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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-1
TENDER OFFER STATEMENT
(PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
(AMENDMENT NO. 2)
AND
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 9)
MAXSERV, INC.
(NAME OF SUBJECT COMPANY)
SEARS, ROEBUCK AND CO.
MAX ACQUISITION DELAWARE INC.
(BIDDERS)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
005779171
(CUSIP NUMBER OF CLASS OF SECURITIES)
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MICHAEL D. LEVIN, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
SEARS, ROEBUCK AND CO.
3333 BEVERLY ROAD
HOFFMAN ESTATES, IL 60179
(847) 286-2500
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS)
----------------
COPY TO:
MARK D. GERSTEIN, ESQ.
LATHAM & WATKINS
SEARS TOWER, SUITE 5800
233 SOUTH WACKER DRIVE
CHICAGO, IL 60606-6401
(312) 876-7700
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- -------------------------------------------------------------------------------
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Sears, Roebuck and Co. and Max Acquisition Delaware Inc. hereby amend and
supplement their Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-
1"), filed with the Securities and Exchange Commission on February 4, 1997,
with respect to the offer to purchase any and all of the shares of Common
Stock, par value $.01 per share, of MaxServ, Inc., at a price of $7.00 per
share upon the terms and subject to the conditions set forth in the Offer to
Purchase and in the related Letter of Transmittal. This Amendment No. 2 to the
Schedule 14D-1 also constitutes the Amendment No. 9 to the Statement on
Schedule 13D of Parent and Purchaser. The item numbers and responses thereto
below are in accordance with the requirements of Schedule 14D-1. Capitalized
terms not defined herein have the meaning ascribed to them in the Schedule
14D-1.
ITEM 10. ADDITIONAL INFORMATION.
Item 10(e) of the Schedule 14D-1 is hereby amended to read as follows:
On February 6, 1997, Parent learned that on January 31, 1997, a complaint
was filed against Mr. Charles F. Bayless, President and Chief Executive
Officer of the Company, certain members of the MaxServ Board designated by
Parent and Parent itself in the Court of Chancery of the State of Delaware in
and for New Castle County. The action is styled Gordon v. Bayless, et al,
Civil Action No. 15503. The complaint purports to be a class action on behalf
of the Company's shareholders and seeks, among other things, to enjoin the
proposed transaction whereby Parent has offered to acquire any and all
outstanding shares of the Company. Plaintiff alleges that the current offer by
Parent is unfair and inadequate and that defendants are violating their
fiduciary duties to the Company's shareholders. As of February 7, 1997, to the
best knowledge of Parent and Purchaser, no motion for injunctive relief had
been filed in connection with this action.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
Item 11 of the Schedule 14D-1 is hereby amended to add the following
exhibit:
(g)(3) Complaint in Gordon v. Bayless, et al, C.A. No. 15503 (Del. Ch. filed
January 31, 1997).
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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.
Max Acquisition Delaware Inc.
Dated: February 7, 1997
/s/ John T. Pigott
By: _________________________________
Name: John T. Pigott
Title: Vice President and
Treasurer
Sears, Roebuck and Co.
/s/ Michael D. Levin
By: _________________________________
Name: Michael D. Levin
Title: Senior Vice President,
General Counsel and Secretary
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
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<C> <S> <C>
(g)(3) Complaint in Gordon v. Bayless, et al, C.A. No.
15503 (Del. Ch. filed January 31, 1997).
</TABLE>
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EXHIBIT (g)(3)
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ----------------------------------------X
WILLIAM GORDON, on behalf of himself )
and all others similarly situated, )
)
Plaintiff, )
)
-against- )
) C.A. No. 15503 NC
CHARLES F. BAYLESS, DANIEL A. ) -------
MIHALOVICH, THOMAS D. OVERTON III, )
STEPHANIE S. SPRINGS and SEARS, )
ROEBUCK AND CO., )
)
Defendants. )
- ----------------------------------------X
COMPLAINT
---------
Plaintiff, by his attorneys, for his complaint against defendants,
alleges upon personal knowledge with respect to paragraph 4, and upon
information and belief based, inter alia, upon the investigation of counsel, as
----- -----
to all other allegations herein, as follows:
NATURE OF THE ACTION
--------------------
1. This is a stockholders' class action on behalf of the public
stockholders of MaxServ, Inc. ("MaxServ" or the "Company"), against certain
officers and directors and the controlling shareholder of MaxServ to enjoin
certain actions of defendants related to the acquisition of the outstanding
shares of MaxServ common stock by its controlling majority shareholder,
defendant Sears, Roebuck and Co. ("Sears").
