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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 3)
Filed by the Registrant [_]
Filed by a Party other than the Registrant [X] [_] Confidential, for
Use of the
Commission Only
(as permitted by
Check the appropriate box: Rule 14a-6(e)(2))
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
INTERNATIONAL JENSEN INCORPORATED
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
EMERSON RADIO CORP.
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: common
stock, $.01 par value per share
(2) Aggregate number of securities to which transaction applies: 5,735,140
shares of common stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $8.90 (3,599,354 shares of common
stock); $11.00 (2,135,786 shares of common stock)
(4) Proposed maximum aggregate value of transaction: $55,527,896
(5) Total fee paid: $11,105.58
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE>
[LOGO] Emerson Radio Corp.
August 8, 1996
Dear International Jensen Incorporated Stockholder:
We are writing to you, the owners of International Jensen Incorporated
("Jensen"), regarding a matter of mutual interest. Emerson Radio Corp.
("Emerson"), a leading consumer electronics company, has long had an
interest in acquiring Jensen due to the synergies that exist between the
two companies. Emerson, through a series of merger and acquisition
proposals, has consistently sought to provide you, the public stockholders
of Jensen, with the highest and best value for your shares of Jensen stock.
However, Robert G. Shaw, Jensen's Chairman, Chief Executive Officer,
President, and largest stockholder, William Blair Leveraged Capital Fund,
L.P. ("Blair"), through its principal, David Chandler, and Recoton
Corporation ("Recoton"), the other bidder for Jensen, have, Emerson
believes, acted together to block and inhibit Emerson's superior proposals.
We believe that Emerson's proposals were not seriously considered to
protect the benefit of certain highly favorable deals for Mr. Shaw.
After (i) months of submitting consistently superior proposals, (ii)
months of frustrating attempts to negotiate with Jensen's Special Committee
and the Board of Directors of Jensen, (iii) months of Jensen, Mr. Shaw, and
Blair agreeing to what Emerson believes to be improper lock-ups (including
a lock-up of Blair's Jensen shares in favor of Recoton and the lock-up of
Jensen's valuable Acoustic Research trademarks in favor of Recoton) and
other improper arrangements, and (iv) Jensen conducting what Emerson
believes to be a seriously flawed auction only after these lock-ups were
put in place, on June 25, 1996, Emerson again proposed a merger with Jensen
that is financially superior for Jensen's public stockholders as compared
to the merger transaction Jensen announced with Recoton on June 24, 1996.
Emerson announced that it was prepared to acquire all outstanding shares of
Jensen stock for $12.00 per share (other than shares held by Mr. Shaw and
Blair/Recoton). As to Mr. Shaw, Emerson would pay $8.90 per share, the
EXACT SAME price he has agreed to accept from Recoton on several occasions.
With respect to Blair's shares, Emerson on June 25, 1996, offered the same
$8.90 per share Shaw would receive, and, based on new information which
became available after such date, on July 16, 1996, Emerson offered to
increase its offer to Blair to $10.00 per share, a SUBSTANTIALLY HIGHER
price than Blair has repeatedly agreed to accept from Recoton. In fact,
Emerson's offer to Blair included an offer immediately to purchase its
shares premised on Emerson's belief that most of the provisions of a stock
option and voting agreement Blair entered into with Recoton expired no
later than July 15, 1996. Blair and Jensen have again refused Emerson's
offer.
On July 24, 1996, Emerson offered, in addition to the offer described
above, to immediately pay approximately $20.4 million, or $2.2 million more
than Mr. Shaw has currently agreed to pay for Jensen's original equipment
manufacturing business ("OEM Business"). In conjunction with its offer,
Emerson has provided to establish such fund at the time of closing an OEM
Business sale and for Jensen's public stockholders to receive the $2.2
million increase (approximately $1.00 per share) on the closing of a
Jensen/Recoton transaction, providing the public stockholders with an
aggregate consideration of $12.00 per share. In the event Emerson is able
to purchase the entirety of Jensen for $12.00 per share to the public
stockholders, the $2.2
<PAGE>
million would be applied to the merger consideration being paid by Emerson.
On August 2, 1996, Jensen rejected Emerson's proposal to acquire the OEM
Business stating that Recoton would not merge with Jensen if Emerson
purchased the OEM Business, Shaw would not vote for the Recoton
transactions and be paid $8.90 per share IF HE COULD NOT PURCHASE THE OEM
BUSINESS, and Jensen's insistence of not being able to conclude a tiered
consideration merger with Emerson without Mr. Shaw's and Blair's
concurrence. Significantly, Emerson's proposals provide the maximum
financial benefit to Jensen's public stockholders and are not conditioned
upon and do not contemplate the sale of the OEM Business to Mr. Shaw, or
any special asset sale with any Jensen insider.
The merger agreement currently agreed upon by Jensen with Recoton
contemplates the payment to all stockholders of Jensen (other than Mr. Shaw
and Blair) of $11.00 per share ($1.00 per share less than Emerson's
proposal), with Mr. Shaw and Blair receiving $8.90 per share. In addition,
the Recoton transaction is specifically conditioned upon Mr. Shaw being
allowed, at his sole discretion, to purchase the OEM Business at a
substantial discount to the net book value of the OEM Business, and,
Emerson believes, at a substantial discount to the fair valuation of the
OEM Business, as reflected by Emerson's recent offer to purchase the OEM
Business for payments aggregating approximately $20.4 million and the
amount its asset based lender would advance (approximately $23 million) on
the assets of the OEM Business. Mr. Shaw has no obligation to actually
purchase the OEM Business under his purchase agreement with Jensen,
although Jensen's transaction with Recoton is specifically conditioned upon
such a transaction. Emerson further believes that Recoton and Mr. Shaw
have been acting together in making their bids to acquire all of Jensen, as
reflected in Jensen's rejection on August 2, 1996, of Emerson's proposal to
acquire the OEM Business, and Blair, for undisclosed reasons, has joined
this group by attempting to abdicate its fiduciary obligations through
giving away the voting rights on its shares and giving Recoton an option to
acquire Blair's shares at $8.90 per share. Thus, Recoton/Shaw/Blair
control a majority of Jensen's outstanding stock and, Emerson believes, are
acting to cause you, the true owners of Jensen, to receive less than you
deserve. All this, to protect Mr. Shaw's highly favorable deals.
JENSEN HAS REJECTED ALL OF EMERSON'S PROPOSALS.
TO PRESERVE YOUR OPPORTUNITY TO CONSIDER THE BEST AVAILABLE OFFER, WE
URGE YOU TO VOTE AGAINST THE PROPOSED RECOTON TRANSACTION BY SIGNING,
DATING, AND RETURNING THE ENCLOSED BLUE PROXY CARD TODAY.
EMERSON BELIEVES ITS OFFERS ARE FINANCIALLY SUPERIOR TO JENSEN'S
PUBLIC STOCKHOLDERS. THE JENSEN BOARD, MR. SHAW, AND BLAIR ALL OWE
FIDUCIARY DUTIES TO JENSEN'S PUBLIC STOCKHOLDERS. FURTHER, RECOTON IS
ACTIVELY PARTICIPATING IN DEPRIVING YOU OF THE BENEFIT OF EMERSON'S
PROPOSALS THROUGH ITS ATTEMPTED "LOCK UP" OF BLAIR'S SHARES AND PARTNERSHIP
WITH SHAW AS WELL AS THE LOCK-UP OF VALUABLE TRADEMARK ASSETS. UNDER THE
EMERSON PROPOSALS, YOU WOULD RECEIVE A SIGNIFICANT PREMIUM FOR YOUR SHARES,
$12.00 PER SHARE AS COMPARED TO $11.00 PER SHARE UNDER THE RECOTON MERGER
AGREEMENT. A VOTE AGAINST THE RECOTON MERGER SHOULD NOT BE CONSTRUED AS A
VOTE IN FAVOR OF EMERSON'S PROPOSALS. HOWEVER, UNLESS THE PROPOSED
TRANSACTIONS WITH RECOTON AND MR. SHAW ARE DEFEATED AT THE JENSEN SPECIAL
MEETING OF STOCKHOLDERS, YOU WILL NOT HAVE THE POTENTIAL OPPORTUNITY TO
CONSIDER OR VOTE ON THE EMERSON PROPOSALS, WHICH EMERSON BELIEVES ARE IN
YOUR BEST INTEREST, OR EVEN THAT THE JENSEN BOARD WILL CONSIDER EMERSON'S
PROPOSALS.
None of Jensen, Mr. Shaw, or Blair has adequately explained, or,
Emerson believes, could adequately explain, why Mr. Shaw or Blair could not
validly accept Emerson's proposals, which would pay them exactly the same
amount or more than they have agreed to accept from Recoton. Emerson
believes that Mr. Shaw is seeking to protect the benefits accruing to him
from the purchase of the OEM Business on a highly favorable basis. While
Mr. Shaw has consistently argued that he was required to purchase the OEM
Business to facilitate a transaction with Recoton, this hardly explains why
Mr. Shaw has continued aggressively to pursue a transaction with Recoton in
the face of higher Emerson proposals or in light of Emerson's higher offer
to purchase the OEM Business. Blair signed away its voting rights to
Recoton on May 1, 1996, and agreed to allow Recoton to purchase its shares
at that time for $9.00 per share, only to agree to accept a lesser amount,
$8.90 per share, when Recoton revised its offer on May 10, 1996. In
connection with agreeing to accept a lesser amount, Blair also gave up its
right to regain the vote over such stock if a Recoton merger agreement was
terminated (thereby allowing Recoton to potentially vote Blair's shares
against a merger transaction which could be more favorable to Jensen's
public stockholders). Subsequently, when Blair was informed of Emerson's
and certain stockholders' belief that most of the provisions of its option
and voting agreement with Recoton had terminated, Blair disagreed, without
explanation of its analysis, and threatened Emerson with litigation. Mr.
Shaw, Blair, and the Jensen Board have also positioned the so-called
"auction" process to require Mr. Shaw's approval of any Emerson proposal,
which he is unwilling to do, Emerson believes, in light of the substantial
personal benefits he would obtain on a purchase of the OEM Business.
Jensen has argued it would be improper to proceed with an Emerson
transaction since Mr. Shaw and Blair, Jensen's majority stockholders, have
indicated they do not support and would not vote in favor of a transaction
with Emerson. However, Emerson believes Mr. Shaw and Blair (through its
principal David Chandler), as majority stockholders and directors of
Jensen, have fiduciary duties to obtain the highest and best deal possible
for the stock of Jensen's minority/public stockholders. REMIND SHAW, BLAIR
(CHANDLER), AND THE REST OF THE JENSEN DIRECTORS OF THEIR FIDUCIARY DUTIES
TO JENSEN'S PUBLIC STOCKHOLDERS. Emerson believes Jensen is unjustified in
using Mr. Shaw's self-interested and Blair's alleged objections to an
Emerson transaction as an excuse to deprive Jensen's public stockholders of
higher and better bids from Emerson.
IN EMERSON'S VIEW, BLAIR AND THE JENSEN BOARD HAVE ABDICATED THEIR
FIDUCIARY DUTIES OWED TO JENSEN'S PUBLIC STOCKHOLDERS TO RECOTON AND TO
SHAW, WHOSE GOAL IS TO PROTECT HIS OWN SELF-INTERESTED TRANSACTION, THE
PURCHASE OF THE OEM BUSINESS AT A SIGNIFICANT DISCOUNT TO WHAT EMERSON
BELIEVES TO BE ITS FAIR VALUE.
YOUR VOTE IS ESSENTIAL
IF YOU WANT TO HAVE THE POTENTIAL OPPORTUNITY TO BE PRESENTED WITH THE
EMERSON MERGER PROPOSAL, WHICH EMERSON BELIEVES IS FINANCIALLY SUPERIOR TO
THE PROPOSED TRANSACTIONS WITH RECOTON/SHAW/BLAIR, WE URGE YOU TO VOTE THE
BLUE PROXY CARD AGAINST THE PROPOSED TRANSACTIONS WITH RECOTON/SHAW. ONLY
BY DEFEATING THE JENSEN/RECOTON/SHAW MERGER AND RELATED TRANSACTIONS WILL A
MESSAGE BE SENT TO THE JENSEN BOARD THAT IT SHOULD DEAL WITH EMERSON ON A
GOOD FAITH BASIS AND ALLOW THE STOCKHOLDERS TO POTENTIALLY REALIZE THE
GREATEST BENEFIT POSSIBLE FROM THE SALE OF THEIR STOCK.
IF YOU HAVE ALREADY VOTED FOR THE PROPOSED TRANSACTIONS WITH
RECOTON/SHAW, IT IS NOT TOO LATE TO CHANGE YOUR VOTE BY SIMPLY SIGNING,
DATING, AND RETURNING THE BLUE PROXY CARD TODAY IN THE ENCLOSED, POSTAGE-
PREPAID ENVELOPE.
Emerson appreciates your consideration and support.
Sincerely,
Eugene I. Davis
President
IMPORTANT
If your shares are held in your own name, please sign, date, and
return the enclosed BLUE proxy card today. If your shares are held in
"Street-Name," only your broker or bank can vote your shares and only upon
receipt of your specific instructions. Please return the enclosed BLUE
proxy to your broker or bank and contact the person responsible for your
account to ensure that a BLUE proxy is voted on your behalf.
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS
OF
INTERNATIONAL JENSEN INCORPORATED
PROXY STATEMENT
OF
EMERSON RADIO CORP.
