment is to be made to or Share Certificates evidencing Shares not tendered or
purchased are to be issued in the name of a person other than the registered
holder(s), in which case the Share Certificate(s) evidencing the Shares tendered
hereby must be endorsed or accompanied by appropriate stock powers, in either
case signed exactly as the name(s) of the registered holder(s) appear(s) on such
Share Certificate(s). Signatures on such certificates and stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names of
the registered holder or holders appear on the Share Certificate(s).
Signatures on such Share Certificate(s) or stock powers must be guaranteed
by an Eligible Institution.
If this Letter of Transmittal or any Share Certificates or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent,
officer of a corporation or any person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to Purchaser of such person's authority so to act must be
submitted.
6. Stock Transfer Taxes. Except as set forth in this Instruction 6,
Purchaser will pay or cause to be paid any stock transfer taxes with respect to
the transfer and sale of Shares to it or its order pursuant to the Offer. If,
however, payment of the purchase price is to be made to, or if Share
Certificates evidencing Shares not tendered or purchased are to be registered in
the name of, any person other than the registered holder(s), or if Share
Certificates evidencing tendered Shares are registered in the name of any person
other than the person(s) signing this Letter of Transmittal, the amount of any
stock transfer taxes (whether imposed on the registered holder(s) or such other
person) payable on account of the transfer to such person will be deducted from
the purchase price unless satisfactory evidence of the payment of such taxes or
exemption therefrom is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER OF
TRANSMITTAL.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent and/or any Share Certificates
are to be returned to someone other than the signer
<PAGE>
above, or to the signer above but at an address other than that shown in the box
entitled "Description of Shares Tendered" on the first page hereof, the
appropriate boxes on this Letter of Transmittal should be completed.
Stockholders tendering Shares by book-entry transfer may request that Shares not
purchased be credited to such account maintained at any of the Book-Entry
Transfer Facilities as such stockholder may designate under "Special Delivery
Instructions." If no such instructions are given, any such Shares not purchased
will be returned by crediting the account at the Book-Entry Transfer Facilities
designated above.
8. Request for Assistance or Additional Copies. Requests for assistance
may be directed to, or additional copies of the Offer to Purchase, this Letter
of Transmittal and the Notice of Guaranteed Delivery may be obtained from, the
Information Agent or the Dealer Managers at the telephone numbers and address
set forth below. Stockholders may also contact their broker, dealer, commercial
bank or trust company.
9. Waiver of Conditions. Except as otherwise provided in the Offer to
Purchase, Purchaser reserves the right in its sole discretion to waive in whole
or in part at any time or from time to time any of the specified conditions of
the Offer or any defect or irregularity in tender with regard to any Shares
tendered.
10. Substitute Form W-9. The tendering stockholder is required to provide
the Depository with a correct Taxpayer Identification Number ("TIN"), generally
the stockholder's social security or employer identification number, on
Substitute Form W-9, which is provided under "Important Tax Information" below,
and to certify, under penalties of perjury, whether he or she is subject to
backup withholding of federal income tax. If a tendering stockholder is subject
to backup withholding, he or she must cross out item (2) of the Certification
Box on Substitute Form W-9. Failure to provide the information on Substitute
Form W-9 may subject the tendering stockholder to 31% federal income tax
withholding on the payment of the purchase price. If the tendering stockholder
has not been issued a TIN and has applied for a number or intends to apply for a
number in the near future, he or she should write "Applied For" in the space
provided for the TIN in Part I, sign and date the Substitute Form W-9 and sign
and date the Certificate of Awaiting Taxpayer Identification Number. If "Applied
For" is written in Part I and the Depository is not provided with a TIN within
60 days, the Depository will withhold 31% of payments for surrendered Shares
thereafter until a TIN is provided to the Depository.
11. Mutilated, Lost, Stolen or Destroyed Certificates. Any holder of a
Share Certificate whose certificate(s) has been mutilated, lost, stolen or
destroyed should (i) complete this Letter of Transmittal and check the
appropriate box on this Letter of Transmittal and (ii) complete and return to
the Depository any additional documentation, including the posting of any
indemnity bond, requested by the Depository. If required by Purchaser, the
holder will be required to post a bond in such reasonable amount as Purchaser
may direct as indemnity against any claim that may be made against Purchaser or
any of its respective affiliates with respect to such certificate(s).
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, OR AN AGENT'S MESSAGE IN THE CASE OF A BOOK-ENTRY
DELIVERY, TOGETHER WITH CERTIFICATES (OR BOOK-ENTRY CONFIRMATION) AND ALL OTHER
REQUIRED DOCUMENTS OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITORY ON OR PRIOR TO THE
EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under federal tax law, a stockholder whose tendered Shares are accepted
for payment is required to provide the Depository (as payor) with such
stockholder's correct TIN on Substitute Form W-9 below. If such stockholder is
an individual, the TIN is such stockholder's Social Security Number. If the
Depository is not provided with the correct TIN or an adequate basis for
exemption, the stockholder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, payments that are made to such
stockholder with respect to Shares purchased pursuant to the Offer may be
subject to backup withholding in an amount equal to 31% of the gross proceeds
resulting from the Offer.
<PAGE>
Certain stockholders (including, among others, certain corporations and
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit an IRS Form W-8, signed under penalties
of perjury, attesting to that individual's exempt status. Such statements can be
obtained from the Depository. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Depository is required to withhold 31%
of any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depository of his or her correct TIN by completing the
Substitute Form W-9 contained herein, certifying that the TIN provided on the
Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN) and
that (1) the stockholder is exempt from backup withholding, (2) the stockholder
has not been notified by the Internal Revenue Service that he or she is subject
to backup withholding as a result of failure to report all interest or
dividends, or (3) the Internal Revenue Service has notified the stockholder that
he or she is no longer subject to backup withholding.
What Number to Give the Depository
The stockholder is required to give the Depository the social security
number or employer identification number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
If the tendering stockholder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, he or she should
write "Applied For" in the space provided for the TIN in Part I, sign and date
the Substitute Form W-9 and sign and date the Certificate of Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part I and the Depository
is not provided with a TIN within 60 days, the Depository will withhold 31% of
all payments of the purchase price until a TIN is provided to the Depository.
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
ALL TENDERING STOCKHOLDERS MUST COMPLETE THE FOLLOWING:
PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, LLC, AS DEPOSITORY
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND Social security
Form W-9 CERTIFY BY SIGNING AND DATING BELOW number or
______/______/_____
Employer
identification
number
- --------------------------------------------------------------------------------------------------------------
DEPARTMENT OF THE NAME (PLEASE PRINT): ___________________________ (If awaiting TIN
TREASURY INTERNAL write "Applied
REVENUE SERVICE ADDRESS: _______________________________________ For")
- --------------------------------------------------------------------------------------------------------------
Payer's Request for PART II--For Payees NOT subject to backup withholding, see the enclosed
Taxpayer Identification Guidelines for Certification of Taxpayer Identification Number on Substitute
Number (TIN) and Form W-9 and complete as instructed therein.
Certification
CITY:________________ --------------------------------------------------------------------------------
STATE:_______________
ZIP CODE:____________ CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because (a) I am exempt from backup
withholding, (b) I have not been notified by the Internal Revenue Service
("IRS") that I am subject to backup withholding as a result of failure to
report all interest or dividends, or (c) the IRS has notified me that I am
no longer subject to backup withholding.
- --------------------------------------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you are subject to backup withholding you received under
notification from the IRS that you are no longer subject to backup withholding,
do not cross out item (2). (Also see instructions in the enclosed Guidelines.)
Signature:_________________________________ Dated:_________________, 1999
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE
THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN PART I OF
SUBSTITUTE FORM W-9.
================================================================================
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Officer or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
Signature(s): _______________________________ Dated:________________________
================================================================================
<PAGE>
The Information Agent for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 Wall Street
46th Floor
New York, NY 10005
(800) 937-5449 or (212) 936-5100
The Dealer Manager for the Offer are:
FIRST UNION CAPITAL MARKETS CORP.
901 East Byrd Street
3rd Floor
Richmond, VA 23219
(800) 532-2916
Exhibit 99(a)
August 3, 1999
Mr. Alvin Weinstein, Ms. Joan Weinstein
and Mr. David Weinstein
1359 Broadway
Fourth Floor
New York, New York
Tender Facility Commitment Letter
Ladies and Gentlemen:
You have advised The Chase Manhattan Bank ("Chase") that you intend
to form or cause to be formed a holding company organized under the laws of the
State of Delaware ("Newco"), which will make a friendly tender offer (the
"Tender Offer") for all of the issued and outstanding shares of all classes of
common stock, par value $.01 per share (the "Shares"), of a corporation
identified to us as "Target," a Delaware corporation (the "Target"). Newco will
receive a capital contribution (the "Investor Contribution") from you consisting
of not less than 61.08% of all outstanding Shares. The Investor Contribution
will be comprised of approximately 51.01% of all outstanding Shares of class A
common stock and approximately 77.04% of all outstanding Shares of class B
common stock. Each reference in this Commitment Letter or the Term Sheet (as
defined below) to a percentage of Shares or percentage of outstanding Shares
shall mean such percentage determined on a fully diluted basis after giving
effect to the exercise of any warrants, options, conversion privileges or
similar rights.