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2. In this regard, Sears is attempting to take advantage of its
position of control over the MaxServ Board. In light of Sears' collaboration
with MaxServ in its business ventures, Sears and the other defendants are well
aware that MaxServ is poised for explosive growth in the near future.
3. The consideration that Sears stated it would offer to members of
the Class (as defined below) in the proposed stock acquisition is unfair and
grossly inadequate because, among other things, the intrinsic value of MaxServ's
common stock is materially in excess of the amount offered, giving due
consideration to the Company's promising growth and anticipated operating
results, net asset value and profitability. That inadequate offer having been
rejected by the minority special committee members appointed by the MaxServ
Board, Sears now intends to employ its control over the MaxServ Board, and other
coercive tactics to cram-down its inadequate buy-out proposal at the same or a
lower price than that the special committee rejected. Sears' conduct constitutes
an abuse of its control position and a breach of its fiduciary obligations.
THE PARTIES
-----------
4. Plaintiff William Gordon is and at all relevant times has been the
owner of approximately 14,000 shares of MaxServ common stock.
5. (a) MaxServ is a Delaware corporation with its principal executive
offices at 8317 Cross Park Drive, Austin, Texas 78754. MaxServ is a leading
provider of information services for household products, offering diagnostic
assistance and support to consumers and professional technicians involved in the
installation, repair, care and operation of a variety of household products,
including appliances, electronic goods, personal computers and lawn and garden
equipment.
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(b) As of November 30, 1996, MaxServ had 10,926,006 shares of
common stock outstanding, held by hundreds if not thousands of shareholders of
record. MaxServ common stock is listed and traded on the National Market System
(NMS).
6. (a) Defendant Sears is a New York corporation with its principal
executive offices at 3333 Beverly Road, Hoffman Estates, Illinois, 60179. Sears
is a leading retailer of apparel, home and automotive products and services.
Sears operates approximately 2300 department and specialty stores across the
United States, including "HomeLife" furniture and "Sears Hardware" stores. Sears
also operates a network of about 2500 automotive product and service outlets
which include "Sears Auto Centers" and "Western Auto".
(b) As of January 27, 1997, Sears reportedly owned 7,033,333
MaxServ shares representing 64.4% of MaxServ's outstanding common stock.
Consequently, Sears and its representatives on the MaxServ board effectively
control and dominate MaxServ's affairs. Sears, therefore, is a controlling
shareholder and owes fiduciary obligations of good faith, candor, loyalty and
fair dealing to the public shareholders of MaxServ.
(c) Sears is registered as a foreign corporation to do business
in Delaware. Sears in fact does business in Delaware, operating several
department stores.
7. Defendant Charles F. Bayless ("Bayless") is and has been at all
relevant times the President and Chief Executive Officer of MaxServ. In
addition, Bayless serves as a director of MaxServ. Bayless occupies his position
as a MaxServ
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director and senior officer entirely at the sufferance of Sears, MaxServ's
controlling shareholder, and is ultimately accountable to Sears for his
continuance in office.
8. Defendant Daniel A. Mihalovich ("Mihalovich") is and has been at
all relevant times a director of MaxServ. In addition, he currently serves as
Vice President/GM, Product Services of Sears. Mihalovich has worked for Sears
since 1966.
9. Defendant Thomas D. Overton III ("Overton") is and has been at all
relevant times a Director of MaxServ. In addition, Overton currently serves as
Vice President, Strategy and Business Development for the Home Services area of
Sears. Overton has worked for Sears since 1993.
10. Defendant Stephanie S. Springs ("Springs") is and has been at all
relevant times a Director of MaxServ. In addition, Springs currently serves as
Senior Systems Director, Information Systems Shared Services for Sears. Springs
has worked for Sears since 1973.
11. The defendants referred to in paragraphs 7-10 are collectively
referred to as the "Individual Defendants". The remaining members of the MaxServ
Board - Nathaniel P. Turner, Stephen J. Keane and Patrick A. Rivelli -
constituted the special committee of MaxServ ("Special Committee") and are not
named as defendants herein.
12. By virtue of their positions as directors and/or officers of
MaxServ and/or their exercise of control and dominant ownership over the
business and corporate affairs of MaxServ, the Individual Defendants (who,
collectively, constitute a majority of the Board) and Sears have, and at all
relevant times had, the power to control and influence, and did control and
influence and cause MaxServ to engage in the practices complained of herein.
Each Individual Defendant and Sears owed and owes MaxServ
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and its stockholders fiduciary obligations and were and are required to: use
their ability to control and manage MaxServ in a fair, just and equitable
manner; act in furtherance of the best interests of MaxServ and its
stockholders; govern MaxServ in such a manner as to heed the expressed views of
its public shareholders; refrain from abusing their positions of control; and
not to favor their own interests at the expense of MaxServ and its stockholders.