SOLICITATION OF PROXIES
IN OPPOSITION TO THE PROPOSED MERGER OF
INTERNATIONAL JENSEN INCORPORATED AND
RECOTON CORPORATION
This Proxy Statement is furnished by Emerson Radio Corp., a Delaware
corporation ("Emerson"), in connection with its solicitation of proxies to
be used at a special meeting of stockholders of International Jensen
Incorporated, a Delaware corporation ("Jensen"), and at any adjournments,
postponements, or reschedulings thereof (the "Special Meeting"). Pursuant
to this Proxy Statement, Emerson is soliciting proxies from stockholders of
Jensen to vote against Jensen's proposal (i) to merge Jensen with and into
a wholly-owned subsidiary of Recoton Corporation ("Recoton") (such proposed
merger, the "Jensen/Recoton Merger") and (ii) to sell its original
equipment manufacturing business ("OEM Business") to a corporation wholly-
owned and controlled by Robert G. Shaw ("Shaw"), Jensen's Chairman, Chief
Executive Officer ("CEO"), President, and largest stockholder. According
to the International Jensen Incorporated Proxy Statement dated July 23,
1996 (the "Jensen Proxy Statement"), Jensen has fixed August 28, 1996 as
the date of the Special Meeting and July 15, 1996, as the record date for
determining those stockholders of Jensen who will be entitled to vote at
the Special Meeting (the "Record Date"). This Proxy Statement and the
enclosed proxy are first being sent or given to stockholders of Jensen on
or about August 8, 1996. The principal executive offices of Jensen are
located at 25 Tri-State International Office Center, Suite 400,
Lincolnshire, Illinois 60069. The principal executive offices of Emerson
are located at Nine Entin Road, Parsippany, New Jersey 07054-0430.
SUMMARY
BACKGROUND
Emerson has long had an interest in acquiring Jensen. Beginning in
the Spring of 1995, Bankers Trust Company ("Bankers Trust"), later to
become Emerson's financial advisor, on behalf of another named client,
contacted Shaw, Jensen's Chairman, CEO, President, and largest stockholder,
regarding whether Jensen was interested in being sold. Bankers Trust was
informed that Jensen was not for sale. Bankers Trust, on behalf of such
other client continued to contact Shaw, and later, after its retention by
Jensen as its financial advisor, Lehman Brothers Inc. ("Lehman Brothers").
Both Shaw and Scott Mohr of Lehman Brothers, on a number of occasions
throughout the Summer and Fall of 1995, informed Bankers Trust either that
Jensen was not for sale or that due diligence materials were not yet
available or were being revised.
On January 3, 1996, Jensen and Recoton entered into their original
merger agreement. That agreement contemplated a merger consideration of
$8.90 per share, payable 60% in cash and 40% in shares of Recoton's common
stock. In connection with and as a precondition of this agreement, Shaw
agreed with Jensen to purchase the OEM Business for $15 million, with the
right to terminate this agreement if the net book value was less than $27.6
million, which, according to such agreement, was the net book value of the
OEM Business as of November 30, 1995. Shaw provided very few
representations to Jensen in this agreement, while requiring extensive
representations from Jensen (of which he is CEO), with an ability of his
part to terminate the agreement with no penalty to him, but with full
reimbursement of his expenses, even if for HIS not being satisfied with his
financing for the acquisition. In fact, Shaw did not even represent that
he had the financing to consummate the purchase of the OEM Business. This
and his right to terminate such agreement (and be reimbursed for his
expenses) if he was unsatisfied with his financing are significant
contingencies not previously disclosed by Jensen. The sales agreement for
the OEM Business also contemplated certain side agreements relating to,
among other things, royalties on trademarks, management sharing and office
sharing arrangements, and other matters. These agreements were not
completed at the time the January 3 agreements were executed.
The original Jensen/Recoton Merger contemplated a termination fee of
$6 million if Jensen accepted a competing offer, but no termination fee if
Lehman Brothers could not issue any of the fairness opinions it was
required to provide under the Jensen/Recoton Merger agreement and the OEM
Business sales agreement. By way of a separate agreement, Recoton was
given a one-year license on and a "lock-up" option to acquire the valuable
"AR" and "Acoustic Research" trademarks (the "AR Trademarks") of Jensen for
$6 million, the exact same amount as its termination fee. As indicated in
the Jensen Proxy Statement, these amounts were designed to offset each
other. Thus, if the Jensen/Recoton Merger was terminated, Recoton would
obtain these valuable trademarks from Jensen for no real consideration
(although Jensen and Recoton had voluntarily placed a $6 million value on
these trademarks).
After discovering that Jensen and Recoton had entered into a merger
agreement with Recoton on January 3, 1996, John P. Walker, Emerson's Chief
Financial Officer ("CFO"), immediately called Scott Mohr of Lehman Brothers
to inform Lehman Brothers of Emerson's interest in making a competing bid.
Stephen Goodman of Bankers Trust met with Shaw at the Consumer Electronics
Show and expressed his surprise at the announcement of the proposed
Jensen/Recoton Merger and the failure to contact Bankers Trust or the
client despite their continuing expressions of interest.
Emerson formally confirmed its interest in acquiring Jensen by letter
dated January 11, 1996, to which Emerson received no response. On January
31, 1996, Bankers Trust informed Jensen and Lehman Brothers that Emerson
was prepared immediately to proceed toward making a definitive all-cash
proposal to acquire Jensen. Throughout January and February 1996, Jensen
<PAGE>
refused to meet with representatives of Emerson, as reflected in the Jensen
Proxy Statement. Finally, Emerson representatives were able to meet with
Jensen representatives in early March 1996. On March 4, 1996, Emerson and
a potential partner in a Jensen acquisition executed a confidentiality and
standstill agreement (the "Confidentiality Agreement") regarding Jensen,
and Emerson was finally permitted to begin its diligence review. This
diligence review was severely restricted by Shaw and Jensen. Emerson was
not permitted to speak to any of Jensen's personnel (except Jensen's CFO
and Controller), was provided only limited access to documents, was
prohibited from any on-site due diligence review of Jensen's OEM Business,
which was (and, pursuant to the Recoton/Shaw offer, still is) to be sold to
a group led by Shaw (the "Shaw Group") in connection with the
Jensen/Recoton Merger, was prevented for a substantial period of time from
reviewing Jensen's European operations, and was secluded in an isolated
conference room in Jensen's offices in conducting its review. Emerson
conducted a substantial amount of due diligence review and analysis in a
very compressed period of time, even with the severe restrictions imposed
by Jensen. Furthermore, Emerson was forced into expedited due diligence by
Jensen's management because it stated that the proxy statement for the
Jensen/Recoton Merger was, as of early March, nearing completion and was to
be mailed shortly. The Jensen Proxy Statement was not, in fact, ready for
distribution at that time or at any time prior to July 23, 1996. It should
also be noted that Shaw, in addition to owning and operating the OEM
Business for his own benefit, is being hired by Recoton to operate the non-
OEM Business aspects of Jensen's business that Recoton is to purchase and
has now negotiated lucrative side agreements to the OEM Business sales
agreement for his benefit which, among other things, provide for (i) a
guaranteed purchase of product from the Shaw Group by Recoton and (ii)
majority reimbursement of salaries and bonuses from Recoton for Shaw and
his key employees who will operate the OEM Business.
Based on the limited information provided to it concerning the OEM
Business' value, Emerson initially sought to offer Jensen a similar
transaction to Recoton's, including the sale of the OEM Business to Shaw.
On April 4, 1996, Emerson representatives met with Shaw and his
representatives to discuss the sale of the OEM Business to Shaw as part of
an Emerson transaction and the various agreements relating thereto. It
became obvious to Emerson that Shaw had no interest in dealing with
Emerson, and from this meeting on, he consistently insisted on the "golden
parachute" payment of up to approximately $4.8 million he felt he was owed
under his employment agreement. Shaw had specifically agreed to waive
these payments in return for a new employment arrangement with Recoton,
which Emerson offered to substantively duplicate. Emerson attempted to
include members of Jensen's Board of Directors in discussions with Shaw,
but they refused to get involved, citing negotiations with Shaw as a
necessary precondition and as Emerson's problem, not theirs.
As a direct result of these frustrations in dealing with Shaw and
under extreme time pressure from the Jensen Board of Directors which
necessitated an expedited diligence review of Jensen's non-OEM businesses,
on April 16, 1996, Emerson made a proposal to acquire Jensen in a
negotiated merger transaction (the "Initial Emerson Proposal"). Under the
Initial Emerson Proposal, Jensen stockholders would have received $9.90 in
cash, representing a substantial premium to the $8.90 consideration
(payable 40% in Recoton stock and 60% in cash) then being
<PAGE>
offered in the Jensen/Recoton Merger. Emerson believes Shaw preferred a
stock transaction because of the favorable tax treatment he would obtain as
a result thereof based on his average cost of less than $.03 per share.
On May 1, 1996, without prior notice to Emerson, Jensen announced that
it had accepted the first of a number of modified offers from Recoton (the
"First Two-Tier Recoton Proposal"), in which Recoton raised the price it
proposed to pay in the Jensen/Recoton Merger to $9.15 per share (still
substantially less than the $9.90 all cash then being offered by Emerson),
payable approximately 56% in cash and 44% in Recoton stock to Jensen
stockholders other than Shaw and William Blair Leveraged Capital Fund, L.P.
("Blair"), Jensen's second largest stockholder, both of which would receive
$9.00 per share in cash and stock. In addition, under the May 1 Recoton
Proposal, Jensen was still required to sell its OEM Business prior to the
closing to the Shaw Group for approximately $15.2 million, which would
adjust in accordance with the OEM Business sales agreement then in effect
based on an $11.4 MILLION DISCOUNT (or $5.40 per share held by Shaw) from
the net book value of the OEM Business. Thus, Shaw was able to "lock-in"
his highly favorable purchase price and potentially realize a benefit with
the per share discount mentioned above that increased the effective price
he received for his shares to approximately $14.30 per share. IN FACT,
EMERSON HAS RECENTLY DISCOVERED IN THE JENSEN PROXY STATEMENT THAT, AT
LEAST AS OF JUNE 14, 1996, LEHMAN BROTHERS ULTIMATELY DETERMINED THAT THIS
PURCHASE PRICE WAS INADEQUATE AND NOT FAIR TO JENSEN. (See page 37 of the
Jensen Proxy Statement.) Even with the current proposed Shaw/Recoton
transaction, Lehman Brothers is not providing the opinion required in the
OEM Business sales agreement that the transaction is fair from a financial
point of view to Jensen. Instead, Lehman Brothers opined that the
consideration to be received by Jensen in the sale of the OEM Business,
within the context of the Jensen/Recoton Merger, was fair to Jensen only
because (i) Recoton requires the prior sale of the OEM Business as a
condition to the Jensen/Recoton Merger, (ii) the Jensen Board limited
potential purchasers to insiders, and (iii) certain benefits Shaw gave to
Recoton were instead attributed to Jensen. Given Shaw's fiduciary
obligations to Jensen, and that Lehman Brothers did not provide the
required opinion, Emerson is surprised that Jensen would attempt to proceed
with the Jensen/Recoton Merger and the sale of the OEM Business to Shaw.
Further, the purchase of the OEM Business, which was to occur prior to the
Merger, was to be financed by discounting the OEM Business' receivables
which were assets of Jensen prior to the Merger.
In connection with this new Recoton offer, Blair (i) granted an option
to Recoton to purchase its shares for $9.00 per share plus any net proceeds
which Recoton might receive upon sale of such shares to the extent such net
proceeds exceed $10.00 per share and (ii) agreed to vote its shares in
favor of the First Two-Tier Recoton Proposal and to provide a proxy to
Recoton to vote its shares under certain circumstances. In addition, Shaw
agreed (the "Spread Agreement") that if a third party other than Recoton
acquired Jensen, he would pay Recoton the spread between the amount per
share paid by the third party and $9.00 per share, up to a maximum of $1.00
per share. The Blair and Shaw arrangements therefore amounted to
approximately a $2 million windfall to Recoton, not Jensen's outside
stockholders, if Emerson was ever successful in its then current offer.
Accordingly, the value of a termination at that date to Recoton based on
Emerson's then outstanding offer was approximately $8 million! In
addition, Jensen's stockholders would lose the AR Trademarks, the discount
on the OEM Business receivables, the termination fee, Jensen's costs, and
the reimbursement of Shaw's costs.
Although Emerson believed the First Two-Tier Recoton Proposal was
still clearly inferior to the Initial Emerson Proposal, on May 1, 1996,
Emerson delivered to Jensen a definitive proposal (the "May 1 Emerson
Proposal") to acquire Jensen through a merger in which all of Jensen's
stockholders would receive at least $9.90 per share in cash, except Shaw
and Blair, both of which would receive $9.00 per share in cash (the same
valued consideration, according to Jensen, they had agreed to accept under
the First Two-Tier Recoton Proposal). In addition, Emerson agreed, among
other things, to (i) remove all contingencies except for normal and
customary conditions to closing, (ii) honor Shaw's "golden parachute"
payment of up to approximately $4.8 million set forth in his employment
agreement, (iii) distribute to all of Jensen's stockholders, other than
Shaw and Blair, 50% of any recovery of the $4.8 million payable to Shaw as
a "golden parachute" payment should a court decide he had breached his
fiduciary duties, and (iv) retain and finance the OEM Business as part of
its purchase. Emerson also stated it would pursue the value of the AR
Trademarks which might be transferred to Recoton, and would cause 50% of
such recovery, net of costs and expenses, to be distributed to Jensen's
stockholders other than Shaw and Blair.