You have advised Chase that prior to commencement of the Tender
Offer Newco and Target will have entered into an agreement and plan of merger in
the form previously delivered to us (in such form, referred to herein as the
"Merger Agreement") providing for the merger (the "Merger") of Newco with and
into Target (with Target as the surviving entity) as soon as practicable after
completion of the Tender Offer pursuant to the terms of which shareholders of
Target will be offered cash consideration not to exceed $7.875 per Share. The
Merger Agreement provides, among other things, that each shareholder of Target
(other than Newco and other than shareholders that have perfected appraisal
rights) that has not participated in the Tender Offer will, upon consummation of
the Merger, receive a cash merger price per Share equal to $7.875. The Tender
Offer and the Merger are collectively referred to herein as the "Transactions."
We understand that to finance the Tender Offer and certain related
expenses, Newco will require a senior credit facility of $12,500,000 (the
"Tender Facility") and will receive the Investor Contribution.
Chase is pleased to advise you of its commitment to provide that
entire amount of the Tender Facility upon and subject to the terms and
conditions set forth or referred to in this Commitment Letter and/or the Summary
of Principal Terms and Conditions attached hereto as Exhibit A (the "Term
Sheet"). As consideration for Chase's commitment hereunder, you agree to pay and
agree to cause Newco to pay Chase the nonrefundable fees described in the Term
Sheet and the Fee Letter dated the date hereof and delivered herewith (the "Fee
Letter"). To the extent that the Fee Letter amends, supplements or otherwise
modifies any of the terms hereof (including the terms of the Term Sheet), the
terms of the Fee Letter shall be controlling.
You hereby represent and covenant that (a) all information other
than forecasts and projections
<PAGE>
("Information") concerning each of you, Newco, Target, its subsidiaires and the
Transactions that has been or will be made available to Chase by or on behalf of
any of you, Newco, Target, its subsidiaries or any authorized representatives of
any of the foregoing is or will be, when furnished, complete and correct in all
material respects and does not or will not, when furnished, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not materially misleading in light of
the circumstances under which such statements are made and (b) all forecasts and
projections that have been or will be made available to Chase by or on behalf of
any of you Newco, Target, its subsidiaries or any authorized representatives of
any of the foregoing have been or will be prepared in good faith based upon
assumptions that are reasonable at the time made and at the time the related
materials are furnished to Chase. You agree that if, at any time from and
including the date hereof until the closing of the Tender Facility, any of the
representations in the preceding sentence would be incorrect if the Information,
forecasts and projections were being furnished, and such representations were
being made, at such time, then you will promptly supplement the Information,
forecasts and projections previously furnished to Chase so that the
representations will be complete and correct under those circumstances.
Chase's commitment hereunder is subject to (a) Chase's completion
of, and satisfaction in all respects with, its ongoing due diligence
investigation of Newco, Target, its subsidiaries and the Transactions, (b)
Chase's not having become aware of information not previously disclosed to Chase
that Chase reasonably believes to be materially inconsistent with its
understanding, based on information provided to Chase prior to the date hereof,
of the business, operations, properties, assets, condition (financial or
otherwise), liabilities, prospects or material agreements of any of you, Target,
its subsidiaries and Newco, (c) there not having occurred events or changes that
would have or could reasonably be expected to have, individually or in the
aggregate, a material adverse change in the business, operations, assets,
liabilities, prospects or material agreements of Newco since its formation or of
Target or any of its subsidiaries since May 31, 1999 or of any of you since the
date hereof, (d) Chase's satisfaction in all respects (i) that the structure of
the Tender Offer and the Merger are consistent with the terms set forth in the
Merger Agreement, this Commitment Letter and the Term Sheet and are otherwise
satisfactory to Chase with respect to all tax, legal, accounting and other
matters, (ii) with the terms and conditions of the Tender Offer and all other
agreements to be entered into in connection with the Transactions, (iii) with
the capitalization, structure and equity ownership of Newco and Target and its
subsidiaries after giving effect to the Transactions, and (iv) with the terms
and conditions of all material agreements of Newco and Target and its
subsidiaries, (e) the negotiation, execution and delivery of definitive
documentation with respect to the Tender Facility satisfactory to Chase and its
counsel and (f) the other conditions set forth in the Term Sheet.
By executing this Commitment Letter you agree, and agree to cause
Newco, jointly and severally, to (a) indemnify and hold harmless Chase and its
officers, directors, employees, affiliates, agents and controlling persons from
and against any and all losses, claims, damages, liabilities and expenses, joint
or several, to which any such indemnified party may become subject arising out
of or in connection with this Commitment Letter, the Fee Letter, the Term Sheet,
the Transactions or the Tender Facility or any related transaction or claim,
litigation, investigation or proceeding relating to any of the foregoing,
regardless of whether any such indemnified party is a party thereto, and to
reimburse each such indemnified party upon demand for any reasonable legal or
other expenses incurred in connection with investigating or defending any of the
foregoing; provided, that the foregoing indemnity will not, as to any such
indemnified party, apply to losses, claims, damages, liabilities or expenses to
the extent to the extent same are found by a final, nonappealable judgment of a
court to have resulted from the willful misconduct or gross negligence of such
indemnified party, and (b) to reimburse Chase from time to time upon demand for
all reasonable fees and out-of-pocket expenses incurred by Chase (including,
without limitation, out-of-pocket expenses of Chase's due diligence
investigation, travel expenses, consultant's fees and expenses and reasonable
fees, charges and disbursements of counsel) in connection with the preparation
of this Commitment Letter, the Term Sheet, the Fee Letter and the definitive
documentation for the Tender Facility and the security arrangements in
connection therewith. Notwithstanding any other provision of this Commitment
Letter, the Term Sheet, the Fee Letter or any other document, no indemnified
party shall be liable for any damages arising from the use by others of
information or other materials obtained through electronic, telecommunications
or other information transmission systems, or for any special, indirect,
consequential or punitive damages in connection with its activities related to
the Tender Facility.
2
<PAGE>
You acknowledge that Chase and its affiliates may be providing debt
financing, equity capital or other services (including financial advisory
services) to other companies in respect of which you may have conflicting
interests regarding the transactions described herein and otherwise. Neither
Chase nor any of its affiliates will use confidential information obtained from
you by virtue of the transactions contemplated by this Commitment Letter or its
other relationships with you in connection with its performance of services for
other companies, and neither Chase nor any of its affiliates will furnish any
such information to other companies. You also acknowledge that neither Chase nor
any of its affiliates has any obligation to use in connection with the
transactions contemplated by this Commitment Letter, or to furnish to you,
Newco, Target or any of their respective affiliates, confidential information
obtained by Chase or any of its affiliates from other companies.
This Commitment Letter and Chase's commitment hereunder shall not be
assignable by you without the prior written consent of Chase and any attempted
assignment without such consent shall be null and void. Neither this Commitment
Letter, nor the Fee Letter nor the Term Sheet may be amended or any provision
hereof waived or modified except by an instrument in writing signed by each of
you and Chase. This Commitment Letter may be executed in any number of
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one agreement. Delivery of an executed counterpart of
a signature page of this Commitment Letter by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof. This Commitment
Letter is intended to be solely for the benefit of the parties hereto and is not
intended to confer any benefits upon, or create any rights in favor of, any
person other than the parties hereto. This Commitment Letter shall be governed
by, and construed in accordance with, the laws of the State of New York.
You hereby agree that you will not disclose this Commitment Letter,
the Term Sheet, the Fee Letter, the contents of any of the foregoing or the
activities of Chase pursuant hereto or thereto to any party without the prior
written approval of Chase, except that you may disclose (a) this Commitment
Letter, the Term Sheet and the Fee Letter and the contents hereof and thereof
(i) to your respective attorneys, accountants and advisors on a confidential and
need-to-know basis and (ii) as may be compelled in a judicial or administrative
proceeding (in which case you agree to inform us promptly thereof); provided,
that if you shall have previously accepted this Commitment Letter in accordance
with the terms hereof, you may deliver a copy of this Commitment Letter and the
Term Sheet (but not the Fee Letter) to the Target and its advisors for their
review in connection with the Transactions.
The compensation, reimbursement, indemnification and confidentiality
provisions contained herein and in the Fee Letter shall remain in full force and
effect regardless of whether definitive financing documentation relating to the
Tender Facility shall be executed and delivered and notwithstanding the
termination of this Commitment Letter or Chase's commitment hereunder.
If the foregoing correctly set forth our mutual agreement, please
indicate your acceptance of the terms hereof and of the Term Sheet and the Fee
Letter by (i) signing in the appropriate space provided below and returning to
Chase the enclosed duplicate originals of this Commitment Letter and the Fee
Letter not later than 5:00 p.m. (New York time) on August 4, 1999 and (ii)
paying to Chase the fees payable pursuant to the Fee Letter upon such
acceptance. Chase's commitment hereunder will expire at such time in the event
that Chase has not received such acceptance in accordance with the immediately
preceding sentence. In the event that the initial borrowing under the Tender
Facility does not occur on or before October 31, 1999, then this Commitment
Letter and Chase's commitments hereunder shall terminate automatically.
Chase is pleased to have been given the opportunity to assist with
the financing of the Transactions.