13. As discussed in detail below, Sears, and the Individual
Defendants have breached their fiduciary duties to MaxServ's public stockholders
by acting in an unfair manner to cause or facilitate Sears' acquisition of the
publicly-held minority shares of MaxServ for unfair and inadequate
consideration.
CLASS ACTION ALLEGATIONS
------------------------
14. Plaintiff brings this action pursuant to Rule 23 of the Rules of
this Court, on behalf of himself and all other shareholders of the Company
except the defendants herein and any persons, firm, trust, corporation, or other
entity related to or affiliated with them and their successors in interest, who
are or will be threatened with injury arising from defendants' actions, as more
fully described herein (the "Class").
15. This action is properly maintainable as a class action for the
following reasons:
a. The Class is so numerous that joinder of all members is
impracticable. There are 10,926,006 shares of MaxServ common stock which are
outstanding, held by hundreds if not thousands of stockholders who are members
of the Class.
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b. There are questions of law and fact that are common to the
Class including, inter alia, the following:
----- ----
i) whether defendants have engaged in and are continuing
to engage in unfair conduct which benefits Sears at the expense of the members
of the Class;
ii) whether the Individual Defendants, as officers and/or
directors of the Company, and Sears, the controlling stockholder of MaxServ are
violating their fiduciary duties to plaintiff and the other members of the
Class;
iii) whether plaintiff and the other members of the Class
would be irreparably damaged were defendants not enjoined from the conduct
described herein;
iv) whether Sears has initiated and timed its buy-out of
MaxServ shares to benefit itself unfairly at the expense of MaxServ's public
shareholders.
c. The claims of plaintiff are typical of the claims of the
other members of the Class in that all members of the Class will be damaged by
defendants' actions.
d. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. Plaintiff
is an adequate representative of the Class.
e. Plaintiff anticipates that there will not be any difficulty
in the management of this litigation as a class action.
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f. The prosecution of separate actions by individual members of
the Class would create the risk of inconsistent or varying adjudications with
respect to individual members of the Class which would establish incompatible
standards of conduct for defendants, or adjudications with respect to individual
members of the Class which would as a practical matter be dispositive of the
interests of the other members not parties to the adjudications or substantially
impair or impede their ability to protect their interests.
g. The defendants have acted or refused to act, on grounds
generally applicable to, and causing injury to, the Class and, therefore,
preliminary and final injunctive relief on behalf of the Class as a whole is
appropriate.
SUBSTANTIVE ALLEGATIONS
-----------------------
A. The Company
-----------
16. MaxServ is a leading provider of information services for
household products, offering diagnostic assistance and support to consumers and
professional technicians involved in the installation, repair, care and
operation of a variety of household products, including appliances, electronic
goods, personal computers and lawn and garden equipment.
17. MaxServ was incorporated in Texas in 1981 and was reincorporated
in Delaware in 1994. Also, in 1994, MaxServ and its principal customer and
stockholder, Sears, entered into a stock purchase agreement (the "Stock Purchase
Agreement") by which MaxServ issued 3.3 million shares of the Company's stock to
Sears in exchange for a ten-year agreement for telemarketing services for
replacement parts and
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accessories covering all major brand home products services for Sears' consumer
and commercial customers and for logistic and scheduling needs of Sears' repair
technicians.
18. For much of 1996, MaxServ concentrated on completing the
development and integration of systems and processes necessary to fully
integrate, both technically and culturally, the new services added during the
last half of 1995 that more than doubled the Company's operations, employees and
operational capacity.
19. This effort required new telephone and network equipment,
increased automation and two new call taking systems. Additionally, MaxServ
emphasized education and training of its employees in the use, maintenance and
operation of the new systems. During the second half of 1996, the impact of
these actions began to produce positive operating performance. By year's end
when call volumes of most services were at a seasonal high, operating
performance rose to record levels with higher systems' reliability and improving
employee efficiency.
20. In this regard, on January 10, 1997, MaxServ reported record
second quarter and six month revenue and net income for the period ended
November 30, 1996. Net income in the three month period was $448,000, or four
cents per share, on revenue of $13.7 million, compared to a net loss in the
second quarter of fiscal 1996 of $687,000, or six cents per share, on revenue of
$11.9 million.
21. For the first six months of fiscal 1997, net income of $1.3
million, or 12 cents per share, was earned on revenue of $28.5 million, compared
to a net loss of $654,000, or six cents per share, on revenue of $25.1 million
for the first six months of fiscal 1996.