In a proposal accepted by Jensen's Board of Directors on May 10 (the
"Second Two-Tier Recoton Proposal") and another in the beginning of June
1996, Recoton made additional amended two-tier offers in response to
Emerson's clearly higher offers, the first at $10.00 per share to Jensen's
public stockholder, with Shaw and Blair to receive $8.90 per share, and the
second raising the purchase price to the public stockholders to $10.25
(after Emerson had revised its offer either to $10.25 per share to all
stockholders or $10.75 if Shaw either accepted $8.90 per share or agreed to
purchase the OEM Business at its net book value of $27.6 million) (in both
instances payable in cash and stock). The Recoton offers modified the
percentages of cash and stock with the effect of not significantly
increasing the cash component of such offers to Recoton. In each case,
Jensen was still required to sell the OEM Business to the Shaw Group for
substantially below its net book and, Emerson believes, fair values.
Furthermore, the purchase of the OEM Business by Shaw contained many
contingencies which were never disclosed to the stockholders of Jensen,
including Shaw's ability to finance such purchase (as to which he did not
even provide a representation) or his ability to terminate such purchase if
he was unsatisfied for ANY reason with the terms of such financing (but
with Shaw still having his expenses reimbursed). Time and again, the
actions of Jensen, Shaw, Blair and Recoton, among other things in agreeing
to lock-ups, shifting of stock and cash percentages, and what Emerson
believes were bad faith negotiations, made it clear to Emerson that they
were not interested in bargaining in good faith with Emerson. In
connection with the Second Two-Tier Recoton Proposal, the option price was
adjusted to $3.5 million (which Emerson believes was done in response to a
stockholder complaint filed in Delaware Chancery Court the day before
which, among other things, challenged the prior $6 million arrangement) and
Jensen executed assignments of the AR Trademarks which it deposited in
escrow with its law firm (of which Donald Jenkins, a Jensen director, is a
partner) for the benefit of Recoton if the Jensen/Recoton Merger
terminated.
In connection with the amended Recoton proposals, Blair amended the
Stock Option and Voting Agreement it had previously entered into to provide
(i) an option to Recoton to purchase Blair's shares for the reduced price
of $8.90 per share plus half of any net proceeds which Recoton receives
upon sale of such shares to the extent such net proceeds are between $8.90
and $10.90 per share plus 100% of the net proceeds which Recoton may
receive over $10.90 per share upon such sale and (ii) an agreement to vote
its shares in favor of the Second Two-Tier Recoton Proposal and to provide
a proxy to Recoton to vote its shares under certain circumstances. The
proxy portion of such agreement was amended to permit Recoton to vote
Blair's shares until July 15, 1996, extendable in Recoton's sole discretion
to December 31, 1996, even if the Recoton Merger Agreement was terminated
(thereby removing the "fiduciary out" that would have terminated this
agreement if the Jensen Board had approved an offer from a third party).
In addition, Shaw amended the Spread Agreement to provide that he would pay
Recoton half of the spread between (a) the net proceeds per share received
by Shaw from a third party, but not to exceed $10.90 per share and (b)
$8.90 per share, subject to certain obligations of Recoton to reimburse
possible tax liabilities.
On May 9, 1996, a Jensen stockholder commenced a lawsuit in the
Delaware Chancery Court challenging the Jensen/Recoton Merger and the sale
of the OEM Business to Shaw, alleging, among other things, breaches of
fiduciary duties by the Jensen directors. The following day, Jensen
commenced an action against Emerson and its President, Eugene Davis in
Federal District Court in Chicago, for allegedly violating the
Confidentiality Agreement and the federal proxy rules. Emerson brought a
counterclaim against Jensen and a third party complaint against Shaw in
this action on May 20, 1996, on the grounds of fraudulent inducement of the
Confidentiality Agreement and fraud and bad faith dealings. On July 2,
1996, Emerson brought a third party complaint against Recoton and Blair for
conspiring in such actions.
After, Emerson believes, repeatedly delaying its own "auction"
deadlines to avoid having to accept a higher and better bid from Emerson
(as evidenced, in part, by Lehman Brothers undisclosed refusal to issue a
fairness opinion on the OEM Business sale to Shaw during such time), on
June 24, 1996, Jensen announced that it had received and expeditiously
approved yet another merger offer from Recoton in which all Jensen
stockholders would receive $11.00 per share in cash, except for Shaw and
Blair, both of which would receive $8.90 per share in cash (the "Third Two-
Tier Recoton Proposal"). In addition, Jensen would continue to be required
to sell the OEM Business to the Shaw Group at a substantial discount from
its net book and, Emerson believes, fair values. Jensen accepted the Third
Two-Tier Recoton Proposal, thereby, as the Jensen Board indicated,
terminating the "auction," without first informing Emerson of its terms and
seeking Emerson's reaction to it. Also, the Board approved this
transaction in spite of Lehman Brothers' apparent inability to issue the
fairness opinion in the form required by the OEM Business sales agreement.
In response to the Third Two-Tier Recoton Proposal, on June 25, 1996,
Emerson delivered to Jensen a new definitive proposal (the "June 25 Emerson
Proposal") to acquire Jensen through a merger in which all of Jensen's
stockholders would receive $12.00 per share in cash, except for Shaw and
Blair, both of which would receive $8.90 per share (again, the same
consideration
<PAGE>
they had agreed to accept under the Original Recoton Proposal, the Second
Two-Tier Recoton Proposal, and the currently accepted Third Two-Tier
Recoton Proposal). On July 16, 1996, Emerson delivered to the Special
Committee and Blair a revised proposal (the "July 16 Emerson Proposal") to
acquire Jensen which increased the purchase price Blair would receive to
$10.00 per share ($1.10 per share MORE than Blair had agreed to accept from
Recoton). The higher price offered Blair under the July 16 Emerson
Proposal, payable at the time of a merger or prior thereto, is premised on
Emerson's belief, and that of certain Jensen stockholders, that the voting
provisions and the prior sale restriction of the amended Stock Option and
Voting Agreement previously entered into between Blair and Recoton, under
which Blair had given voting control over its shares to Recoton and had
agreed not to sell its shares to any other party, terminated no later than
July 15, 1996. Despite these superior offers, Jensen rejected both
proposals and refuses to negotiate with Emerson. Instead, Jensen insists
on favoring the interests of its largest "inside" stockholder by continuing
to accept the Third Two-Tier Recoton Proposal.
On July 17 and 18, 1996, Emerson received correspondence from (i)
counsel to Blair, unsupported by any legal or contractual analysis,
indicating Blair's position that the amended Stock Option and Voting
Agreement was still in effect and (ii) from counsel to the Special
Committee rejecting the July 16 Emerson Proposal based, in part, on Blair's
position. Jensen also rejected Emerson's request that the standstill
agreement, prohibiting Emerson from purchasing shares of Jensen stock, be
waived in conjunction with such offer. On July 22, 1996, Emerson
reaffirmed its July 16 Emerson Proposal to the Special Committee of
Jensen's Board of Directors and specifically requested a waiver of the
standstill provision.
After receiving no response from Jensen concerning its July 22, 1996
request, on July 24, 1996, Emerson announced in a press release that it was
providing an additional proposal to the July 16 Emerson Proposal. Under
the terms of Emerson's new proposal (the "July 24 OEM Proposal"), Emerson
would agree immediately to purchase all of the assets and businesses and
assume all of the related liabilities of the OEM Business in the same
manner as set forth in the current agreement between Jensen and Shaw,
whereby Shaw would purchase the OEM Business at a price of approximately
$18.2 million. Emerson would purchase the OEM Business at the same price
but would, in addition, establish a fund at the time of consummating a
purchase of the OEM Business of approximately $2.2 million (or $1.00 per
share to outside stockholders) for direct distribution to stockholders
other than Shaw and Blair if Recoton were to acquire Jensen for $11.00 per
share, providing them with an aggregate consideration of $12.00 per share.
In the event Emerson purchases Jensen for $12.00 per share to the public
stockholders, the $2.2 million would be applied to the merger consideration
being paid by Emerson. In connection with the July 24 OEM Proposal,
Emerson would expressly waive certain provisions of the OEM Business side
agreements which Shaw negotiated in his favor as part of the Jensen/Recoton
Merger. The result of the July 24 OEM Proposal, if approved, is that
Jensen's public stockholders are assured of receiving $12 per share for
their stock whether Emerson's $12 proposal or Recoton's $11 proposal
prevails. In addition, Emerson would continue to pursue the July 16
Emerson Proposal to acquire Jensen. On July 25, 1996, Emerson's counsel
wrote the Special Committee's counsel that, if required by the Special
Committee, Emerson would discuss the distribution of the $2.2 million to
all Jensen stockholders.
On July 30, 1996, Emerson filed a complaint in Delaware Chancery Court
seeking to enjoin the Jensen/Recoton Merger and the sale of the OEM
Business to Shaw. A hearing on a preliminary injunction based on motions
by Emerson and on behalf of Jensen's stockholders has been scheduled for
August 15, 1996.
On August 2, 1996, Emerson received Jensen's rejection of the July 24
OEM Proposal to acquire the OEM Business stating that Recoton would not
merge with Jensen if Emerson purchased the OEM Business, Shaw would not
vote for the Recoton transaction and be paid $8.90 per share IF HE COULD
NOT PURCHASE THE OEM BUSINESS, and Jensen's insistence of then not being
able to conclude a tiered consideration merger with Emerson. Jensen also
avoided making a decision on Emerson's request for a waiver of the
standstill provision of the Confidentiality Agreement.
NOT ONLY WILL THE JENSEN/RECOTON MERGER PAY LESS PER SHARE TO THE
STOCKHOLDERS OF JENSEN THAN WILL THE JULY 16 EMERSON PROPOSAL, BUT IT WILL
AWARD JENSEN'S CEO AND LARGEST STOCKHOLDER, SHAW, AS WELL AS HIS PROTECTED
SENIOR LEVEL MANAGEMENT, A HIGHLY FAVORABLE DEAL ON THE PURCHASE OF THE OEM
BUSINESS AND THE SIDE AGREEMENTS BETWEEN THE SHAW GROUP AND THOSE PORTIONS
OF THE JENSEN BUSINESSES TO BE PURCHASED BY RECOTON (WHICH SHAW AND HIS
GROUP WILL OPERATE FOR RECOTON). Emerson stands ready to complete
negotiations with Jensen concerning its superior alternatives to the
Jensen/Recoton Merger and OEM Business sales agreements set forth in the
July 16 and July 24 Emerson Proposals and to execute agreements embodying
such proposals immediately. Emerson believes that its most recent draft of
a merger agreement is substantially in a form Jensen and Emerson could
execute. THE JULY 16 EMERSON PROPOSAL AND JULY 24 EMERSON PROPOSAL
CONSTITUTE AN INVITATION TO THE BOARD OF DIRECTORS OF JENSEN AND TO BLAIR
AND SHAW TO CONDUCT GOOD FAITH MERGER NEGOTIATIONS WITH EMERSON AND TO
EXECUTE SUCH MERGER OR ACQUISITION AGREEMENTS IMMEDIATELY.
JENSEN NEVER INTENDED TO BARGAIN IN GOOD FAITH WITH EMERSON
It has become clear to Emerson and its representatives that Jensen and
its representatives have never had any intention of allowing an acquisition
of Jensen by any party except Recoton/Shaw, as most recently and poignantly
evidenced by the Jensen August 2, 1996 letter rejecting the July 24 Emerson
Proposal. Since the Spring of 1995, when Bankers Trust first made
inquiries concerning the availability of Jensen for acquisition on behalf
of a larger potential acquiror and subsequently on behalf of Emerson,
Emerson believes it has been met with rejection, interference, and bad
faith by Jensen, its inside stockholders (Shaw and Blair), and its
representatives.
Initially, Jensen repeatedly informed Bankers Trust that it was not
for sale. Then it advised Bankers Trust that due diligence materials were
not yet available or were being revised. Then, after reneging on such
statements by announcing a deal to merge with Recoton, as reflected in the
Jensen Proxy Statement, Jensen rejected Emerson's attempts to meet with
Jensen's representatives. Later, including by letter from Jensen's counsel
dated April 19, 1996 and as reflected in the Jensen Proxy Statement, Jensen
publicly questioned Emerson's ability to fund an
<PAGE>
acquisition of Jensen and to effectuate a transaction in the face of legal
hurdles Emerson believes Jensen gratuitously assisted in implementing.
However, Emerson's ability to finance the acquisition of Jensen at a higher
price than the existing Recoton deal, as finally acknowledged by the Jensen
Board and Lehman Brothers, and its attempts to deal with such unnecessary
legal impediments did not lead to a favorable determination by Shaw, Blair,
the Special Committee, or the Jensen Board of Directors. Emerson believes
that no proposal on its part has or will ever favorably be viewed by Jensen
or its majority stockholders, Shaw and Blair/Recoton, because of their own
personal agendas so long as such parties continue to believe that some
version of the Recoton/OEM Business transaction remains available.