Very truly yours,
THE CHASE MANHATTAN BANK
3
<PAGE>
By: /s/ David Gibbs
--------------------------
Name: David Gibbs
Title: Vice President
Accepted and agreed to as
of the date first above written by:
/s/ Alvin Weinstein
- -----------------------------------
Mr. Alvin Weinstein
/s/ Joan Weinstein
- -----------------------------------
Ms. Joan Weinstein
/s/ David Weinstein
- -----------------------------------
Mr. David Weinstein
4
<PAGE>
Exhibit A
$12,500,000
Summary of Principal Terms and Conditions
Tender Facility
August 3, 1999
----------------------
The following sets forth terms and conditions for a $12,500,000
Senior Secured Credit Facility that will be available to a holding company
organized under the laws of the State of Delaware ("Newco") in connection with
Newco's proposed friendly tender offer (the "Tender Offer") of not more than
$7.875 per share for all of the issued and outstanding shares of common stock,
par value $.50 per share (the "Shares"), of a corporation identified to us as
"Target," a Delaware corporation (the "Target"), pursuant to an agreement and
plan of merger in the form previously delivered to Chase (as defined below) (in
such form, referred to herein as the "Merger Agreement") providing for the
merger (the "Merger") of Newco with and into Target (with Target as the
surviving entity) as soon as practicable after completion of the Tender Offer
pursuant to the terms of which shareholders of Target will be offered cash
consideration not to exceed $7.875 per Share. Prior to consummation of the
Tender Offer, Newco shall receive a capital contribution (the "Investor
Contribution") consisting of not less than 61.08% of all outstanding Shares. The
Investor Contribution will be comprised of approximately 51.01% of all
outstanding Shares of class A common stock and approximately 77.04% of all
outstanding Shares of class B common stock.
I. Parties
Borrower: Newco
Guarantors: Alvin Weinstein, Joan Weinstein and David Weinstein will
provide unlimited, joint and several guarantees of
obligations arising under the Tender Facility.
Shareholders of Newco other than these three individuals
will provide limited recourse guarantees of obligations
arising under the Tender Facility, with recourse limited
exclusively to the capital stock of Newco pledged to
Chase by such shareholder as contemplated below.
Lender: The Chase Manhattan Bank ("Chase")
II. Tender Facility
Amount: $12,500,000 (the "Tender Facility")
Availability: Loans under the Tender Facility (the "Tender Loans")
will be available for multiple drawings during the
period commencing on the earliest date (in no event
later than October 31, 1999) on which Newco accepts any
Shares for payment (excluding Shares contributed to
Newco pursuant to the Investor Contribution) in and
pursuant to the terms of the Tender Offer (the "Closing
Date") and ending on the fifth business day following
the Closing Date; provided, that in no event may the
amount of the Tender Loans made available to
Newco exceed 50% of the aggregate value of all Shares
which have been pledged by Newco to Chase as described
below (such value to be based on a per
1
<PAGE>
Share value of $7.875).
Amortization: The Tender Loans will be repayable upon the "Maturity
Date," defined as the earliest to occur of (i) the date
that the Merger is consummated and (ii) the date that is
120 days after the Closing Date.
Purpose: The proceeds of the Tender Loans will be used to finance
(a) the acquisition by Newco of Shares in accordance
with the Merger Agreement and (b) the payment of
interest, fees and other expenses incurred in connection
with the Transactions.
III. Certain Payment Provisions
Interest Rate: The rate of interest publicly announced by Chase as its
Prime Rate.
Default Rate: At any time when Newco is in default in the payment of
any principal, interest, fees or other amounts due under
the Tender Facility, such amount shall bear interest at
2% above Chase's Prime Rate.
Rate Basis: All per annum rates shall be calculate on the basis of a
year of 360 days.
Interest Payment: Interest on the Tender Loans shall be due and payable on
the Maturity Date and thereafter upon demand.
Fees: As set forth in the attached Fee Letter.
Optional Prepayments
and
Commitment Reductions: Newco may prepay the Tender Loans and/or reduce the
Tender Facility in whole or in part (subject to minimum
amounts to be agreed upon) at any time without penalty.
Amounts prepaid in respect of the Tender Loans may not
be reborrowed.
Mandatory Prepayments: If at any time the aggregate amount of the outstanding
Tender Loans together with accrued interest thereon
exceeds 50% of the aggregate value of all Shares which
have been pledged by Newco to Chase as described below
(such value to be based on a per Share value of $7.875),
then Newco shall be required to prepay the Tender Loans
in an amount sufficient to eliminate such excess.
IV. Collateral
Collateral: The obligations of Newco in respect of the Tender
Facility shall be secured by a perfected first priority
security interest in all of the capital stock of Newco
and all Shares owned by Newco, whether acquired in the
Tender Offer or otherwise.
V. Certain Conditions
Initial Conditions: The availability of the Tender Facility shall be
conditioned upon satisfaction of, among other things,
the following conditions precedent on or before October
31, 1999:
(a) Newco and the Guarantors shall have executed and
delivered
2
<PAGE>
satisfactory definitive documentation with respect
to the Tender Facility (the "Credit
Documentation").
(b) The Merger Agreement shall not have been amended,
supplemented or otherwise modified without the
prior written consent of Chase and Chase shall
have had an opportunity to review and shall be
satisfied in all respects with the terms and
conditions of (i) the Tender Offer and all other
agreements to be entered into in connection with
the Transactions and (ii) all materials,
agreements and documents filed publicly by Newco
or Target in connection with the Trnasactions.
(c) The Board of Directors of Target (including a
majority of the independent Directors) shall have
approved the Tender Offer.
(d) Newco shall have received the Investor
Contribution.
(e) Prior to or concurrently with the making of the
initial Tender Loans Newco shall have acquired
Shares in accordance with the Merger Agreement and
there shall not have been any material change in
the number of Shares outstanding on the date
hereof.
(f) Newco shall have no outstanding indebtedness,
liens or preferred equity other than indebtedness
and liens under the Tender Facility.
(g) All governmental, shareholder and third party
approvals (including debtholders', landlords' and
other consents) necessary or advisable in
connection with the Tender Offer, the Merger, the
Tender Facility and/or the continuing operations
of Newco and Target after consummation of the
Tender Offer and the Merger, shall have been
obtained and be in full force and effect, and all
applicable waiting periods shall have expired
without any action being taken or threatened by
any competent authority that would restrain,
prevent or otherwise impose adverse conditions on
the Tender Offer, the Merger or the financing
thereof. Without limiting the foregoing, Chase
shall be satisfied that consummation of the
Transactions would not constitute (i) a default or
event of default under Target's existing Note
Purchase Agreement with John Hancock Mutual Life
Insurance Company or the senior notes issued
thereunder or (ii) an event otherwise requiring
repayment of all or any portion of the
indebtedness outstanding under said note purchase
agreement and notes. There shall be no order,
injunction or restraining order that would prevent
or delay the consummation of or impose adverse
conditions on the Tender Offer or the Merger.
(h) Chase shall have received (i) a satisfactory
projected pro forma balance sheet of Newco and
Target and its subsidiaries as at the Closing Date
and after giving effect to the Tender Offer and
the financing contemplated hereby, consistent with
the statement of proposed sources and uses
previously furnished to Chase.
(i) Chase shall have received all fees and expenses
required to be paid to it on or before the Closing
Date, whether pursuant to the Fee Letter, the
Credit Documentation or otherwise.
(j) Chase shall have received such legal and solvency
opinions and such
3
<PAGE>
other documents and instruments as are customary for
transactions of this type or as Chase may reasonably
request.
On-Going Conditions: The making of each Tender Loan shall be conditioned upon
(a) the accuracy of all representations and warranties
in the Credit Documentation (including, without
limitation the material adverse change and litigation
representations) and (b) there being no default or event
of default in existence at the time of, or after giving
effect to the making of, such Tender Loan.
VI. Certain Documentation Matters
The Credit Documentation shall contain representations,
warranties, covenants and events of default customary
for financings of the type contemplated herein and other
terms reasonably deemed appropriate by Chase in the
context of the Transactions, including, without
limitation:
Representations
and Warranties: Financial statements (including pro forma financial
statements); absence of undisclosed liabilities; no
material adverse change; corporate existence; compliance
with law; corporate power and authority; enforceability
of Credit Documentation; no conflict with law or
contractual obligations, no material litigation; no
default; ownership of property; no third party
indebtedness or liens; no burdensome restrictions;
intellectual property; taxes, Federal Reserve
regulations; ERISA; Investment Company Act:
subsidiaries; environmental matters; solvency; labor
matters; year 2000 matters; accuracy of disclosure;
creation and perfection of liens in favor of Chase
Affirmative Covenants: Delivery of financial statements, reports, officer's
certificates and other materials and information
requested by Chase; payment of obligations; continuation
of business and maintenance of existence, rights and
privileges; compliance with laws and contractual
obligations; maintenance of property and insurance;
maintenance of books and records; notices of defaults,
litigation and other material events; and further
assurances (including, without limitation, with respect
to security interests in favor of Chase in
after-acquired property)
Negative Covenants: Limitations on indebtedness; liens; guarantee
obligations; mergers, consolidations, liquidations and
dissolutions (but permitting the Merger); sales of
assets; leases; dividends and other payments; capital
expenditures; investments; loans and advances;
modification of agreements; transactions with
affiliates; sale/leasebacks; changes in fiscal year;
negative pledges; changes in lines of business; changes
in passive holding company status of Newco
Events of Default: Nonpayment of principal, interest, fees or other amounts
when due; material inaccuracy of representations and
warranties; violation of covenants (subject, in the case
of certain affirmative covenants to a grace period to be
agreed upon); cross-default; bankruptcy events; certain
ERISA events; material judgments; actual or asserted
invalidity of any guarantee or security document or
security interest; change of control
Expenses and
Indemnification: Newco will pay all reasonable expenses and charges of
Chase incurred in connection with the preparation,
execution and delivery, administration and enforcement,
as well as waivers and modifications, of the Credit
Documentation (including the reasonable fees, charges
and disbursements of Chase's counsel), as well as all
documentary taxes (if any). Chase, its officers,
directors,
4
<PAGE>
employees, advisors, agents and affiliates will have no
liability for, and will be indemnified and held harmless
against, any and all losses, claims, damages,
liabilities and expenses arising out of or relating to
the Tender Facility, the proposed use of proceeds
thereof, the Tender Offer, the Merger or other
transactions contemplated herein, except to the extent
same are found by a final, nonappealable judgment of a
court to have resulted from the gross negligence or
willful misconduct of the indemnified party.