8
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22. Defendant Bayless, MaxServ's President and Chief Executive
Officer, stated that the Company was able to achieve its record second quarter
revenue and net income despite the seasonal declines in call volume, yielding
lower profit margins, through aggressive management of operating costs. He also
stated that the Company is currently utilizing substantially all of its
operating capacity to meet customer service requirements and that plans are
underway for expanded operating facilities to meet higher customer service
volumes.
23. Bayless also stated that:
During the second quarter, and following extensive research and
study, we began making significant new investments in our
technology systems to position MaxServ for the blending of call
services and electronic commerce anticipated in the teleservices
marketplace over the next several years . . . [T]his new platform
will also provide a foundation on which new applications can be
developed more quickly, be more flexible and easier to maintain
and integrate with other applications . . . [W]ith these new
systems, MaxServ will reduce the time-to-market required for
implementing new customer services.
MaxServ is thus poised for substantial future growth and profitability.
B. The Offer
---------
24. Toward the end of 1996, it was publicly reported that Sears
was looking to bolster its home improvement products and services, which include
roofing, siding, fencing, replacement windows and doors and kitchen cabinet
refacing. For the quarter ending September 28, 1996, service and other revenue
constituted approximately 1.3% of Sears' total sales, or $722 million.
9
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25. On December 5, 1996, MaxServ received an expression of
interest from Sears, to acquire all outstanding shares of MaxServ common stock
previously not owned by Sears (the "Proposed Transaction").
26. In response thereto, on December 20, 1996, the Company
publicly announced it had formed the Special Committee as financial advisor to
negotiate with Sears as to the price and other terms of the Proposed
Transaction, and that the Special Committee had retain Broadview Associates
LLC ("Broadview").
27. On January 9, 1997, Sears proposed a range of $6.50 to $6.75
per share of MaxServ stock for the acquisition. Sears stated that, in its view,
such a price range was appropriate in light of: (i) the premium it represented
to historic trading prices of the Company's shares; (ii) Sear's discounted
cash flow analysis of the value of the Company; (iii) the post-announcement
trading prices of the Company's shares reflecting a similar valuation of the
Company's minority shares; and (iv) no "control premium" being attributable to
the acquisition of the majority shares.
28. In response to Sears' offer, Broadview made an evaluation
based on its own discounted cash flow analysis of the Company regarding
projected growth of revenues from Sears (25% compounded annual growth for the
fiscal years 1997 to 2002) and the Company's ability to expand revenues from
third party customers (i.e., customer other than Sears), projected to grow from
$5 million to $110 million, approximately 85% compounded annual growth, in the
fiscal years from 1997 to 2002. Broadview advised the Special Committee that
data supported a price "in the teens" for each of MaxServ's outstanding shares.
10
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29. On January 23, 1997, Merrill Lynch & Co., Sear's financial
advisor, informed Broadview Associates that Sears was prepared to increase its
offer to $7.00 per share for MaxServ stock in the Proposed Transaction. Later
that day, Broadview responded to Merrill Lynch & Co. that the Special Committee
had evaluated Sears' revised proposal and would not accept such an offer. Sears
did not offer any alternative price per share and did not propose any means of
resolving the impasse.
30. On January 27, 1997, Sears advised the Special Committee that
it was withdrawing its proposal of $7.00 per share.
C. The Aftermath
-------------
31. In light of its inability to reach an agreement with the
Special Committee, Sears has publicly stated that it is now evaluating its
alternatives with respect to its ongoing business relationship with the Company.
Unless its completes the Proposed Transaction, Sears intends, as it had advised
the Special Committee, to develop new projects outside of the Company. Further,
Sears also intends to reevaluate its existing contractual programs with the
Company.
32. Sears is similarly evaluating its alternatives with respect
to its investment in MaxServ Common Stock. According to published reports, Sears
does not intend, for so long as it has a material business relationship with the
Company, to reduce its equity interest in the Company below a majority.
Moreover, Sears has stated that it may commence a tender offer to acquire any or
all of the MaxServ stock it does not own. Under the terms of the Stock Purchase
Agreement, Sears and any of its affiliates (with certain limited exceptions) may
acquire shares of MaxServ stock in connection with any tender offer by Sears or
an affiliate for all of the outstanding MaxServ Stock.
11
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33. Sears has also publicly stated that it is permitted under the
Company's bylaws and articles of incorporation to appoint a majority or more of
the directors of the Company (including through removal of existing directors
without cause), and can do so by written consent without a meeting of the
Company's stockholders, at any time.