SHAW'S BENEFITS
Shaw's deal with Recoton allows him to purchase the OEM Business at
well under its net book value (according to Jensen's own financial
statements) and, Emerson believes, its fair value, as evidenced by the July
24 Emerson Proposal. To protect this highly favorable deal for its
majority stockholder, Shaw, Blair, and the Jensen Board have continually
ignored better and higher proposals from Emerson, and made what Emerson
believes are unsupportable excuses for their failure to consider such
proposals. Shaw has repeatedly stonewalled Emerson whenever Emerson has
attempted to negotiate with him. Further, the side agreements between the
Shaw Group and Jensen after its merger with Recoton ensure continuing
benefits to Shaw and Jensen's top officers. In fact, these side agreements
even penalize the OEM Business if Shaw ceases to control it. For example,
Shaw is required to pay a royalty of only 1% of net revenues with respect
to OEM audio equipment utilizing the "Jensen" trademark. However, on a
change of control of the OEM Business, the new owner would be required to
pay increased royalty amounts for use of the Jensen trademarks. Now, while
Emerson is offering $1.00 per share more to the public stockholders than
the current Recoton proposal provides and is offering to acquire the OEM
Business for $2.2 million more than Shaw, Jensen refuses to deal with
Emerson based upon what Emerson believes to be bad faith excuses.
THE PURPORTED INCREASES IN RECOTON'S OFFERS ARE SIMPLY A RESHUFFLING OF
FUNDS
In an effort to legitimize Jensen's rejection of the various Emerson
proposals, Recoton and Shaw have "reworked" their numbers for the purpose
of reflecting corresponding increases in the various Recoton proposals.
The purported increases in Recoton's offers have actually been a function
of (i) Shaw increasing the price he will pay for the OEM business, although
still well below what Emerson believes to be its fair value, (ii) Shaw and
Blair agreeing to take a lower price for their shares in a merger with
Recoton, and (iii) with respect to all but the most recent proposal,
decreasing the cash component of Recoton's stock plus cash offer.
By way of example, Shaw himself basically funded the purported $1.4
million increase in the total $53.2 million consideration in the Second
Two-Tier Recoton Proposal compared to the $51.8 million total consideration
under the First Two-Tier Recoton Proposal. Because Shaw increased the
purchase price for the OEM Business by $1.3 million and agreed (as did
Blair) to take $200,000 less for his Jensen stock, the net cost to Recoton
under the Second Two-Tier
<PAGE>
Recoton Proposal was basically the same as under the First Two-Tier Recoton
Proposal. In fact, RECOTON'S NET CASH COST WENT DOWN FROM $13.7 TO $12.8
MILLION. This scenario is similarly true under Recoton's current proposal
as Shaw has slightly increased the purchase price for the OEM Business,
allowing Recoton to show an increase in its per share price for the public
stockholders. See "Jensen/Recoton Merger, Analysis of Consideration Under
Various Jensen/Recoton Merger Proposals".
The bottom line is that Shaw, not Recoton, is really bidding against
Emerson. Because Shaw is receiving such a highly favorable deal in his
purchase of the OEM Business, he is willing to "kick-in" a little extra
money in an effort to save the Shaw/Recoton deal. The Recoton transaction
has tremendous hidden personal benefits for Shaw that you, the public
stockholders, are paying.
DISSENTERS' RIGHTS
The Jensen/Recoton Merger may be prevented if 10% or more of the total
shares of Jensen shares outstanding exercise their dissenters' rights as
permitted by Section 262 of the Delaware General Corporation Law. Jensen
stockholders exercising their dissenters' rights will be entitled to have
their Jensen stock appraised by the Delaware Chancery Court and to receive
payment in cash of the "fair value" of such stock, exclusive of any element
of value arising from the expectation or accomplishment of the
Jensen/Recoton Merger, together with a fair rate of interest, if any, as
determined by such court. To exercise their dissenters' rights, holders of
Jensen stock (i) must not vote in favor of the Jensen/Recoton Merger and
(ii) must deliver to Jensen, prior to the vote on the Merger at the Special
Meeting, a written demand for appraisal of such holders' Jensen stock. See
"The Merger--Dissenters' Rights" discussion in Jensen Proxy Statement.
Only by voting AGAINST the Jensen/Recoton Merger, including the sale
of the OEM Business to Shaw, will the Jensen Board, Shaw, and Blair get the
message that they must uphold their fiduciary responsibilities to the
public stockholders of Jensen. A vote AGAINST the Jensen/Recoton Merger,
including the sale of the OEM Business to Shaw, will let the Jensen Board
know that it is now time to listen to all offers to acquire Jensen and not
favor the interests of its majority stockholders.
IMPORTANT
EMERSON WILL WITHDRAW THE JULY 16 AND JULY 24 EMERSON PROPOSALS
IF STOCKHOLDERS OF JENSEN APPROVE THE JENSEN/RECOTON MERGER,
INCLUDING THE SALE OF THE OEM BUSINESS TO SHAW, AND THE NUMBER OF
JENSEN SHARES EXERCISING DISSENTERS RIGHTS DO NOT EXCEED 10% OF
THE TOTAL JENSEN SHARES OUTSTANDING AS OF THE RECORD DATE.
REJECTION OF THE JENSEN/RECOTON MERGER, INCLUDING THE SALE OF THE OEM
BUSINESS TO SHAW, WILL SEND AN IMPORTANT MESSAGE TO YOUR BOARD THAT YOU
WANT THEM TO NEGOTIATE IN GOOD FAITH WITH EMERSON IN AN EFFORT TO MAXIMIZE
THE VALUE OF YOUR SHARES.
EVEN IF YOU HAVE ALREADY SENT A PROXY TO THE BOARD OF DIRECTORS OF
JENSEN, YOU HAVE EVERY RIGHT TO CHANGE YOUR VOTE. YOU MAY REVOKE THAT
PROXY AND VOTE AGAINST THE JENSEN/RECOTON MERGER, INCLUDING THE SALE OF THE
OEM BUSINESS TO SHAW, BY SIGNING, DATING, AND MAILING THE ENCLOSED BLUE
PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. NO POSTAGE IS NECESSARY IF
YOUR PROXY IS MAILED IN THE UNITED STATES.
PLEASE SIGN, DATE, AND MAIL THE BLUE PROXY TODAY.
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY OR HOW FEW SHARES YOU OWN.
<PAGE>
SEND A MESSAGE TO THE JENSEN BOARD
The Jensen Board has scheduled a Special Meeting of Stockholders for
August 28, 1996, and is trying to solicit votes to approve the
Jensen/Recoton Merger and the sale of the OEM Business to Shaw. According
to the Jensen Proxy Statement, the Jensen/Recoton Merger is in the best
interest of Jensen's stockholders. But whose interests are the Jensen
Board really advancing?
Under the July 16 Emerson Proposal, Emerson would pay $12.00 per
share in cash to all stockholders other than Shaw, Jensen's Chairman, CEO,
President, and largest stockholder, who would receive $8.90 per share in
cash, and Blair, Jensen's second largest stockholder, which would receive
$10.00 per share in cash. Jensen has rejected the July 16 Emerson
Proposal. Additionally, on July 24, 1996, Emerson offered to purchase the
OEM Business for not only the $18.2 million Shaw is offering to pay, but
with an additional payment to Jensen stockholders of $2.2 million ($1.00
per share if paid to Jensen's public stockholders). On the other hand, the
Jensen Board has accepted the Third Two-Tier Recoton Proposal which will
pay all Jensen stockholders $11.00 per share, except for Shaw and Blair,
both of which will receive $8.90 per share. Emerson believes the reason
Shaw is willing to accept the lower consideration for his stock is that
Jensen is required to sell its OEM Business to the Shaw Group for
substantially less than its net book (the discount of which equals
approximately $4.00 per share held by Shaw) or, Emerson believes, its fair
value. The highly favorable deal that Shaw has arranged for himself is not
in the best interests of the other stockholders of Jensen and is preventing
Jensen's stockholders from realizing the most from the sale of their
shares.
Jensen's second largest stockholder, Blair, has also taken
questionable actions in an effort to ensure that a superior Emerson
proposal will not be accepted. Blair, for no discernable reason, signed
away its voting rights to Recoton on May 1, 1996, and agreed to allow
Recoton to purchase its shares at that time for $9.00 per share, only to
agree to accept a lesser amount, $8.90 per share, when Recoton again
revised its offer on May 10, 1996. In addition, Blair has purportedly
given up its right to regain the vote over such stock if a Recoton merger
agreement is terminated (thereby allowing Recoton to potentially vote
Blair's shares against any other merger transaction which could be more
favorable to Jensen's public stockholders). Emerson and certain Jensen
stockholders believe that the amended Stock Option and Voting Agreement
between Blair and Recoton has terminated and that Blair is now free to vote
its shares as it deems fit and sell them to a party other than Recoton.
The Recoton Merger Agreement and the OEM Business sales agreement
require separate affirmative votes of (i) a majority of the outstanding
shares of Jensen common stock and (ii) a majority of the outstanding shares
of Jensen common stock WHICH ARE VOTED AT THE SPECIAL MEETING other than
shares held directly or indirectly by Shaw, although Jensen is requesting
only a single vote to approve both the Jensen/Recoton Merger and the sale
of the OEM Business to Shaw. Shaw and Blair/Recoton control approximately
63% of Jensen's outstanding shares, and Blair/Recoton controls
approximately 41% of the approximately 63% of Jensen's outstanding shares
not owned by Shaw. Furthermore, depending upon attendance at the Special
Meeting,
<PAGE>
Blair/Recoton may control a larger percentage of the shares WHICH ARE VOTED
at the Special Meeting, thus enabling Recoton to effectively control
approval of the proposal put forward by Recoton and Shaw (although this is
not disclosed in the Jensen Proxy Statement). For this reason, it is
imperative that a high percentage of public stockholders vote or provide a
proxy to vote on the Jensen/Recoton Merger. In rejecting Emerson's
proposals, Jensen is seeking to abdicate it fiduciary duties and to hide
behind Blair and Shaw not favoring Emerson's proposals. Emerson believes
Jensen's Board should support the best acquisition proposal for Jensen's
public stockholders. The Board appears to have forgotten that Jensen is
not a privately-owned company.
There are a number of interesting questions which have arisen from the
actions of the Jensen Special Committee and Board, as well as from the
actions of Shaw and Blair, in favoring the various Recoton/Shaw proposals
over the Emerson proposals:
1. Why will Shaw and Blair accept $8.90 per share from Recoton
and not from Emerson (or, in Blair's case, $10.00 per share
from Emerson), when Emerson is willing to pay $1.00 per
share more than Recoton to the public stockholders of
Jensen?
2. Why has Shaw been willing to waive his claim for up to $4.8
million in "golden parachute" payments for Recoton, as set
forth in the Amendment to Employment Agreement he has
executed in Recoton's favor, but not for Emerson?
3. Why did Blair agree to grant Recoton a proxy on the voting
of its shares, and later give up its right to regain its
voting rights on a termination of the Jensen/Recoton Merger,
for substantially less money than Emerson was offering at
the time, and is now not availing itself of the opportunity
immediately to accept Emerson's $10.00 per share offer when,
Emerson believes, the amended Stock Option and Voting
Agreement has terminated?
4. Why did Blair enter into its agreements with Recoton, which
had also entered into agreements with Shaw, with the effect
of continuously depriving Jensen's public stockholders of
higher priced Emerson proposals?
5. The Jensen Proxy Statement advises that Blair offered to be
a financial participant in Shaw's purchase of the OEM
Business, but never states whether it is a participant or
not. What is Blair's interest in the OEM deal?
6. How can Blair, acting as a fiduciary to its fund
participants, justify its actions?
7. How can Jensen's financial advisor, Lehman Brothers, issue a
fairness opinion on the sale of the OEM Business (which, in
any event, is different than the one required in the OEM
Business sales agreement), when Jensen
<PAGE>
has reported that the net book value of the OEM Business, as
of May 31, 1996 is approximately $26.4 million and Emerson's
asset based lender has stated that it is willing to advance
approximately $23 million to Emerson to finance the purchase
of the OEM Business?
8. How can the Special Committee and the Board justify what
Emerson believes was a flawed auction process in which
Emerson's proposals were never given fair consideration?
9. Why does the Special Committee (a supposedly impartial, non-
interested group of directors established to evaluate
Recoton's and Emerson's proposals) include a partner from
the law firm which regularly advises Jensen?
10. Why did such law firm, one of whose members sits on the
Special Committee and Board of Jensen and which is supposed
to protect Jensen and its stockholders, agree to act as an
escrow agent to protect Recoton's interest in the assignment
of the valuable AR Trademarks?
11. How can Jensen justify effectively transferring the AR
Trademarks for no real value on a termination of the
Jensen/Recoton Merger?
12. Why has Jensen's top management continually erected road
blocks to make it more difficult for Emerson to conclude its
transaction?
13. Why is Recoton, by virtue of its control of Blair's shares,
being allowed to largely dictate Jensen's future before it
has purchased one share of stock?
14. Who is really insisting on the sale of the OEM Business to
Shaw?
Emerson believes the answer to the foregoing can be traced to one motive:
PROTECT SHAW'S HIGHLY FAVORABLE DEAL EVEN AT THE EXPENSE OF JENSEN'S PUBLIC
STOCKHOLDERS.
Emerson believes that there is no reason for the Jensen Board to
reject the July 16 Emerson Proposal in favor of the inferior Third Two-Tier
Recoton Proposal. Since the Jensen Board is insisting on proceeding with a
stockholder vote on August 28, 1996, Emerson believes that Jensen
stockholders can best protect their interests by voting AGAINST the merger
with Recoton, including the sale of the OEM Business to Shaw, and by
exercising dissenters' rights. By voting AGAINST the Jensen/Recoton
Merger, including the sale of the OEM Business to Shaw, and by seeking
dissenters' rights, stockholders can send a strong message to Jensen's
directors that they should negotiate with Emerson in good faith and enter
into a merger agreement with Emerson without favoring the interests of
Jensen's majority stockholder, Shaw, or permitting
<PAGE>
Blair's abdication of its fiduciary duties and voting rights in favor of
Recoton to prevent Jensen's public stockholders from obtaining a move
favorable transaction.