Assignments and
Participation: Chase will be permitted to participate and assign loans,
notes and commitments without the consent of Newco or
the Guarantors.
Governing
Law and Forum: State of New York
Counsel to Chase: Kaye, Scholer, Fierman, Hays & Handler, LLP
5
<PAGE>
August 3, 1999
Mr. Alvin Weinstein, Ms. Joan Weinstein
and Mr. David Weinstein
1359 Broadway
Fourth Floor
New York, New York
Tender Facility Fee Letter
Ladies and Gentlemen:
Reference is made to the Commitment Letter dated the date hereof
(including the attached Term Sheet, the "Commitment Letter") between us and you
regarding the Transactions and tender offer financing described therein.
Capitalized terms used but not defined herein are used with the meanings
assigned to them in the Commitment Letter. This letter agreement is the Fee
Letter referred to in the Commitment Letter.
As consideration for Chase's commitment under the Commitment Letter,
you agree jointly and severally to pay to Chase an underwriting fee in an amount
equal to $125,000. You hereby agree that such fee is fully earned upon your
acceptance of the Commitment Letter, although it shall be payable in two equal
installments. The first installment of $62,500 shall be payable upon, and shall
be a condition precedent to, your acceptance of the Commitment Letter. The
second installment of $62,500 shall be payable on the Closing Date (as defined
in the Term Sheet attached to the Commitment Letter).
You agree that, once paid, the fees or any part thereof payable hereunder
and under the Commitment Letter shall not be refundable under any circumstances,
regardless of whether the transactions or borrowings contemplated by the
Commitment Letter are consummated. All fees payable hereunder and under the
Commitment Letter shall be paid in immediately available funds and shall be in
addition to your compensation, reimbursement and indemnity obligations arising
under the Commitment Letter and/or the Credit Documentation.
It is understood and agreed that this Fee Letter shall not constitute or
give rise to any obligation to provide any financing; such an obligation will
arise only to the extent provided in the Commitment Letter if accepted in
accordance with its terms. This Fee Letter may not be amended, modified or
waived except by an instrument in writing signed by Chase and each of you. This
Fee Letter may be executed in any number of counterparts, each of which shall be
an original, and all of which, when taken together, shall constitute one
agreement. Delivery of an executed signature page of this Fee Letter by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. This Fee Letter shall be governed by, and construed in
accordance with, the laws of the State of New York.
You agree that this Fee Letter and its contents are subject to the
confidentiality provisions of the Commitment Letter.
<PAGE>
Please confirm that the foregoing is our mutual understanding by signing
and returning to us an executed counterpart of this Fee Letter.
Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ David Gibbs
--------------------------
Name: David Gibbs
Title: Vice President
Accepted and agreed to as
of the date first above written by:
/s/ Alvin Weinstein
- -----------------------------------
Mr. Alvin Weinstein
/s/ Joan Weinstein
- -----------------------------------
Ms. Joan Weinstein
/s/ David Weinstein
- -----------------------------------
Mr. David Weinstein
[LETTERHEAD OF PETER J. SOLOMON COMPANY LIMITED]
July 29, 1999
Special Committee of the Board of Directors
Concord Fabrics Inc.
1359 Broadway
New York, NY 10018
Ladies and Gentlemen:
You have asked us to advise you with respect to the fairness to the
shareholders of Concord Fabrics Inc. (the "Company") other than Concord Merger
Corp. ("Merger Corp.") and its affiliates from a financial point of view of the
consideration proposed to be paid by Merger Corp. pursuant to the terms of the
Agreement and Plan of Merger (the "Agreement"), draft of July 28, 1999, between
the Company and Merger Corp.
We understand that Merger Corp. has been formed by an investor group that
includes Alvin Weinstein, the Chairman of the Company, Earl Kramer, the
President of the Company, David Weinstein, the President of the Company's
Concord House Division, and other members of the Weinstein family (the "Investor
Group") and has made an offer to purchase all of the Class A and Class B common
shares (the "Common Shares") and common share equivalents of the Company not
owned by Merger Corp., the members of the Investor Group and their affiliates
for a price of $7.875 per share (the "Transaction"). We understand that,
pursuant to the Agreement, Merger Corp. will commence a tender offer for the
outstanding Common Shares not owned by Merger Corp. and its affiliates and, upon
completion thereof, intends to merge itself with and into the Company. We
further understand that Merger Corp. and the Investor Group currently own
approximately 63% of the outstanding Common Shares.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the
management of the Company;
(iii) reviewed certain financial projections of the Company prepared
by the management of the Company;
(iv) discussed the past and current operations, financial condition
and prospects of the Company with management of the Company;
<PAGE>
(v) reviewed the reported prices and trading activity of the Common
Shares;
(vi) compared the financial performance and condition of the Company
and the liquidity of the Common Shares with that of certain other
comparable publicly-traded companies;
(vii) reviewed publicly available information regarding the
financial terms of certain transactions deemed comparable, in whole or in
part, to the Transaction;
(viii) participated in certain discussions among representatives of
the Company and Merger Corp.;
(ix) reviewed the Agreement, draft of July 28, 1999 (and we have
assumed that the final form thereof will not vary in any regard that is
material to our analysis); and
(x) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information.
With respect to the financial projections, we have assumed, with your
permission, that the financial projections were reasonably prepared on a basis
which reflects the best currently available estimates and judgements of the
future financial performance of the Company. We have not conducted a physical
inspection of the facilities or properties of the Company. We have not assumed
any responsibility for any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with any such valuation
or appraisal. For purposes of rendering this opinion, we have assumed and relied
upon, in all respects material to our analysis, the following: that the
representations and warranties of each party contained in the Agreement are true
and correct; that each party will perform all of the covenants and agreements
required to be performed by it and that all of the conditions to the Transaction
will be satisfied without waiver thereof. We have assumed, with your permission,
for purposes of this opinion that the proposed consummation of the Transaction
as set forth in the Agreement complies in all material respects with all
statutory, common and other applicable law. We have also assumed that all
material governmental, regulatory and other consents and approvals will be
obtained and that in the course of obtaining any of the foregoing, as
contemplated by the Agreement, no restrictions or conditions will be imposed or
waivers made that would have any material effect on the Transaction. We have
relied as to all legal matters on advice of counsel to the Special Committee of
the Board of Directors of the Company (the "Special Committee"). Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, July 29, 1999.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the sale or other business
combination transaction involving the Company or any of its assets. The Company
represented to us that it had not received any expressions of interest or offers
from any party with respect to any such transaction. Further, the members of the
Investor Group represented to us that they would not entertain or accept any
offers from any party to purchase their Common Shares. Our opinion is predicated
on these bases.
-2-
<PAGE>
We have acted as financial advisor to the Special Committee in connection
with the Transaction and will receive a fee from the Company for our services, a
portion of which is payable upon the delivery of this opinion.
This letter is provided solely for the information of the Special
Committee and is not expressed on behalf of and is not intended to confer rights
or remedies upon any other entity or persons, and may not be used for any other
purpose without our prior written consent (except that this letter may be
included in its entirety in any filings made with respect to the Transaction
with the Securities and Exchange Commission). This letter does not constitute a
recommendation to any holder of Common Shares as to whether or not such holder
should tender shares or how any such holder should vote on the Transaction.
Based on, and subject to, the foregoing, we are of the opinion that on the
date hereof, the consideration to be received by the shareholders of the Company
other than Merger Corp. and its affiliates in connection with the Transaction is
fair from a financial point of view to the shareholders of the Company other
than Merger Corp. and its affiliates.