34. Because Sears is MaxServ's partner in new systems
development, it is well aware of the progress of several of MaxServ's new
services and processes. In making its inadequate offer to acquire the remaining
stock of MaxServ, Sears has tried to take advantage of the fact that the market
price of MaxServ stock does not fully reflect the progress and value of these
new offerings.
35. Sears and the Individual Defendants are presently engaged in
an ongoing plan and scheme to utilize one or more of the foregoing coercive
devices to effect a buy-out of the publicly held shares of MaxServ at a price no
greater than that which Sears was prepared to pay in the Proposed Transaction or
for lesser consideration.
36. Any transaction to acquire the Company in the price range
previously offered does not represent fair value for the Company's publicly held
stock.
37. The stock acquisition price that Sears has offered and which
constitutes the maximum it would agree to pay in a buy-out has been dictated by
Sears to serve its own interests, is not the result of arm's-length negotiations
and is being crammed down by Sears and its representatives on MaxServ's Board to
force MaxServ's minority shareholders to relinquish their MaxServ shares at an
unfair price.
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38. Sears, by reason of its 64% ownership of MaxServ's
outstanding shares, is in a position to ensure effectuation of the transaction
without regard to its fairness to MaxServ's public shareholders.
39. Because Sears is in possession of proprietary corporate
information concerning MaxServ's future financial prospects, the degree of
knowledge and economic power between Sears and the class members is unequal,
making it grossly and inherently unfair for Sears to obtain the remaining 35% of
MaxServ's shares at the unfair and inadequate price that it has proposed.
40. By offering a grossly inadequate price for MaxServ's shares
and threatening or planning to use its coercive means of control to force the
consummation of the transaction. Sears is violating its duties as majority
shareholders of MaxServ to treat the minority fairly in its dealings with
MaxServ's public shareholders.
41. Any buy-out of MaxServ public shareholders by Sears on the
terms recently offered or on lesser terms, will deny class members their right
to share proportionately and equitably in the true value of MaxServ's valuable
and profitable business, and future growth in profits and earnings, at a time
when the Company is poised to increase its profitability.
42. Defendants' fiduciary obligations require them to:
(a) act independently so that the interests of MaxServ's
public stockholders will be protected;
(b) adequately ensure that no conflicts of interest exist
between defendants' own interests and their fiduciary obligation of entire
fairness or, if such
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conflicts exist, to ensure that all the conflicts are resolved in the best
interests of MaxServ's public stockholders; and
(c) provide MaxServ's stockholders with independent
representation in the negotiations with Sears.
43. Because Sears controls over 60% of MaxServ and dominates its
Board, no auction or market check can be effected to establish MaxServ's worth
through arm's-length bargaining. Thus, Sears has the power and is exercising its
power to acquire MaxServ's minority shares and dictate terms which are in Sears'
best interest, without competing bids and regardless of the wishes or best
interests of the class members or the intrinsic value of MaxServ's stock.
44. By reason of the foregoing, defendants have breached and will
continue to breach their duties to the minority public shareholders of MaxServ
and are engaging in improper, unfair dealing and wrongful and coercive conduct.
45. Unless enjoined by this Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the other members of the
Class, and are prepared to consummate a buy-out on unfair and inadequate terms
which will exclude the Class from its fair proportionate share of MaxServ's
valuable assets and businesses, all to the irreparable harm of the Class, as
aforesaid.
46. Plaintiff and the other class members are immediately
threatened by the acts and transactions complained of herein and lack an
adequate remedy at law.
WHEREFORE, plaintiff demands judgment and preliminary and
permanent relief, including injunctive relief, in his favor and in favor of the
Class and against defendants as follows:
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A. Declaring that this action is properly maintainable as a
class action, and certifying plaintiff as a class representative;
B. Declaring that the defendants and each of them have
committed or participated in a gross abuse of trust and have breached their
fiduciary duties to plaintiff and other members of the Class or aided and
abetted such breaches;
C. Enjoining the proposed transaction and, if the transaction is
consummated, rescinding the transaction;
D. Awarding plaintiff and the Class compensatory damages and/or
rescissory damages;
E. Awarding plaintiff the costs and disbursements of this
action, including allowance for plaintiff's attorneys' and experts' fees; and
F. Granting such other, and further relief as this Court may
deem to be just and proper.
DATED: January 31, 1997
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By: /s/ Norman M. Monhait
-------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899-1070
(302) 656-4433
Attorneys for Plaintiff
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OF COUNSEL:
Steven G. Schulman
Seth Ottensoser
MILBERG WEISS BERSHAD HYNES
& LERACH LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
Lawrence G. Soicher, Esq.
Law Offices of Lawrence G. Soicher
300 Park Avenue
20th Floor
New York, NY 10022
(212) 980-7000
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