<PAGE>
BACKGROUND CONCERNING EMERSON'S PROPOSAL
EARLY APPROACHES
Emerson has long had an interest in acquiring Jensen. Beginning in
the Spring of 1995, Bankers Trust, later to become Emerson's financial
advisor, on behalf of another named client, contacted Shaw, Jensen's
Chairman, CEO, President, and largest stockholder, regarding whether Jensen
was interested in being acquired. Bankers Trust was informed that Jensen
was not for sale. Bankers Trust, on behalf of such other client, continued
to contact Shaw, and later, after its retention by Jensen as its financial
advisor, Lehman Brothers. Both Shaw and Scott Mohr of Lehman Brothers, on
a number of occasions throughout the Summer and Fall of 1995, informed
Bankers Trust either that Jensen was not for sale or that diligence
materials were not yet available or were being revised. These
conversations continued through at least the Fall of 1995.
ORIGINAL JANUARY 3 RECOTON AGREEMENT
On January 3, 1996, Jensen and Recoton entered into their original
merger agreement. That agreement contemplated a merger consideration of
$8.90 per share, payable 60% in cash and 40% in shares of Recoton's common
stock. In connection with and as a precondition of this agreement, Shaw
agreed with Jensen to purchase the OEM Business for $15 million, with the
right to terminate this agreement if the net book value was less than $27.6
million, the net book value of the OEM Business as of November 30, 1995.
Shaw provided very few representations to Jensen in this agreement, while
requiring extensive representations from Jensen (of which he is CEO), with
an ability on his part to terminate the agreement with no penalty to him,
but with full reimbursement of his expenses, even if for HIS not being
satisfied with his financing for the acquisition. In fact, Shaw did not
even represent that he had the financing to consummate the purchase of the
OEM Business. This and his right to terminate such agreement (and be
reimbursed for his expenses) if he was unsatisfied with his financing are
significant contingencies not previously disclosed by Jensen. The sales
agreement for the OEM Business also contemplated certain side agreements
relating to, among other things, royalties on trademarks, management
sharing and office sharing arrangements, and other matters. These
agreements were not completed at the time the January 3 agreements were
executed.
The original Jensen/Recoton Merger contemplated a termination fee of
$6 million if Jensen accepted a competing offer, but no termination fee if
Lehman Brothers could not issue any of the fairness opinions it was
required to provide under the Jensen/Recoton Merger agreement and the OEM
Business sales agreement. By way of a separate agreement, Recoton was
given a one-year license on and a "lock-up" option to acquire the valuable
"AR" and "Acoustic Research" trademarks (the "AR Trademarks") of Jensen for
$6 million, the exact same amount as its termination fee. As indicated in
the Jensen Proxy Statement, these amounts were designed to offset each
other. Thus, if the Jensen/Recoton Merger was terminated, Recoton would
obtain these valuable trademarks from Jensen for no real consideration
(although Jensen and Recoton had voluntarily placed a $6 million value on
these trademarks). Consequently, Emerson urged
<PAGE>
Jensen and Lehman Brothers to consider this to protect the value of
Jensen's assets. In subsequent versions of the Recoton Merger Agreement,
Jensen has removed its ability not to pay a termination fee if Lehman
Brothers could not issue the second fairness opinions.
The Jensen/Recoton Merger contemplated two sets of fairness opinions
from Lehman Brothers that (i) the merger consideration in the
Jensen/Recoton Merger is fair from a financial point of view to Jensen's
stockholders, AND, separately, (ii) the proceeds received by Jensen from
the sale of the OEM Business to Shaw are fair from a financial point of
view to Jensen, with such opinions to be given at the time of signing the
agreements and updated at the time of the mailing of proxy materials.
Emerson expressed at this time, and has continued to express, its belief
that the sale of the OEM Business to a Jensen insider at well below its net
book value, and, Emerson believes, its fair value, was and is not fair to
Jensen or its stockholders. If Lehman Brothers was unable to issue its
second fairness opinion when Jensen mailed its proxy materials to its
stockholders, no termination fee would have been payable to Recoton,
although Jensen could still have exercised its option, under certain
circumstances, to compel Recoton to purchase the AR Trademarks for $6
million. The fairness opinion Lehman Brothers provided in conjunction with
the Jensen Proxy Statement states that the consideration to be received by
Jensen in the proposed sale of the OEM Business is fair SINCE RECOTON
REQUIRES THE PRIOR SALE OF THE OEM BUSINESS AS A CONDITION OF THE
CONSUMMATION OF THE JENSEN/RECOTON MERGER, NOT BECAUSE THE CONSIDERATION
BEING PAID BY SHAW IS EQUAL TO THE FAIR VALUE OF THE OEM BUSINESS.
The Jensen Proxy Statement also indicates that the OEM Business was
not offered for sale to anyone except Jensen insiders and that Lehman
Brothers included in its valuation of the OEM Business certain releases and
waivers Shaw gave to Recoton, which are not attributable to the seller of
the OEM Business, Jensen, or its stockholders.
ATTEMPTS TO CONTACT JENSEN
After discovering that Jensen and Recoton had entered into a merger
agreement with Recoton on January 3, 1996, John P. Walker, Emerson's CFO,
immediately called Scott Mohr of Lehman Brothers to express Emerson's
interest in acquiring Jensen. Stephen Goodman of Bankers Trust met with
Shaw at the Consumer Electronics Show in Las Vegas and expressed his
surprise at the announcement of the proposed Jensen/Recoton Merger and the
failure to contact Bankers Trust or the client despite their continuing
expressions of interest. Mr. Shaw justified
<PAGE>
Jensen's actions by indicating that the Recoton offer, which had come out
of a number of informal meetings, was simply too good to turn down.
In later conversations, both Messrs. Shaw and Mohr apparently felt
constrained to attempt to further justify Jensen's actions in adequately
"shopping" Jensen for sale. If Lehman Brothers really shopped Jensen, you
as stockholders have a right to request that the Jensen Board of Directors
reveal the parties to whom the company was shopped and the reasons for
excluding several other companies that had an interest in bidding for
Jensen during the "auction" process. Emerson does not believe Jensen was
adequately offered to other bidders, particularly since Jensen never
contacted Bankers Trust, in spite of Bankers Trust informing Jensen over
time of at least two potential bidders for Jensen, which included one very
substantial named company.
Emerson formally confirmed its interest in acquiring Jensen by letter
dated January 11, 1996. Jensen did not respond to this letter. A number
of telephone calls were made and correspondence sent by Emerson and its
representatives, but Jensen continued to avoid a meeting with Emerson. On
January 31, 1996, Bankers Trust informed Jensen and Lehman Brothers by
letter that Emerson was prepared immediately to proceed toward making a
definitive all-cash proposal to acquire Jensen. In its letter to Lehman
Brothers, Bankers Trust stated:
Emerson believes that it would be in a position to acquire Jensen
for a cash consideration materially in excess of the value of the
cash and stock being offered in the transaction with Recoton. We
believe that a transaction with Emerson would be in the best
interests of Jensen and its stockholders. A combination of the
two companies would provide significant benefits in terms of
their approach to the markets which they serve, sourcing and
manufacturing utilization, product development and
administration.
Throughout January and February 1996, as also reflected in the Jensen
Proxy Statement, Jensen refused to meet with representatives of Emerson,
and required as a precondition for discussions that Emerson provide Jensen
with a commitment letter with respect to the financing, a very expensive
precondition to Emerson and an impossible request to satisfy without due
diligence, which Jensen and Shaw refused to permit. On February 5, 1996,
the President of Emerson, Eugene Davis, sent a letter to the Jensen Board,
indicating that Emerson was prepared to offer between $9.75 and $10.50 per
share for Jensen common stock. Finally, Emerson representatives were able
to coerce a meeting with Jensen representatives in early March 1996. On
March 4, 1996, Emerson and a potential partner in a Jensen acquisition
executed the Confidentiality Agreement, and Emerson was finally permitted
to begin its due diligence activities. Those diligence activities were
severely restricted by Jensen. Emerson was not permitted to speak to any
of Jensen's personnel except Jensen CFO Marc T. Tanenberg, an interested
party in the Recoton deal, and Jensen Controller James Sula, was provided
limited access to documents, was prohibited, at Shaw's insistance, from
reviewing Jensen's OEM Business, which was (and, pursuant to the
Recoton/Shaw offer, still is) to be sold to the Shaw Group in connection
with the Jensen/Recoton Merger, was prevented for a substantial period of
time from reviewing Jensen's European operations, and was secluded in an
isolated conference room in Jensen's offices in conducting its review.
Emerson conducted a substantial amount of
<PAGE>
due diligence review and analysis in a very compressed period of time, even
with the severe restrictions imposed by Jensen.
On March 5, 1996, Eugene I. Davis, President of Emerson, a
representative of Bankers Trust, and John P. Walker, Emerson's CFO, as well
as a representative of Emerson's potential partner, met with Shaw, Marc T.
Tanenberg, Vice President of Finance and CFO of Jensen, Scott Mohr of
Lehman Brothers, financial advisor to Jensen, and Donald Jenkins, Esq. and
John R. Obiala, Esq., of the law firm of Vedder, Price, Kaufman & Kammholz,
counsel for Jensen (Mr. Jenkins is also a board member of Jensen). The
purpose of the meeting was to reiterate Emerson's desire to acquire Jensen
and to set forth a schedule (i) for Emerson to complete preliminary due
diligence concerning Jensen's operations and (ii) for Emerson to provide
Jensen with a definitive proposal to acquire Jensen. At this meeting, Shaw
repeatedly insisted that he was only buying the OEM Business because
Recoton did not want it, and that it would be a "burden" for him to buy it.
However, Shaw insisted that Emerson could not perform due diligence on the
OEM Business.
Based on the limited information provided to it concerning the OEM
Business' value, Emerson initially sought to offer Jensen a similar
transaction to Recoton's, including the sale of the OEM Business to Shaw.
Emerson representatives met with the Jensen Board on March 15, 1996 and
discussed the synergies between the companies. Emerson indicated that it
would attempt to make a formal proposal by April 9, 1996, although the
Jensen Board continued to insist that such proposal had to be made by April
1, 1996, together with commitment letters, as, they claimed, Jensen's proxy
materials on the Jensen/Recoton Merger were almost finalized and they would
continue to proceed with that transaction. The Jensen Proxy Statement was
not, in fact, ready for distribution at that time or at any time prior to
July 23, 1996. Further, the Jensen Board insisted that Emerson conduct all
negotiations with Shaw, whom Emerson believes was only interested in
protecting his deal with Recoton. The Jensen Board refused to become
further involved in those negotiations. Moreover, Jensen continued to
refuse to allow Emerson to conduct due diligence on the OEM Business and
insisted that Emerson produce sufficient commitment letters prior to
permitting due diligence on Jensen's European operations.
On April 4, 1996, Emerson representatives met with Shaw and his
representatives to discuss the sale of the OEM Business to Shaw as part of
an Emerson transaction and the various agreements relating thereto. It
became obvious to Emerson that Shaw had no interest in dealing with
Emerson, and from this meeting on, he consistently insisted on the "golden
parachute" payment of approximately $4.8 million he felt he was owed under
his employment agreement, which he had already agreed to waive for Recoton.
Shaw is also being hired by Recoton to operate the non-OEM Business aspects
of Jensen's business that Recoton is to purchase and has now negotiated
lucrative side agreements to the OEM Business sales agreement for the Shaw
Group's benefit. In addition, Shaw is taking his closest associates from
Jensen, most notably his CFO and Controller, with him to operate the OEM
Business, with Recoton reimbursing Shaw for 75% of their cost. Emerson
attempted to negotiate financially equivalent arrangements with Shaw
<PAGE>
relating to a purchase by Shaw of the OEM Business in the context of an
Emerson merger, which Shaw apparently considered not as favorable to
himself as the Recoton transaction.
INITIAL EMERSON PROPOSAL
After performing both limited legal and business due diligence of
Jensen's domestic and international operations (other than on the OEM
Business) on an expedited basis during March and early April, on April 16,
1996, Emerson, in an attempt to negotiate amicably with Jensen, expressed
appreciation for Jensen's cooperation in its due diligence review, in spite
of Jensen's restrictions of such review, and made the Initial Emerson
Proposal to acquire Jensen in a negotiated merger transaction pursuant to
which Jensen stockholders would have received $9.90 per share in cash,
representing a substantial premium to the $8.90 consideration per share,
payable in cash and Recoton stock, then being offered pursuant to the
Recoton Merger Agreement. Contrary to Jensen's Proxy Statement, Emerson's
$9.90 proposal was made approximately one month PRIOR to Recoton's $10.00
proposal to Jensen's public stockholders. The Initial Emerson Proposal, in
an effort to meet Jensen's stated desires, contemplated a signing of
definitive merger documents by April 27, 1996 (to which Jensen responded
that such date would be an absolute deadline). Attached to the letter was
evidence of the financial viability of its proposal supplied by Emerson and
its lenders. The letter concluded by stating:
Within the short time frame provided to it, Emerson has
presented Jensen a higher and better proposal for its
stockholders than the contemplated transactions under the Recoton
[Merger] Agreement and related documents. Emerson has now
supplied Jensen with adequate proof of the financial viability of
its proposal, as well as a definitive proposal with respect to
the structure of the proposed transactions. Emerson, with due
and continuing respect to the fiduciary duties of Jensen's Board
to all of its stockholders, looks forward to immediately
proceeding with all necessary steps to expeditiously consummate
the transactions.