Very truly yours,
PETER J. SOLOMON COMPANY LIMITED
-3-
SHAREHOLDERS' AGREEMENT
AGREEMENT made as of the 29th day of July, 1999 by and among ALVIN
WEINSTEIN, an individual with a mailing address at 4 Forte Drive, Old Westbury,
New York 11568 ("AW"), JOAN WEINSTEIN, an individual with a mailing address at 4
Forte Drive, Old Westbury, New York 11568 ("JW"), DAVID WEINSTEIN, an individual
with a mailing address at 40 East 9th Street, Apt. 14M, New York, New York 10003
("DW"), PETER WEINSTEIN, an individual with a mailing address at 2339 Stone
Road, Ann Arbor, Michigan 48105 ("PW"), JONATHAN WEINSTEIN, an individual with a
mailing address at 2217 11th Avenue East, Seattle, Washington 98102 ("JonW") and
EARL KRAMER, an individual with a mailing address at 1100 Park Avenue, New York,
New York 10128 ("EK") (AW, JW, DW, PW, JonW and EK, each, a "Shareholder", and,
collectively, the "Shareholders") and CONCORD MERGER CORP., a Delaware
corporation (the "Company").
WHEREAS, the Shareholders are the principal shareholders and/or
management (or relatives thereof ) of Concord Fabrics Inc. ("Concord");
WHEREAS, the issued and outstanding capital stock of Concord not
held by the Shareholders is publicly traded;
WHEREAS, the Shareholders have organized the Company to hold their
shares of Concord capital stock, to purchase from the public the remaining
shares of Concord capital stock and to merge with Concord (the "Merger") all as
part of a going private transaction which would result in the Shareholders
becoming the sole shareholders of the surviving corporation
<PAGE>
(the "Surviving Corporation");
WHEREAS, the Shareholders have determined that it is in their best
interest and in the best interest of the Company (and, after the Merger, the
Surviving Corporation) to provide for the continuity of ownership and
maintenance of control of the Company (and after the Merger, the Surviving
Corporation) as set forth herein;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the parties hereto hereby
agree as follows:
I. COMMON STOCK
1. Stock Exchange. Upon the delivery by each of the Shareholders of stock
certificates representing that number of shares of the Class A Common Stock, par
value $.50 per share, of Concord and the Class B Common Stock, par value $.50
per share, of Concord, as is set forth below, the Company shall issue, or has
issued, to each of the Shareholders, and each of them hereby subscribes for and
agrees to purchase, or has subscribed for and purchased, the number of shares
set forth opposite his name:
================================================================================
Number of Company Shares Number of Concord Shares
----------------------------------------------------------------
Shareholder Class A Class B Class A Class B
- --------------------------------------------------------------------------------
AW 1,619,770 0 777,310 842,460
- --------------------------------------------------------------------------------
JW 120,000 0 60,000 60,000
- --------------------------------------------------------------------------------
DW 154,576 0 84,463 70,113
- --------------------------------------------------------------------------------
PW 70,113 84,463 84,463 70,113
- --------------------------------------------------------------------------------
JonW 70,113 84,463 84,463 70,113
- --------------------------------------------------------------------------------
EK 78,000 0 78,000 0
================================================================================
Each Shareholder acknowledges and agrees that at the effective time
of the Merger each share of Class A Common Stock, par value $.01 per share (the
"Class A Common
2
<PAGE>
Stock") of the Company issued and outstanding immediately prior to the Merger
shall be converted into and exchanged for one share of the Class A Common Stock,
par value $.50 per share, of the Surviving Corporation, and each share of the
Class B Common Stock, par value $.01 per share (the "Class B Common Stock," and
together with the Class A Common Stock, the "Common Stock"), of the Company
issued and outstanding immediately prior to the merger shall be converted into
and exchanged for one share of the Class B Common Stock, par value $.50 per
share, of the Surviving Corporation and all such shares of Class A and Class B
Common Stock of the Surviving Corporation shall be subject to, and the holders
of such shares and the Surviving Corporation shall be bound by, the terms and
provisions of this Agreement.
2. Ownership of the Company. The Shareholders and the Company intend that
the beneficial ownership of the Company immediately after execution of this
Agreement will be as follows:
================================================================================
Approximate
Number of Percentage
Shareholder Shares of Common Stock Ownership
----------- ---------------------- ------------
- --------------------------------------------------------------------------------
AW 1,619,770 71%
- --------------------------------------------------------------------------------
JW 120,000 5%
- --------------------------------------------------------------------------------
DW 154,576 7%
- --------------------------------------------------------------------------------
PW 154,576 7%
- --------------------------------------------------------------------------------
JonW 154,576 7%
- --------------------------------------------------------------------------------
EK 78,000 3%
- --------------------------------------------------------------------------------
Total 2,281,498 100%
================================================================================
3. Restricted Shares. The Shareholders acknowledge that the Common Stock
has not been registered in accordance with the Securities Act of 1933, as
amended (the "Securities
3
<PAGE>
Act"), and as such the Common Stock may not be sold or transferred and must be
held indefinitely, unless they are subsequently registered under the Act or an
exemption from registration is available. Each of the Shareholders understands
and acknowledges that the Company is under no obligation to register the Common
Stock or to comply with any exemption under the Act or to supply or file any
information which would facilitate sales of the Common Stock.
II. CROSS PURCHASE RIGHTS
1. Transfer of Shares. In addition to, and not in limitation of, the
restrictions on transfers of Common Stock issued to and owned by the
Shareholders (collectively, the "Shares") contained in Article I hereof, and in
order to ensure continuity of ownership and control of the Company, no
Shareholder shall have the right, without the written consent of the Company and
of the other Shareholders, to sell, assign, transfer, hypothecate or otherwise
dispose of any or all of his interests in the Shares, except as provided herein.
The restrictions provided herein shall not apply to (i) any sale, transfer,
assignment or pledge by one Shareholder to either another Shareholder or the
Company; (ii) any sale, transfer, assignment or pledge by a Shareholder to any
member of his immediate family or to any trust created for his sole benefit
and/or the benefit of one or more members of his immediate family; provided,
that the transferee shall become a party to this Agreement and be bound by this
Agreement and the Shares so sold, transferred, assigned or pledged shall, solely
for purposes of this Agreement, continue to be deemed owned by the Shareholder
making such sale, transfer, assignment or pledge; and provided further, that the
Company shall not have objected to such proposed sale, transfer, assignment or
pledge within thirty (30) days after receipt of written notice thereof; (iii)
any sale, transfer, assignment
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or pledge occurring subsequent to the closing of a firm commitment underwritten
public offering of the Company's Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of such Common Stock for the account of the Company having an
aggregate offering price to the public of not less than Five Million Dollars
($5,000,000); (iv) the pledge of Shares to secure the Company's and any of the
Shareholder's obligations under any financing arrangements entered into in
connection with the Merger and the related tender offer; or (v) any sale,
transfer or assignment in accordance with the remaining provisions of this
Article III hereof.
2. Right of First Refusal.
(a) A Shareholder desiring to sell, transfer, pledge, assign or
otherwise dispose of or encumber all or any of his Shares, other than in
accordance with Section I.1 above, shall at such time as he receives a legally
binding offer to consummate such transaction first deliver a written notice (the
"Offer Notice") to the Company, notifying the Company of his intention to sell
such Shares (the "Offered Shares") and specifying the number of Offered Shares,
the name of the person or persons to whom he proposes to sell (or if no
particular person is identified then the general class of persons to whom he
proposes to sell), and a price per share which shall be the minimum price at
which he proposes to effect the sale (the "Minimum Price"). The Offer Notice
shall offer to sell to the Company the Offered Shares at the Minimum Price and
on other terms and conditions, if any, not less favorable to the Company as
those contained in the legally binding offer from such other person or persons
(or class of persons). For purposes of this Section 2, the Shareholder desiring
to dispose of the Offered Shares shall be referred to as the "Offeror".
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(b) The Company may accept or reject the offer contained in the
Offer Notice, in whole or in part, in writing within twenty (20) days after the
date thereof. A failure to respond shall constitute a rejection of the Offer. In
the event the Company rejects the offer in whole or in part, the Offeror shall
promptly deliver a written notice to the other Shareholders (the "Offeree
Shareholders") offering to sell that portion of Offered Shares not accepted by
the Company to the Offeree Shareholders at the same price as offered to the
Company. Each of the Offeree Shareholders may accept or reject such offer in
whole or in part, within ten (10) days after receipt thereof. A failure to
respond shall constitute a rejection of the offer. If more than one Offeree
Shareholder desires to purchase the Offered Shares, then each Offeree
Shareholder shall have the right to purchase the Offered Shares in the
proportion that the number of Shares owned by such Offeree Shareholder bears to
the total number of Shares owned by all Offeree Shareholders desiring to
purchase the Offered Shares.
(c) In the event the Company and/or any of the Offeree Shareholders
elect to purchase any of the Offered Shares, the closing of the purchase and
sale of the Offered Shares shall take place at a time and place mutually agreed
upon by the Offeror and the Company and/or each purchasing Offeree Shareholder,
as the case may be, but in all events not later than thirty (30) days following
the date of acceptance of the offer. At the closing of such purchase and sale,
the Offeror shall deliver to the Company and/or each purchasing Offeree
Shareholder, as the case may be, the stock certificates evidencing the Offered
Shares (which shall be transferred free and clear of any liens or encumbrances)
together with duly endorsed stock powers, and the Company and/or each purchasing
Offeree Shareholder, as the case may be, shall deliver to the Offeror a
certified check in the amount of the purchase price for the Offered Shares.
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(d) In the event that the Company and the Offeree Shareholders fail
to accept the offer to sell the Offered Shares in its entirety, or as to any
portion of the Offered Shares, the Offeror shall be free to proceed to sell all
of the Offered Shares or such portion of the Offered Shares as to which the
Company and the Offeree Shareholders shall not have accepted the offer, to the
person or persons (or class of persons) and on the terms and conditions
specified in the Offer Notice, and at not less than the Minimum Price. If the
Offeror fails to complete his proposed sale within a period of three (3) months
after the earlier to occur of the date of rejection of the offer contained in
the Offer Notice by the Company and all Offeree Shareholders or the expiration
of the periods within which such offer could have been accepted, then, if the
Offered Shares have not been sold, they shall once again be subject to the
requirements of a prior offer pursuant to the provisions hereof.
(e) This Agreement shall apply to any person who acquires any Shares
from any Shareholder and such person shall be deemed a "Shareholder" for
purposes of this Agreement. It shall be a condition of any Shareholder's right
to sell, assign or otherwise transfer any Shares to any such person that he
shall have delivered to the Company and the other Shareholders a copy of this
Agreement executed by such person and that such person agree to abide by the
provisions of this Agreement.
3. Bankruptcy or Attachment. The occurrence of any of the following:
(a) the attachment of the Shares of any Shareholder by a judgment
creditor or by any person claiming a lien thereto which lien is not
removed or bonded in full within ninety (90) days thereof;
(b) the adjudication of bankruptcy of a Shareholder following the
filing of any
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involuntary petition against the Shareholder; and
(c) the filing of a petition in voluntary bankruptcy, the use of any
insolvency act of a general assignment or trust mortgage arrangement for
the benefit of creditors;
shall ipso facto be determined for all purposes to be and shall be,
an offer by said Shareholder to sell his Shares (or, in the case of subparagraph
(a), the Shares subject to attachment or lien) to the Company, or the other
Shareholders, in accordance with the terms of this Article III for a purchase
price equal to the fair market value of the Shares offered hereunder, giving due
consideration to all relevant factors. If the offering Shareholder and the
Company cannot agree on the fair market value of the Shares then the fair market
value shall be determined by arbitration in accordance with the following
provisions, which arbitration shall be final and binding upon the parties, their
successors and assigns, and the parties agree that the following provisions
constitute a binding arbitration clause under applicable law. Either the
offering Shareholder or the Company may initiate arbitration by delivery of a
demand therefor (the "Arbitration Demand") to the other party at any time after
the occurrence of an event described in subparagraphs (a) through (c) above. The
arbitration shall be conducted in the Borough of Manhattan, New York, New York
by one arbitrator (the "Arbitrator") selected by agreement of the offering
Shareholder and the Company not later than 10 days after delivery of the
Arbitration Demand or, failing such agreement, appointed pursuant to the
Commercial Arbitration Rules of the American Arbitration Association, as amended
from time to time (the "AAA Rules"). The arbitration shall be conducted pursuant
to the Federal Arbitration Act and the New York Uniform Arbitration Act and such
procedures as the offering Shareholder and the Company may agree or, in the
absence of or failing such agreement, pursuant to the AAA Rules. The Arbitrator
shall
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complete all hearings not later than 90 days after selection or appointment, and
shall make a final determination not later than 30 days thereafter. The
Arbitrator shall apportion all costs and expenses of the arbitration as he deems
fair and reasonable.
4. Mandatory Repurchases by the Company.
(a) Repurchases upon Death. Upon the death of a Shareholder other
than AW or JW, the Company shall purchase, and the estate of the deceased
Shareholder shall sell, all of the Shares owned by the deceased Shareholder (the
"Decedent") at the time of his death, at a price determined in accordance with
subsection (e) below. The closing of such purchase and sale shall take place as
soon as reasonably practicable following the Decedent's death and the
appointment of an executor or fiduciary for the Decedent's estate (the
"Estate"). At the closing, the Estate shall deliver to the Company the stock
certificates evidencing the Shares owned by the Decedent at the time of his
death (which Shares shall be transferred free and clear of any liens or
encumbrances) together with duly endorsed stock powers, and the Company shall
deliver to the Estate a certified check in the amount of the purchase price for
the Shares.
(b) Weinstein Repurchase. Upon the occurrence of the earlier of (i)
the third anniversary of the date of this Agreement, or (ii) the death of the
later to die of AW and JW (the "Survivor"), and anytime thereafter, each of AW
and JW (or in the case of clause (ii) above, the estate of the Survivor (the
"Survivor's Estate")) may, at his or her option, offer to sell and sell and the
Company shall purchase in five equal annual installments one-fifth of the number
of Shares owned by AW and/or JW (or, if applicable, the Survivor's Estate) at a
price determined in accordance with subsection (e) below. The date the Company
receives notice of the exercise of
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such option and each of the first four anniversaries of such date shall be
referred to herein as a "Weinstein Repurchase Date." Notwithstanding the
foregoing, upon the occurrence of a Sale of the Knit Division (as defined below)
or a Sale of the Concord House Division (as defined below), the Company shall,
at the request of AW and/or JW (or, if applicable, the Survivor's Estate)
purchase all of the Shares held by AW and/or JW (or, if applicable, the
Survivor's Estate) on the date of such occurrence at a price determined in
accordance with subsection (e) below. The date on which the Sale of the Knit
Division or the Sale of the Concord House Division occurs shall be deemed to be
a "Weinstein Repurchase Date." For purposes of this Agreement, the term "Sale of
the Knit Division" shall mean the disposition by the Company of all or
substantially all of its interest in the operations of its knit division to a
third party which is not an affiliate of the Company or any Shareholder whether
effected through a single transaction or a series of transaction, and the term
"Sale of the Concord House Division" shall mean the disposition by the Company
of all or substantially all of its interest in the operations of its Concord
House division to a third party which is not an affiliate of the Company or any
Shareholder whether effected through a single transaction or a series of
transaction.
(c) Kramer Repurchase. Upon the earlier to occur of the date of (i)
termination of EK's employment with the Company for any reason; (ii) EK's
retirement from the Company; (iii) the disability of EK to perform the duties of
his employment with the Company which disability shall last at least six (6)
consecutive months; and (iv) the Sale of the Knit Division (such earlier date,
the "EK Repurchase Date"), the Company shall purchase and EK shall sell all of
the Shares owned by EK on the EK Repurchase Date at a price determined in
accordance with subsection (e) below.
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(d) Repurchase Closings. The Weinstein Repurchase Dates and the EK
Repurchase Date are referred to in this subsection collectively as the
"Repurchase Dates" and singly as a "Repurchase Date." The closing of each
purchase and sale pursuant to subsections (b) and (c) above shall take place as
soon as reasonably practicable following the applicable Repurchase Date. At the
closing, the selling Shareholder (or, if applicable, the Survivor's Estate)
shall deliver to the Company the stock certificate evidencing the Shares being
sold (which Shares shall be transferred free and clear of any liens or
encumbrances) together with duly endorsed stock powers, and the Company shall
deliver to the selling Shareholder (or, if applicable, the Survivor's Estate) a
certified check in the amount of the purchase price for the Shares.
(e) Purchase Price.
(i) The purchase price for any sale of Shares pursuant to
subsections (a) and (c) above shall be computed as of the date of death of
the Decedent in the case of a sale pursuant to subsection (a) above, and
as of the EK Repurchase Date in the case of a sale pursuant to subsection
(c) above (such dates referred to as the "Purchase Price Date"). The
purchase price shall be equal to the number of Shares purchased multiplied
by the book value of one Share as of the December 31st immediately
preceding the Purchase Price Date, increased or decreased, as the case may
be, by the per Share net income after taxes, or net loss, of the Company
from such December 31st to the end of the month immediately following the
Purchase Price Date.
(ii) The purchase price for any sale of Shares by AW and JW
(or, if applicable, the Survivor's Estate) pursuant to this Agreement
shall be equal to the number of Shares purchased multiplied by the book
value of one share of the Class A Common
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Stock of Concord as of December 31, 1998, increased or decreased, as the
case may be, by the per share net income after taxes, or net loss, of
Concord from December 31, 1998 to the end of the month immediately
preceding the date of the Merger.
(iii) The amount of net income after taxes, or net loss,
applicable to the calculations in subsections (e)(i) and (e)(ii) above
shall be computed from the books of the applicable company by such
company's regular independent accountants in accordance with regularly
accepted accounting principles consistently applied. Such accountants'
computations shall be conclusive and the amount so computed when added, or
subtracted, as the case may be, to or from the book value as of the
preceding December 31st shall be accepted as the purchase price for the
sale of shares in question and no other determination of such purchase
price shall be required or made.
(f) Insufficient Surplus.
If, at the time the Company is required to pay the purchase price
for the Shares of a Shareholder pursuant to this Agreement, the Company's
surplus is insufficient for such purposes, then
(i) the entire available surplus shall be used to purchase part of
the Shares of the selling Shareholder, or if more than one Shareholder is
selling, to purchase pro rata parts of the Shares of all selling
Shareholders; and
(ii) the Company and the Shareholders shall promptly take all
required action to reduce the stated capital of the Company to the extent
necessary for the redemption of the unpurchased Shares at the price
determined as provided above.