Very truly yours,
/s/ Eugene I. Davis
President
In response to Jensen's stated desire to proceed expeditiously on the
proposed transaction with Emerson, on April 18, 1996, Emerson forwarded
drafts of (i) an Agreement and Plan of Merger (the "Emerson Merger
Agreement") among Emerson, an indirect wholly-owned subsidiary of Emerson,
and Jensen, substantially similar to the Recoton Merger Agreement, and (ii)
a Voting Agreement whereby Shaw and Blair, Jensen's two largest
stockholders, would agree to vote their shares in favor of the merger with
Emerson.
<PAGE>
On April 19, 1996, Mr. Obiala, counsel to Jensen, delivered a letter
to Eugene Davis setting forth certain comments to the Initial Emerson
Proposal. In the letter, Mr. Obiala stated on behalf of the Jensen Board
that:
As we have previously informed you on a number of occasions,
Jensen's Board is and remains committed to obtaining the highest
price reasonably available to Jensen stockholders. HOWEVER, it
is very important to the Board that NOTHING be done to jeopardize
or significantly delay the Recoton transaction unless and until
Emerson and Jensen are prepared to enter into a definitive
agreement which has no significant contingencies or conditions
and Emerson has obtained committed financing in amounts
reasonably sufficient to complete the transaction, including the
payment of all related fees and expenses and payments to
employees and third parties (emphasis added).
Despite Emerson providing (i) letters from Bankers Trust Company that
it was highly confident of its ability to arrange loans for Emerson to
finance the acquisition of Jensen (the "Highly Confident Letters") and (ii)
commitment letters from Congress Financial Corporation which, in the
aggregate, provided funding for the transaction, including all fees and
expenses (and none of which were related to or contingent on the operations
or financial profitability of Emerson), Jensen expressed skepticism
concerning Emerson's ability to finance the proposed merger. Mr. Obiala
stated:
The Board and its financial advisor are very concerned about
the fact that Emerson's proposed financing is not, at this time,
committed and in place, that the financing proposals attached to
your Proposal contain a number of unacceptable contingencies and
that the financing proposals and contemplated equity do not
appear to be adequate to complete the transaction and pay all
related fees, expenses and payments to employees and third
parties. Jensen will not be in a position to sign definitive
agreements with Emerson until financing is fully committed in
sufficient amounts to close the acquisition.
On April 23, 1996, three members of the Special Committee (Donald
Jenkins, Robert Jenkins, and Norman J. McMillan), without David D. Chandler
("Chandler"), who was at the time the Special Committee Chairman, met with
Emerson representatives in Jensen's offices at Emerson's request. The
members of the Special Committee left after thirty minutes, and no progress
was made on preparing the necessary documents by Jensen's April 27, 1996,
deadline. The Special Committee did inform Emerson's representatives that
Emerson could meet with Recoton to discuss Recoton's termination
arrangements, but only under tightly controlled and Jensen supervised
conditions. The Special Committee subsequently informed Emerson that
Recoton would not meet with Emerson for any such discussion. Emerson
representatives attempted to negotiate with Shaw's and Jensen's attorneys
on April 24, but were put off. In fact, Emerson representatives remained
in Chicago through April 26 in the hope of negotiating and reaching an
agreement with Jensen and Shaw, but with no success. Further, Emerson
attempted to contact Chandler during this period in the hopes of
negotiating with Blair a satisfactory resolution with Shaw. Chandler
refused to accept Emerson's calls or to return them.
On April 23, 1996, Mr. Eugene Davis also delivered a letter to the
Jensen Board in which he expressed Emerson's surprise and displeasure with
the tone and substance of Mr. Obiala's clearly hostile April 19, 1996
letter:
We are troubled that Jensen's Board and its financial
adviser are "very concerned" with regard to Emerson's proposed
acquisition financing. Jensen's Board has received executed and
extremely expensive commitment letters from Congress [Financial
Corp.] and "highly confident" letters from Bankers Trust Company
("Bankers Trust") which, at least with respect to the Bankers
Trust letter, Mr. Mohr has advised our Mr. Goodman, is fully
understandable and acceptable.
Mr. Davis also stated Emerson's intention to purchase the entirety of
Jensen, including the OEM Business, as it appeared that the sale of the OEM
Business to Shaw for approximately $15 million, as contemplated under the
original Recoton Merger Agreement, was not in the best interests of Jensen
and its stockholders inasmuch as the net book value of the OEM Business was
approximately $27.6 million. Finally, Emerson expressed its intention to
continue to negotiate with Shaw concerning his continuing employment with
the post-merger Emerson on better terms than under the Recoton deal to
obviate the up to $4.8 million "golden parachute" payment contemplated by
his employment agreement following a merger. Emerson has never received a
proposal from Shaw which did not include a demand for his "golden
parachute" payment. Emerson believes Shaw has never intended to deal with
Emerson in good faith and has acted in disregard to the interests of
Jensen's public stockholders.
On April 24, 1996, Mr. Obiala, on behalf of the newly-formed Special
Committee of the Jensen Board (which at the time consisted of all Jensen
directors other than Shaw), delivered a letter to Emerson's counsel,
setting forth the purported concerns of the Special Committee to the
Emerson offer. Included among the concerns listed were Emerson's
financing, payments to Shaw under his employment agreement (a matter which
would not arise, if at all, until AFTER a merger with Emerson was
consummated and Jensen's stockholders had received their merger
consideration), timing of due diligence and the closing, the potential
termination fee under the Recoton Merger Agreement (which would permit
Recoton to obtain the valuable AR Trademarks for no real value on the
termination of the Recoton Merger Agreement), and the environmental
liability materiality standard.
On April 25, 1996, after Emerson's repeated requests and three days of
waiting in Chicago representatives of Emerson and only David Chandler and
Donald Jenkins of the Special Committee met to negotiate and discuss
Emerson's financing. At that meeting, Congress Financial Corporation
("Congress"), which is widely known as a conservative asset-based lender,
told Jensen that it was committed to advance Emerson an additional
approximately $23 million for the purchase and operation of the OEM
Business, and discussed with the meeting participants its analysis of the
value of the OEM Business. This amount, which represents only a reduced
percentage of the true value of the OEM Business, is approximately 50% of
the amount Jensen would receive if the OEM Business was sold to Shaw under
the original OEM Business sales
<PAGE>
agreement or any subsequent amendment of such agreement. Furthermore,
Lehman Brother's concern, as expressed in the Jensen Proxy Statement, that
the $23 million lending figure provided by Congress did not take into
account the approximately $8 million of unsecured liabilities of the OEM
business which would need to be funded in the ordinary course is misplaced.
The amount Congress indicated it would advance was based on the orderly
liquidation value of the OEM Business and took into account the other
obligations of the OEM Business. Emerson attempted to negotiate with the
Special Committee regarding Shaw's intransigence and again attempted to
involve the Board in discussions with its Chairman. Yet again, the Special
Committee refused. Emerson indicated that its offer at $9.90 per share, on
a similar basis to Recoton's offer, was premised on Shaw accepting a
similar economic package from Emerson as he agreed upon with Recoton and
that if Shaw continued to treat Emerson in an unfair fashion, some
adjustment to Emerson's offer price would be necessary. Emerson indicated
such adjustment would be minor and also suggested that it would share the
burden of satisfying Shaw's demands with Blair. Emerson's requests were
ignored. The Special Committee terminated the April 25 meeting early and
refused to meet again with Emerson representatives before the April 27,
1996 deadline which they had set.
On April 27, 1997, Emerson CFO John P. Walker forwarded an executed
copy of Congress Financial Corporation's commitment letter to the Special
Committee of Jensen.
On April 29, 1996, Mr. Obiala sent the following letter to Emerson's
counsel:
This will confirm our telephone conversation last night in
which Scott Mohr and I advised you and Rob Levin [of Bankers
Trust] that the Special Committee of the Board of Directors of
International Jensen Incorporated will meet again on Tuesday, May
1, 1996 to consider the respective proposals of Emerson Radio
Corp. and Recoton Corporation to acquire International Jensen
Incorporated. If Emerson has anything to add to its proposal or
any further information to provide to the Committee, please
contact me, Scott Mohr or one of the members of the Committee no
later than 1:00 p.m. Tuesday afternoon.
On April 30, 1996, Mr. Eugene Davis sent a clarifying letter to the
Special Committee of the Jensen Board in which Emerson (i) reiterated that
it was prepared to pay all Jensen stockholders $9.90 per share in cash,
(ii) accepted a $5 million materiality standard for environmental
liabilities, and (iii) agreed to deposit with Jensen a $4 million fee if
Emerson failed to close for reasons attributable to Emerson so long as
Emerson would receive a $2 million breakup fee and reimbursement of its
expenses up to $2 million if Jensen failed to close because of a higher
offer or reasons attributable to Jensen. Emerson also described its
proposal to Shaw. The proposal to Shaw contemplated that, in exchange for
Shaw waiving his "golden parachute" rights under his employment agreement,
he would receive a three year, $200,000 per year consulting agreement with
Emerson, a cash payment at closing of $600,000, an additional payment of
$600,000 approximately one year after closing, and an option to purchase
50,000 shares of Emerson stock. These payments would aggregate more than
the $450,000 per year for
<PAGE>
two years Shaw is to receive from Recoton, where Recoton is paying, under
the management services agreement, 75% of such amounts.
Emerson has attempted to negotiate with Shaw on a number of occasions,
with no success. Initially, due to its inability to conduct a due
diligence review of the OEM Business, Emerson offered Jensen a similar
transaction as Recoton's which contemplated the sale of the OEM Business to
Shaw. However, it became obvious to Emerson that Shaw had no interest in
negotiating with Emerson in good faith, based in large part on his initial
unwillingness to discuss an OEM Business purchase in connection with an
Emerson merger and his unwillingness to negotiate his "golden parachute"
arrangements, and was merely seeking to protect his highly favorable deal.
While Shaw was agreeing to waive his "golden parachute" payments in a
Recoton transaction, he refused in an April 4, 1996 meeting with Emerson
representatives to do so with Emerson even though Emerson's package would
give him over $3.3 million more than Recoton. Emerson believes the reason
was obvious. Emerson was not willing to give Shaw the same highly
favorable arrangements in the side agreements to the OEM Business sale
agreement. For example, Emerson expected market-based royalties on the use
of Jensen's trademarks (including the "Jensen" trademark) by the OEM
Business, as is normal industry practice in these situations (or compared
to a requirements contract from a single supplier with escalating royalty
percentage payments in an industry in which prices have been shown to
deteriorate over time), and was not seeking to protect Shaw from a change
in control of the OEM Business. Thus, Shaw was insisting on a payout of
what he claimed was a $4.8 million, lump sum, "golden parachute" payment.
In negotiations with Emerson, Shaw would consistently take Emerson's
proposals, describe what a "burden" the purchase of the OEM Business was
for him, and provide no counteroffers, only insisting that he was entitled
to his "golden parachute."
FIRST TWO-TIER RECOTON PROPOSAL
After ignoring its own deadline, on May 1, 1996, without prior notice
to Emerson, Jensen announced in a press release that it had accepted an
amended proposal from Recoton in which Recoton raised the price it proposed
to pay in the Jensen/Recoton Merger to $9.15 per share to Jensen
stockholders (still substantially less than the $9.90 all cash then being
offered by Emerson) other than Shaw and Blair, each of which would receive
$9.00 per share. The consideration under the amended Recoton proposal
would be payable approximately 56% in cash and 44% in stock, versus
Emerson's higher proposal consideration ($9.90 per share) which would be
payable 100% in cash. In addition, under the terms approved by the Jensen
Board on May 1, 1996, Jensen was required to sell the OEM Business prior to
the closing to the Shaw Group for approximately $15 million, or about $12
million (or $5.40 per share held by Shaw) under its net book value of $27.6
million. Emerson only learned of Jensen's acceptance of the First Two-Tier
Recoton Proposal (containing a substantially lower price per share then the
Initial Emerson Proposal [contrary to statements in the Jensen Proxy
Statement]) by reading news reports of the Jensen press release.
In connection with the First Two-Tier Recoton Proposal, Blair (i)
granted an option to Recoton to purchase its shares for $9.00 per share
plus any net proceeds which Recoton might
<PAGE>
receive upon sale of such shares to the extent such net proceeds exceed
$10.00 per share and (ii) agreed to vote its shares in favor of the
Jensen/Recoton Merger and to provide a proxy to Recoton to vote its shares
under certain circumstances. Thus, Recoton was assured of receiving a
windfall if its offer was topped. In addition, Shaw agreed in the Spread
Agreement that if a third party other than Recoton acquired Jensen, he
would pay Recoton the spread between the amount per share paid by the third
party and $9.00 per share, up to a maximum of $1.00 per share.