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In the event that, after the steps pursuant to clause (ii) above to increase
surplus have been taken, the Company is nevertheless without sufficient surplus
to pay the purchase price for all of the Shares of the selling Shareholder, then
the other Shareholders shall have the option to purchase all or part of the
Shares of the selling Shareholder(s) which are not purchased by the Company at
the same price. The option shall remain in force for a period of thirty (30)
days after it has been determined that the Company is unable to make the payment
and may be exercised by the other Shareholders by written notice delivered to
the selling Shareholder (or in the case of death, his Estate). The closing of a
purchase of Shares by the other Shareholders shall take place at the same time
and in the same manner as the purchase by the Company in accordance with this
Section 4. In the case of a transfer upon the death of a Shareholder, any Shares
of the Decedent which can not be sold to the Company or the other Shareholders
in accordance with this Section 4 may be transferred to any person by the last
will and testament of the Decedent duly admitted to probate, or pursuant to
applicable laws of intestacy, provided, however, that any such transferee of
Shares of the Decedent shall, as a condition to such transfer, be required to
execute a copy of, and agree to be bound by, this Agreement and any such
transferee shall be deemed a "Shareholder" for purposes of the Agreement.
5. Purchase of Company. In the event that there shall be made a bona fide
offer to purchase (the "Purchase Offer") the Company as a going concern (whether
effected by purchase of assets, purchase of stock or merger) by any entity
(whether or not affiliated with the Company or with either of the Shareholders),
and the Proposing Shareholder (as defined below) desires to accept such offer,
but one or more other Shareholders (the "Declining Shareholder(s)") do not
desire to accept such offer, then, in any such event, the Proposing Shareholder
shall so notify the
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Declining Shareholder(s), and shall, upon such notice be deemed to have given,
as of the date of such notice, an offer notice pursuant to Section 2 of this
Article II to the Declining Shareholder(s), the terms of such offer notice being
deemed to be the terms of the Purchase Offer, applied pro rata in accordance
with the number of Shares owned by each Shareholder. Accordingly, the Declining
Shareholder(s) shall thereupon have the right to purchase all but not some of
the Shares of the Proposing Shareholder(s) and all other Shareholders that
desired to accept the Purchase Offer (together with the Proposing Shareholder,
the "Accepting Shareholders") on the same terms and conditions as the Purchase
Offer, applied pro rata to the number of shares owned by each such Shareholder,
in accordance with the terms and conditions of Section 2 of this Article II,
which terms and conditions shall be deemed incorporated herein in their
entirety, including, without limitation, any exemptions and exceptions therein
specified. If more than one of the Declining Shareholders desires to purchase
the Shares of the Accepting Shareholders, then each such Declining Shareholder
shall have the right to purchase the Shares of the Accepting Shareholders in the
proportion that the number of shares owned by such Declining Shareholder bears
to the total number of Shares owned by all Declining Shareholders desiring to
purchase the Shares of the Accepting Shareholders. Notwithstanding the
foregoing, however, and for purposes of this Section 5 only, in the event that
the Declining Shareholder(s) decline to purchase all of the Accepting
Shareholders Shares on such terms and conditions, the Declining Shareholder
shall, upon rejection of such purchase or upon the expiration of the thirty-day
period referred to in Section 2 of this Article III, be deemed to have accepted
the Purchase Offer, and the Shareholders shall thereupon take such steps as may
be appropriate to consummate the Purchase Offer. For purposes of this Section 5,
"Proposing Shareholder" shall mean AW until
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his death and then, if JW survives AW, JW until her death, and then, if DW
survives AW and JW, DW until his death. The provisions of this Section 5 shall
not apply to the Merger.
III. REGISTRATION RIGHTS
1. Definitions
As used in this Article IV, the following terms shall have the
following meanings:
"Commission" means the Securities and Exchange Commission.
"Common Stock" means shares of the Common Stock and any other stock
into which such shares may hereafter be converted, reclassified or changed.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Initial Public Offering" means the first sale by the Company of
shares of its Common Stock to the public pursuant to an effective registration
statement under the Securities Act.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
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"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under to the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means shares of Common Stock which are
subject to the terms and provisions of this Agreement, provided, however, that
with respect to any particular Registrable Securities, such securities shall
cease to be Registrable Securities when (a) they have been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement relating thereto, or (b) to the extent that such
securities, in the opinion of counsel to the Company, are permitted to be
distributed pursuant to Rule 144, and may then be sold without regard to any
volume limitation (or if the volume limitation would permit distribution and
sale of all such securities in a single three-month period). In the event of any
merger, reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Common Stock, such adjustment shall be made in
the definition of "Registrable Securities" as is appropriate in order to prevent
any dilution or enlargement of the rights granted pursuant to this Agreement.
"Registration Expenses" means all expenses incident to the
performance of or compliance with Section III.2 by the Company and the Holders
of Registrable Securities
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exercising the rights granted in Section III.2, including, without limitation,
all registration and filing fees, including fees with respect to filings
required to be made with the National Association of Securities Dealers, Inc.,
fees and expenses of compliance with securities or blue sky laws, including,
without limitation, all word processing, duplicating and printing expenses,
messenger, telephone and delivery expenses, and fees and disbursements of
counsel and of all independent certified public accountants (including the
expenses of any special audit and "cold comfort" letters required by or incident
to such performance).
"Registration Statement" means any registration statement,
contemplated by Section III.2(a), including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
2. Piggyback Registration
(a) Right to Include Registrable Securities. The Company agrees that
if at any time after such time, if ever, as the Initial Public Offering is
completed it desires to register for
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sale any of its equity securities on Form S-1, S-2 or S-3 or any successor or
similar form(s) under the Securities Act pursuant to an Underwritten
Registration or Underwritten Offering (but not including registrations in
connection with an employee benefit plan, an offering by the Company to its
existing security holders, or a merger, acquisition or consolidation), it will,
each such time, give prompt written notice to all Holders of Registrable
Securities of such Holders' rights under this Section III.2. Upon the written
request of any such Holder (a "Requesting Holder") made no later than (30)
thirty days after any such notice has been given by the Company, the Company
will use its commercially reasonable efforts to effect the registration under
the Securities Act of all Registrable Securities which the Company has been so
requested to register by the Requesting Holders thereof; provided, however, that
if, at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, do so by giving written notice of such determination to each
Requesting Holder of Registrable Securities.
(b) Priority in Piggyback Registrations. If the managing underwriter
of any underwritten offering that is the subject of this Section III.2 shall
inform the Company in writing of its belief that the number or type of
Registrable Securities and other securities of the Company requested to be
included in such registration would materially adversely affect such offering,
then the Company will include in such registration, to the extent of the number
and type which the Company is so advised can be sold in (or during the time of)
such offering, first, all securities proposed by the Company to be sold for its
own account, and second, the portion of Registrable Securities requested to be
included in such registration and any other securities of the Company
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requested to be included in such registration which the Company has been advised
by the managing underwriter can be sold, drawn from them pro rata based on the
number each has requested to be included in such registration.
(c) Expenses. The Company will pay all Registration Expenses in
connection with any registration of Registrable Securities requested pursuant to
this Section III.2. All other costs and expenses incurred by the Requesting
Holders in connection with such registration will be borne by the Requesting
Holders on the basis of the percentage that the Registrable Securities which are
being offered by each of them bears to the total number of Registrable
Securities sought to be registered pursuant to this Section III.2.
The obligation of the Company under this Section III.2 shall be limited to
two registration statements.
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall as expeditiously as reasonably possible:
(a) prepare and file with the Commission a Registration Statement
with respect to such securities, and use its commercially reasonable efforts to
cause such Registration Statement to become and remain effective for such period
as may be reasonably necessary to effect the sale of such securities, not to
exceed 90 days following the effective date;
(b) prepare and file with the Commission such amendments to such
Registration Statement and supplements to the Prospectus contained therein as
may be necessary to keep such registration statement effective for such period
as may be reasonably necessary to effect the sale of such securities, not to
exceed 90 days following the effective date;
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(c) furnish to the security holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the Registration Statement, preliminary
Prospectus, final prospectus and such other documents as such underwriters and
holders may reasonably request in order to facilitate the public offering of
such securities;
(d) use its commercially reasonable efforts to register or qualify
the securities covered by such Registration Statement under such state
securities or blue sky laws of such jurisdictions as such participating Holders
may reasonably request in writing within twenty (20) days following the original
filing of such Registration Statement, except that the Company shall not for any
purpose be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction wherein it
is not so qualified;
(e) notify the security Holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
Registration Statement has become effective or a supplement to any Prospectus
forming a part of such Registration Statement has been filed;
(f) prepare and promptly file with the Commission and promptly
notify such Holders of the filing of such amendment or supplement to such
Registration Statement or Prospectus as may be necessary to correct any
statements or omissions if, at the time when a Prospectus relating to such
securities is required to be delivered under the Act, any event shall have
occurred as the result of which any such Prospectus would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading;
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(g) cause all such Registrable Securities to be listed on each
securities exchange and inter-dealer quotation system on which similar
securities issued by the Company are then listed and pay all fees and expenses
in connection therewith; and
(h) advise such Holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such Registration Statement or the initiation or
threatening of any proceeding for that purpose and promptly use its commercially
reasonable efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
4. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding termination of this Agreement and without limitation as to time,
indemnify and hold harmless each Holder, the officers, directors, agents,
brokers, investment advisors and employees of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "Losses") (as determined by a court
of competent jurisdiction in a final judgment not subject to appeal or review)
arising out of or relating to any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary
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to make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in light of the circumstances under which they
were made) not misleading, except to the extent, but only to the extent, that
such untrue statements or omissions are based upon information regarding such
Holder furnished to the Company by or on behalf of such Holder for use therein,
which information was reasonably relied on by the Company for use therein. The
Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) Indemnification by Holders. In connection with the Registration
Statement, each Holder shall furnish to the Company in writing such information
as the Company reasonably requests for use in connection with the Registration
Statement or any Prospectus and agrees, jointly and not severally, to indemnify
and hold harmless the Company, its directors, officers, agents and employees,
each Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling Persons, to the fullest extent permitted
by applicable law, from and against all Losses (as determined by a court of
competent jurisdiction in a final judgment not subject to appeal or review)
arising out of or relating to any untrue statement of a material fact contained
in the Registration Statement, any Prospectus, or any form of prospectus or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished by
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such Holder to the Company for inclusion in the Registration Statement or such
Prospectus and that such information was reasonably relied upon by the Company
for use in the Registration Statement, such Prospectus or such form of
prospectus.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel and the payment of all fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that it
shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such failure
shall have proximately and materially adversely prejudiced the Indemnifying
Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party. The Indemnifying Party
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shall not be liable for any settlement of any such Proceeding effected without
its written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.
(d) Contribution. If a claim for indemnification under Section
III.4(a) or 4(b) is unavailable to an Indemnified Party or is insufficient to
hold such Indemnified Party harmless for any Losses in respect of which this
Section would apply by its terms (other than by reason of exceptions provided in
this Section), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section III.4(c), any reasonable attorneys' or
other fees or expenses incurred by such party in connection with any
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Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party.
5. Rule 144
The Company agrees that if it hereafter becomes subject to the
reporting requirements of the Exchange Act it shall thereafter use its
commercially reasonable efforts to file the reports required to be filed by it
under the Securities Act and the Exchange Act in a timely manner and to comply
with the requirements of Rule 144(c) with respect to current public information
about the Company.
6. Special Provisions.
(a) Information as to Sellers. Each seller of Registrable Securities
shall promptly furnish the Company with such information, undertakings and
powers of attorney as the Company may from time to time reasonably request in
order to enable it to perform its obligations hereunder.
(b) Requests for Registration. Each request for registration which
is made by a Holder of Registrable Securities pursuant to Section III.2 above
shall specify the name and address of the seller, the number of Registrable
Securities for which registration is sought, and the proposed plan of
distribution thereof.
(c) Registration Not Required in Certain Circumstances. Anything in
this Agreement contained to the contrary notwithstanding, the Company shall not
be required to register any Registrable Securities under the Securities Act, and
this Agreement will terminate automatically, when, as and if, in the written
opinion of counsel for the Company, said Registrable Securities may be sold
without the need for compliance with the registration
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provisions of the Securities Act.
IV. GENERAL PROVISIONS
1. Subchapter S Election. The Shareholders and the Company agree that as
soon as practicable after the Merger they shall execute and file all such
documents and to take such other actions as are necessary for the Company to be
treated for tax purposes as an S corporation pursuant to Section 1362 of the
Internal Revenue Code of 1986, as amended, and pursuant to such similar
provisions of the law of any state or local taxing jurisdiction in which the
Company or the Shareholders are subject to tax. Notwithstanding any provision of
this Agreement to the contrary, no party to this Agreement shall take any action
or make any transfer of Shares, without the prior written consent of the other
parties, which would result in the termination or revocation of such election,
and each of them shall take such actions as may be required, to continue such
election in effect from year to year.
2. Dividends. With respect to any taxable period of the Company during
which it is an S corporation, within thirty (30) days after the Company files
its federal income tax return, Form 1120S, for such taxable period, the Company
promptly shall declare and pay a dividend to all Shareholders in an amount equal
to the product of (i) the excess of the Company's income allocated to such
Shareholders during such taxable period over the amount of any dividends
declared by the Company and paid to such Shareholders during such taxable
period, multiplied by (ii) the sum of the maximum federal and state income tax
rates in effect for such taxable period (assuming a married individual residing
in the State of New York). The Company's obligation to declare and pay such a
dividend to the Shareholders in such an amount is subject to the restrictions
governing dividends under the General Corporations Law of Delaware and such
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other pertinent governmental restrictions as are now, or any hereafter become,
effective, and also subject to such reasonable terms and conditions as the Board
of the Company may determine. If the Company does not have sufficient funds to
permit it lawfully to declare and pay such dividend, the Shareholders and the
Company shall use reasonable efforts to create sufficient funds to permit the
payment of such dividend, whereupon the Company shall declare and pay such
dividend.
3. Preemptive Rights. If the Company proposes to issue any shares of its
capital stock, or any options, warrants or other rights to directly or
indirectly acquire its capital stock or any securities convertible into or
exchangeable for its capital stock, other than pursuant to a Permitted Issuance,
each Shareholder shall have the option to purchase a portion of such securities
sufficient to enable such Shareholder to maintain its percentage interest in the
Company's capital stock (on a fully-diluted basis assuming the conversion of all
convertible securities and exercise of all warrants and options) immediately
prior to such issuance. The Company shall give each Shareholder at least 30 days
prior written notice of any such proposed issuance, setting forth in reasonable
detail the proposed terms and conditions thereof, including without limitation
the identity of the proposed recipient (the "Issuance Notice"), and shall offer
to each Shareholder the opportunity to purchase such securities at the same
price, on the same terms, and at the same time as the securities are proposed to
be issued by the Company. A Shareholder may exercise his option to purchase by
delivery of a written notice to the Company within 15 days after delivery of the
Issuance Notice, which exercise shall be irrevocable. As used in this Section
IV. 3, "Permitted Issuance" shall mean any issuance of securities of the Company
(i) pursuant to any incentive compensation plan of the Company or otherwise as
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compensation to directors, employees or consultants to the Company or (ii) in
connection with an acquisition of another business by the Company.
4. Legend. All certificates representing Shares owned by the Shareholders,
or any transferee of the Shareholders, shall contain on the face thereof, the
following legends:
"The sale, transfer or encumbrance of
this certificate is subject a certain
Shareholders' Agreement dated July 29,
1999, a copy of which is on file at the
office of the issuer and will be
provided upon request by the registered
owner hereof. The Agreement, among other
things, restricts the transfer of the
Shares evidenced by this certificate and
provides for certain obligations to sell
and to purchase the Shares evidenced by
this certificate, for a designated
price. By accepting the Shares evidenced
by this certificate the holder agrees to
be bound by said Agreement."
"The Shares represented by this
Certificate have not been registered
under the Securities Act of 1933 (the
"Securities Act"). The holder by
acceptance hereof agrees that no
transfer or other disposition of these
Shares will be made or shall be
effective in the absence of an opinion
of counsel acceptable to the issuer that
no registration statement under the
Securities Act is necessary with respect
to the proposed transfer or
disposition."
No dividend shall be paid nor any distribution made on Shares sold, transferred,
pledged, assigned or encumbered in breach of this Agreement, nor shall any such
transfer be registered on the books of the Company.
5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its
principles of conflict of laws except that Section IV.3 which grants preemptive
rights to the Shareholders shall be
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governed by the laws of the State of Delaware.
6. Notices. Notices to any party hereunder shall be deemed to be given
when sent by certified mail or registered mail, postage prepaid, return receipt
requested, to the address of such party set forth in the preamble hereof, or to
such other address as may be specified by notice to the other parties hereof.
7. Specific Performance. The parties hereto recognize that various of the
rights of the parties under this Agreement are unique and, accordingly, each of
the parties shall have, in addition to such other remedies as may be available
at law or in equity, the right to injunctive relief and specific performance.
Without limiting the generality of the foregoing, if any transfer of Shares is
made or attempted contrary to the provisions of this Agreement, the other
Shareholders, or the Company, as the case may be, shall have the right to
injunctive relief and specific performance to the extent permitted by law.
8. Entire Agreement. The parties hereto acknowledge that this Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings between
them as to such subject matter and there are no restrictions, agreements or
arrangements, whether oral or written, between any or all of the parties
relating to the subject matter hereof which are not fully expressed or referred
to herein.
9. Amendments. This Agreement may not be amended, nor shall any waiver,
change, modification, consent or discharge be effected, except by an instrument
in writing executed by or on behalf of the party or parties against whom
enforcement of such amendment, waiver, change, modifications, consent or
discharge is sought.
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10. Assignment. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties hereto and the holders from
time to time of any shares of capital stock of the Company and of the Company's
successors and assigns.
11. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the Company and the Shareholders have caused this
Agreement to be executed as of the date first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
CONCORD MERGER CORP.
/s/ Alvin Weinstein
By: /s/ Earl Kramer ---------------------------------
------------------------------------ Printed: Alvin Weinsten
------------------------
Printed: Earl Kramer
------------------------------- /s/ Joan Weinsten
--------------------------
Title: President Printed: Joan Weinstein
---------------------------------- ------------------------
/s/ David Weinstein
---------------------------------
Printed: David Weinstein
------------------------
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/s/ Peter Weinstein
---------------------------------
Printed: Peter Weinstein
------------------------
/s/ Jonathan Weinstein
---------------------------------
Printed: Jonathan Weinstein
------------------------
/s/ Earl Kramer
---------------------------------
Printed: Earl Kramer
------------------------
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