MAY 1 EMERSON PROPOSAL
Although the First Two-Tier Recoton Proposal was still clearly
inferior to the Initial Emerson Proposal, on May 1, 1996, Emerson delivered
to Jensen the May 1 Emerson Proposal to acquire Jensen through a merger in
which all of Jensen's stockholders would receive at least $9.90 per share
in cash, except Shaw and Blair, both of which would receive $9.00 per share
in cash (the same consideration they had agreed to accept under the First
Two-Tier Recoton Proposal). In addition, Emerson agreed, among other
things, to (i) remove all contingencies except for normal and customary
conditions to closing, (ii) honor Shaw's "golden parachute" payment of
approximately $4.8 million set forth in his employment agreement, (iii)
distribute to all of Jensen's stockholders, other than Shaw and Blair, 50%
of any recovery of the $4.8 million payable to Shaw as a "golden parachute"
payment should a court decide he had breached his fiduciary duties in
connection with (x) his attempted bargain purchase of the OEM Business on
terms unfair to Jensen's public stockholders but highly favorably to
himself and (y) his activities in rebuffing Emerson's attempts to acquire
Jensen, and (iv) retain and finance the OEM Business as part of its
purchase. Emerson also stated it would pursue the value of the AR
Trademarks (set at $6 million by Jensen and Recoton) which might be
transferred to Recoton, and would cause 50% of such recovery, net of costs
and expenses, to be distributed to Jensen's stockholders other than Shaw
and Blair.
Mr. Eugene Davis, Emerson's President, delivered the following letter
to the Special Committee of Jensen's Board together with the May 1 Emerson
Proposal:
May 1, 1996
International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60049
Attn: Special Committee of the Board of Directors
Gentlemen:
We were shocked to learn this morning that the Special
Committee of the Board of Directors (the "Jensen Board") of
International Jensen Incorporated
<PAGE>
("Jensen") has approved an amended merger agreement with Recoton
Corporation ("Recoton") and a continued pursuit of the OEM business to the
Shaw Group, a highly suspect transaction which has not been fully or
adequately disclosed to Jensen's stockholders. Having reviewed the press
release which Jensen issued today, we remain firmly convinced that the
offer of Emerson Radio Corp. ("Emerson") was and remains in the best
interests of Jensen's stockholders. We vehemently disagree with the
apparent determination of the Jensen Board with respect to Emerson's
proposed financing to consummate the merger.
The letter continued:
Emerson fails to understand how the Jensen Board, in
furtherance of its fiduciary obligations to the Jensen
stockholders, determined to proceed with the Recoton merger in
light of Emerson's offer which is clearly in the best interests
of Jensen's stockholders. As Emerson previously has
demonstrated, it will vigorously pursue all commercial and legal
options available to it in connection with the acquisition of
Jensen and will succeed in those efforts.
Very truly yours,
/s/ Eugene I. Davis
President
MAY 6 EMERSON PROPOSAL
On May 6, 1996, Emerson, through its investment banker, sent a revised
simplified proposal (the "May 6 Emerson Proposal") to Lehman Brothers and
the Special Committee stating that earlier proposals remained open and
additionally proposing the following proposal for consideration by Jensen:
1) Emerson will acquire all of the outstanding shares of
[Jensen] paying $9.90 per share in cash, including the shares
owned by Mr. Shaw and the Blair Fund;
2) Emerson will honor, in the appropriate manner, all of
Jensen's valid and legal obligations, including without
limitation, Mr. Shaw's employment agreement and the termination
fee provisions of the Recoton merger agreement;
3) Emerson will provide a $5 million letter of credit to secure
any termination fee; and
4) Emerson will remove all contingencies in its offer except for
usual and customary closing conditions.
<PAGE>
On May 6, 1996, Special Committee Counsel requested that Emerson
provide a copy of its proposed merger agreement to the Special Committee.
On May 7, 1996, Emerson sent the Special Committee's counsel the proposed
Emerson Merger Agreement. The Emerson Merger Agreement contemplated that
Blair would enter into a voting agreement with Emerson. While Blair had
previously signed a voting agreement with Recoton, that voting agreement
provided that it would terminate upon termination of the Jensen/Recoton
Merger, thereby permitting Blair to enter into a voting agreement with
Emerson. The amended Stock Option and Voting Agreement Blair entered into
with Recoton in connection with the Second Two-Tier Recoton Proposal
removed this customary "fiduciary out."
SECOND TWO-TIER RECOTON PROPOSAL
On May 10, 1996, Jensen announced in a press release that it had
accepted a further amended proposal from Recoton in which Recoton raised
the price it proposed to pay in the Jensen/Recoton Merger to $10.00 per
share to Jensen stockholders other than Shaw and Blair, each of which would
receive $8.90 per share (or $.10 per share less than they would have
received in Recoton's May 1, 1996 proposal). Under the terms of the
Second Two-Tier Recoton Proposal approved by the Jensen Board on May 10,
1996, Jensen was still required to sell the OEM Business prior to the
closing to the Shaw Group. The Shaw Group agreed to increase the purchase
price for the OEM Business by approximately $1.3 million.
Emerson believes the Second Two-Tier Recoton Proposal was made in
response to the filing of a lawsuit by a Jensen stockholder in the Delaware
Chancery Court on May 9, 1996, challenging the Jensen/Recoton Merger, the
sale of the OEM Business to Shaw, and other matters on the basis of
breaches of fiduciary duties and other legal theories. The Second Two Tier
Recoton Proposal appeared to be an attempt to correct certain of the
features of these transactions questioned in such lawsuit. For example,
the termination arrangements with Recoton were modified to avoid the direct
linkage between the payment of the termination fees and the purchase price
of the AR Trademarks and to amend the option price to $3.5 million, which
Jensen stated was "an amount believed by [Jensen's] Special Committee and
[Jensen's] Board of Directors to be more than fair value for the
trademarks." In other words, the previous $6 million voluntarily agreed to
by Jensen and Recoton was apparently an arbitrary amount, according to
Jensen, as opposed to the fair value of such trademarks. Further, Emerson
believes in an attempt to silence it, Jensen sued Emerson and its President
in Federal District Court in Chicago alleging breaches of the
Confidentiality Agreement and violations of the federal proxy rules. On
May 13, 1996, this Court issued a temporary restraining order ("TRO") based
solely on Jensen's filings with the Court. The TRO subsequently has
expired by its own terms. See "Certain Litigation Concerning the
Jensen/Recoton Merger."
In connection with the Second Two-Tier Recoton Proposal of May 10,
1996, Blair amended the Stock Option and Voting Agreement it had previously
entered into to provide (i) an option to Recoton to purchase Blair's shares
for a reduced price of $8.90 per share plus half of any net proceeds which
Recoton receives upon sale of such shares to the extent such net proceeds
are between $8.90 and $10.90 per share plus 100% of the net proceeds which
Recoton
<PAGE>
may receive over $10.90 per share upon such sale and (ii) an agreement to
vote its shares in favor of the Second Two-Tier Recoton Proposal and to
provide a proxy to Recoton to vote its shares under certain circumstances.
The proxy portion of such agreement was amended to permit Recoton to vote
Blair's shares until July 15, 1996, unless unilaterally extended by Recoton
to December 31, 1996, even if the Recoton Merger Agreement was terminated.
Emerson believes this amended Stock Option and Voting Agreement, except as
to the option provision, terminated no later than July 15, 1996, as this
agreement relates to the Third Amended and Restated Recoton Merger
Agreement, which has been superceded, by the terms of the Fourth Amended
and Restated Recoton Merger Agreement relating to this Third Two-Tier
Recoton Proposal. In addition, Shaw amended the Spread Agreement with
Recoton to provide that if a third party other than Recoton acquires
Jensen, he will pay to Recoton half of the spread between (a) the net
proceeds per share received by Shaw, but not to exceed $10.90 per share and
(b) $8.90 per share, subject to certain obligations of Recoton to reimburse
possible tax liabilities.
MAY 13 EMERSON PROPOSALS
In response to the new "arrangement" between Jensen and Recoton, on
May 13, 1996, Emerson delivered a letter and accompanying press release to
Jensen setting forth alternative definitive merger proposals for the
acquisition of Jensen. Under the first alternative, Emerson would pay
$10.25 per share in cash for each outstanding share of Jensen common stock
including those owned by Shaw and Blair. Under the second alternative,
Emerson would pay $10.75 per share in cash to all stockholders (including
Blair) other than Shaw, who would receive either $8.90 per share in cash or
$10.75 per share in cash if he purchases the OEM Business for its net book
value of $27.6 million. Emerson also indicated its proposals were subject
to further negotiations with Jensen and that a voting agreement with Blair
was not required, but still desirable.
Subsequently, the Special Committee's counsel and Lehman Brothers sent
letters to Emerson's counsel and its financial advisor regarding certain
aspects of Emerson's proposals. On May 19, 1996, Banker's Trust requested
further clarification from the Special Committee with respect to certain of
the Special Committee's issues. On May 21, 1996, Lehman Brothers sent a
letter to Bankers Trust requesting: (i) removal of all contingencies from
Congress' commitment letter; (ii) a commitment letter for $30 million from
Bankers Trust; (iii) evidence as to Emerson's equity contribution and the
demand that Emerson fund its equity contribution into a cash account at
Bankers Trust and provide assurances that such amount will remain available
at closing; and (iv) an opinion from Emerson's outside counsel that no
consent to an acquisition by the holders of Emerson's convertible
debentures was required. On the contrary, Shaw's agreement for the
purchase of the OEM Business requires no commitment letters or significant
representations and provides Shaw with the right to "walk-away" at no cost
to him, but with reimbursement of his expenses.
PURPORTED AUCTION
On May 20, 1996, Emerson brought a counterclaim against Jensen and a
third party complaint against Shaw on the grounds of fraudulent
inducement of the Confidentiality
<PAGE>
Agreement and bad faith dealings (on July 2, 1996, Emerson amended its
third party complaint to include Recoton and Blair for participating in a
conspiracy regarding these claims). Subsequent to bringing these claims,
on May 23, 1996, the Federal District Court Judge conducted an informal,
in-chambers conference during which, among other things, he expressed his
desire that the auction process be conducted in a fair manner. At this
conference, the Judge indicated, over Jensen's objections, that he would
not extend the TRO and noted that he believed both sides would act in an
appropriate manner. In spite of this, Jensen unsuccessfully attempted to
have the Court cite Emerson and its President for civil contempt in July
for allegedly violating the TRO, even though the TRO had lapsed
approximately one and one-half months earlier.
Emerson believes that as a result of this conference, Jensen for the
first time began communicating with Emerson on the terms of its proposal
and proposed merger agreement (from April 25, 1996, to this time, Jensen
had largely avoided communicating with Emerson). However, Emerson now
believes this auction and negotiation process was designed to appease the
Court in Chicago and to better posture Jensen for its litigation in
Delaware. For example, early in this process, during the one face-to-face
negotiating session Emerson had with the Special Committee on May 28, 1996,
the Special Committee insisted that a court reporter be present during the
meeting. It was only after Emerson threatened to notify the federal judge
in Chicago that the Special Committee agreed to meet with Emerson without a
court reporter being present. In addition, Donald Jenkins left the May 28,
1996 meeting warning Emerson that ONLY AN OFFER ABOVE $11.00 PER SHARE for
Jensen had any chance of success - even though Recoton's offer was just
$10.00 per share to the public stockholders of Jensen at such time and
$8.90 to Shaw and Blair while Emerson's outstanding offers were at $10.25
and $10.75 per share to all stockholders, depending on the price Shaw was
willing to pay for the OEM Business. Emerson therefore believes the
Special Committee would have known as early as May 28 that Recoton/Shaw
would pay $11.00 per share to Jensen's public stockholders, but failed to
inform Emerson or Jensen's public stockholders of this. Jensen's Special
Committee, repeatedly delayed making a determination while Emerson's
proposal was clearly superior, and afforded Recoton/Shaw numerous
opportunities to improve their offers by inexplicably ignoring their own
deadlines. Emerson also repeatedly obtained revisions to its commitment
letters from its lenders, typically on minor issues, and attempted to
negotiate its merger agreement, which Emerson believes was and is ready for
execution. Once Recoton/Shaw produced a higher offer to Jensen's public
stockholders, Jensen quickly accepted it without first informing Emerson of
the terms of their offer. While Jensen claims it repeatedly sought higher
bids from Emerson, it should be noted that Emerson had informed Jensen of
its concerns that Shaw would quickly inform Recoton of the terms of
Emerson's bids as and when made.
At Chandler's request, and after just having flown back from Chicago
that same day, Eugene Davis and Emerson's counsel immediately boarded a
return flight and met with Chandler and his counsel in Chicago on Friday,
May 24, 1996, immediately prior to the Memorial Day weekend. At this
meeting, Davis and Chandler discussed Chandler's purported concerns with
Emerson's proposal, and Chandler encouraged Davis to continue to pursue a
friendly transaction with Jensen. In addition, Chandler indicted that (i)
he regretted entering into the Stock Option and Voting Agreement, (ii)
would support the highest bid, and (iii) would not accept any changes
<PAGE>
or extensions to the deal with Recoton. Emerson's continued pursuit of a
possible friendly transaction with Jensen was strongly influenced by these
actions of Blair, through Chandler.
In connection with its alternative proposals, Emerson provided Jensen
with continuing evidence of its ability to finance the acquisition of
Jensen. On June 4, 1996, Emerson's counsel sent a letter to counsel for
the Jensen Special Committee providing the following documents:
1. Letter from Eugene I. Davis to Messrs. Jenkins, Mohr,
and Chandler;
2. Sources and uses materials prepared by John Walker;
3. Commitment letter from Bankers Trust Company;
4. Amendment to Commitment Letter from Congress Financial
Corporation;
5. Term Sheet for preferred stock acquisition from [the
proposed investor of such preferred stock]; and
6. Revised draft Merger Agreement.
The letter also provided:
You should note that while the revised draft Merger Agreement
reflects a $10.25 purchase price per share for all outstanding
shares of Jensen's common stock, Emerson continues to be willing
to enter into a merger agreement with Jensen based on all
alternatives outlined in its proposals of May 13, 1996. Emerson
would appreciate the Special Committee informing it of the
Special Committee's selection in this matter.
The revised draft Merger Agreement incorporates most of the
suggested changes requested by Jack Obiala. However, as
described in Gene Davis' letter transmitted herewith, Mr.
Obiala's suggested changes with regard to the termination
obligations of the parties have not been made. As with the
review by the Special Committee and its advisors of Emerson's
financing sources, Emerson and its representatives are prepared
to continue to discuss these matters. Emerson is prepared to
meet with the Special Committee at any time to negotiate and
finalize these matters.
Jensen has informed Emerson that on June 4, 1996, Recoton told Jensen
it would offer $10.25 per share for all stockholders except Shaw and Blair.
Despite the fact that this offer was, Emerson believes, clearly inferior to
the alternatives offered in the May 13 Emerson Alternative Proposals
(including on an aggregate consideration basis), on June 10, 1996, Emerson
added an
<PAGE>
additional proposal to its May 13 Emerson Alternative Proposals. Emerson
offered as an option to pay each Jensen stockholder consideration of $10.75
per share with aggregate consideration composed of 55% cash and 45% in face
value of a new issue of Emerson preferred stock. Emerson believed that
this option might be more attractive to Jensen stockholders from a tax
management point of view.
On June 5, 1996, Jensen's financial advisor, Lehman Brothers, sent a
letter to Recoton's President, Robert L. Borchardt, Emerson's President,
Eugene I. Davis, and Jensen's President, Robert G. Shaw, confirming that
the Special Committee would accept bids for Jensen until Monday, June 10,
1996.
Between June 5 and June 10, Emerson and its counsel responded to
Jensen's requests, often requiring needless and harassing changes. As a
result, Emerson incurred significant counsel fees. Nonetheless, Emerson
and its counsel provided all of the revisions which Emerson believed were
not entirely unreasonable. Emerson was also required to obtain a number of
revisions to its commitment letters, at great expense to Emerson, which
Emerson also believes was required by Jensen to harass Emerson and its
potential lenders.
On June 10, 1996, Emerson's President, Eugene Davis, sent the
following letter to clarify Emerson's position with regard to its proposals
to acquire Jensen:
Mr. Robert Jenkins, Chairman
Special Committee
Board of Directors
International Jensen Incorporated
c/o Sundstrand Corp.
4949 Harrison Ave.
Rockford, Illinois 61125-7003
Mr. Scott Mohr
Lehman Brothers
191 South LaSalle Street
25th Floor
Chicago, Illinois 60603
Mr. David Chandler
William Blair Leveraged Capital Fund
222 West Adams
Chicago, Illinois 60606
Re: Acquisition of International Jensen Incorporated ("Jensen")
by Emerson Radio Corp. ("Emerson")
Gentlemen:
Pursuant to Lehman Brothers' letter of June 5, 1996, and our
discussions with the Special Committee, its counsel, and Lehman
Brothers, we have previously forwarded to the Special Committee
the final form of the Merger Agreement which Emerson is prepared
to execute immediately upon acceptance by the Special Committee
and the Board of Directors of Jensen and final documents
evidencing our financial capability to close the transaction. We
have attempted to follow the request contained in Mr. Mohr's
letter that the bid be submitted in the form of a Merger
Agreement together with a red-lined copy of such Merger Agreement
to show changes from prior proposals. However, the form of
Merger Agreement which we have submitted is only one of the
alternative transactions that Emerson would be prepared to enter
into, i.e., the $10.25 per share all-cash proposal for all
outstanding shares. In order to avoid providing the Special
Committee with a mountain of paper, we have not prepared separate
merger agreements encompassing the two $10.75 per share proposals
provided to the Special Committee on May 13, 1996. These two
alternatives remain available at the discretion of the Special
Committee and would require only minimal revision of the
transaction documents, which would be accomplished in short
order.
While Emerson does not recognize the need to submit any
proposal that exceeds the $10.25 per share offer reflected in the
merger documents, since we believe that the competing proposal
from Recoton/Shaw is neither legally nor commercially viable, we
are prepared to offer an additional proposal at a higher face
value that may be more attractive to Jensen stockholders from a
tax management point of view. Under this alternative, Emerson
would pay to each Jensen stockholder consideration of $10.75 per
share with aggregate consideration composed of 55% cash and 45%
in face value of a new issue of Emerson preferred stock. The
attributes of the preferred stock would include a liquidation
value in the value of the cash replaced by the stock together
with unpaid dividends, conversion into Emerson common stock at
anytime at a conversion rate of $4.00 per share for the first
four years escalating 15% per year thereafter subject to normal
anti-dilution protection, cumulative dividends (or,
alternatively, PIK dividends) of 8% per annum and a feature where
Emerson could call the preferred stock at anytime after one year
for an amount equal to its liquidation preference plus unpaid
dividends.
The letter continued:
We hope that the contents of this letter and the significant
accommodations we have made in the merger and financing documents at
Jensen's and Lehman Brothers' request, are viewed as the final constructive
step preceding an immediate execution of the merger documents between
Emerson and Jensen. As we have previously indicated, we remain available
to discuss all matters relating to this transaction with the Special
Committee, both before and after execution of the merger documents. We
are also available for constructive conversations with
<PAGE>
Robert Shaw and/or representatives of Recoton Corporation, as
appropriate. However, it is our view that, as a result of delays
to which we have all been subject, it is of critical importance
to sign the merger documents first and initiate the time
consuming SEC, FTC and stockholder vote processes immediately.
Discussions with Shaw and/or Recoton could be conducted while we
await the stockholder vote under the terms of a stand-still
arrangement that would preserve the rights and positions of
effected parties while providing a less pressured environment for
reaching agreement without additional legal expenditures. We are
fearful that any extended delay in execution of documents,
governmental review or closing of the transaction may further
damage Jensen and its ultimate value to either purchaser. The
thoughts of the Special Committee and their expedited attention
to the various matters addressed in this letter are greatly
appreciated.
Very truly yours,
/s/ Eugene I. Davis
President
As the so-called "auction" process wound-up, Emerson was informed by
Jensen that two primary concerns of the Special Committee remained. The
first revolved around the termination provisions of the Emerson Merger
Agreement. Emerson had offered a $5 million termination fee deposit
payable to Jensen if a merger with Emerson terminated as a result of
Emerson's actions, to be secured by a $5 million standby letter of credit.
Jensen sought a higher amount from Emerson, at one point as high as $9.7
million (based by Jensen upon the up to $4 million termination fee and
costs which could be payable to Recoton and an arbitrary $1.00 per
outstanding share [$5.7 million] amount), and an agreement that no
termination fee should be paid to Emerson if stockholder approval was not
obtained. Emerson believes the $5 million termination it agreed to is
excessive, much less the enhanced amounts Jensen sought, and believes it is
justified in not encouraging Jensen to seek to avoid a favorable
stockholder vote. The second concern revolved around the payments and
asset transfers to Recoton/Shaw upon termination of their agreements.
Emerson offered not to hold Jensen liable for such actions, but reserved
its rights against Recoton/Shaw to prevent or recover such payments or
asset transfers. As Jensen was not to be prevented from taking actions it
deemed proper, Emerson does not understand Jensen's CONCERNS in this
regard.
On June 12, 1996, Emerson's counsel received a letter from Shaw's
counsel which set forth Shaw's position with regard to a number of issues,
the resolution of which, Shaw indicated would be a precondition to
consideration of Emerson's proposal. According to the letter, the issues
included (i) Emerson having all financing in place necessary to consummate
the terms of its offer to Shaw's satisfaction SEPARATE from Lehman
Brothers' determination that Emerson had the funds, (ii) Emerson's
recognition of the "lock-up" arrangements between Jensen and Recoton with
respect to the AR Trademarks, (iii) Emerson's agreement to honor the
transitional employment agreements for the Jensen employees covered by
same, (iv) providing reasonable
<PAGE>
severance packages to the Jensen employees not covered by the transitional
employment agreements, and (v) Emerson's acknowledgement of the existence
and validity of Shaw's employment agreement under which he would be
entitled to a "golden parachute" payment of up to $4.8 million. In
addition, the letter stated the following points:
First, the impetus for [Shaw's] purchase of the OE business
did not rest with Bob. As you know, Recoton wished to pursue
International Jensen but did not, and would not, agree to
purchase the OE business. It was at that point that Bob agreed
to purchase the business, SOLELY in order to facilitate the
overall sale of the Company to Recoton. Emerson's continuing
suggestions that this proposed purchase was designed to take
advantage of Jensen shareholders is completely and totally
inaccurate.
Second, there has been some indication that you believe Bob
has stated that he would never support an Emerson deal. BOB HAS
NEVER STATED THAT HE WOULD NEVER SUPPORT AN EMERSON PROPOSAL. TO
THE EXTENT YOU HAVE BEEN GIVEN THIS IMPRESSION, PLEASE UNDERSTAND
THAT BOB HAS ALWAYS BEEN OPEN TO DISCUSSIONS WITH EMERSON.
(emphasis added)
By letter dated June 12, 1996, Emerson's counsel replied to the five
issues set forth in the letter from Shaw's counsel as follows: (i) Emerson
has commitments for all necessary financing to consummate the merger and
has provided evidence of same to the Special Committee, (ii) Emerson has
been precluded from discussing the AR Trademarks and the termination fees
in the Recoton Merger Agreement with Recoton and requests that Jensen
permit a meeting between Emerson and Recoton to discuss same, (iii)
Emerson's obligations under the transitional employment agreements which it
had previously agreed to honor as written is an issue that does not involve
Shaw directly and, therefore, there is no need for Emerson to negotiate
them with him, (iv) severance packages for long-term employees do not
involve Shaw directly and, therefore, again, there is no need for Emerson
to negotiate them with him, and (v) the issue of the amount of money due
Shaw under his employment agreement should be discussed in the context of a
resolution of all open issues as business matters. In furtherance of
attempting to resolve the foregoing issues, Emerson's counsel invited Shaw,
his counsel, and if Shaw permitted, representatives of Recoton, to
Emerson's offices on June 13, 1996 to discuss all open business issues.
Counsel for Shaw responded to Emerson's invitation to meet by stating that,
for scheduling reasons, a meeting was not feasible.
Despite Emerson's efforts to meet the requests of Jensen's counsel
regarding terms of the draft Emerson Merger Agreement and other matters and
a new Jensen decision deadline of June 14, neither the Special Committee
nor its advisors had by June 18, 1996 made any effort to contact Emerson
regarding the Special Committee's deliberations. Emerson's counsel
attempted to contact the Special Committee's counsel; however, many
telephone calls went unreturned. Ultimately, Emerson's counsel was told by
Jensen's counsel that the Special Committee had not reached a decision and
did not know when it would, but that official word would be given to
<PAGE>
Emerson. That word did not come until John Walker, Emerson's CFO, called
Scott Mohr of Lehman Brothers for the second time on June 18, 1996 and was
told that the Special Committee had decided to indefinitely delay any
decision.
On June 14, 1996, Lehman Brothers advised the Special Committee that
it was not unable to render an opinion that the sale of the OEM Business
was fair to Jensen based upon available financial information concerning
the OEM Business through May 31, 1996. Lehman Brothers further informed
the Special Committee that based on the OEM Business' performance, the
valuation range for the OEM Business would need to be adjusted upward and
the purchase price offered by the Shaw Group was INADEQUATE. See Jensen
Proxy Statement at page 37.
On June 18, 1996, Emerson's President sent a letter to the Special
Committee, Lehman Brothers and Blair expressing Emerson's concern regarding
the Special Committee's delay in making a decision and meeting its own
deadlines. Emerson indicated that it expected to receive a response to its
proposal by the end of the day on June 20, 1996, or it would be construed
as a rejection of its proposal. In addition, Emerson indicated that it
would hold all parties responsible for damages to Emerson and any
deterioration in Jensen's value as a result of the delay.
MEETING WITH SHAW
On June 20, 1996, at the repeated requests of Chandler and Lehman
Brothers, Emerson's Chairman, Geoffrey P. Jurick, its President, Eugene
Davis, and Chief Financial Officer, John Walker, traveled to Cleveland,
Ohio, to meet with Shaw in the hope of resolving a number of the purported
issues Shaw had concerning Emerson's proposal. Also at the meeting on
behalf of Jensen was Scott Mohr of Lehman Brothers, Jensen's financial
advisor. At the meeting it became clear to Emerson's representatives that
they had not been summoned to Cleveland to strike a deal, as Shaw continued
to refuse to negotiate his "golden parachute" arrangements. Rather,
Emerson believes that the meeting was part of the strategy of Jensen, Shaw,
and Blair to create a better record for future litigation and to entice
Recoton to respond with an enhanced offer over its previous bid. For
example, Mohr indicated at the meeting that they were expecting a new
proposal from Recoton and attempted to solicit a 10% increase ($1.00 or
more) in Emerson's bid. Mr. Jurick informed him that Emerson currently had
the highest bid on the table and that it would not bid against itself. Mr.
Mohr then interjected the Special Committee's belief that the current
offers of Emerson and Recoton were equal. Jurick dismissed that comment by
stating, among other things, that in Emerson's estimation, Shaw was
receiving about $14.00 per share (including the value per share of the OEM
transaction to him) while Jensen's public stockholders were receiving
$10.25 per share.
Emerson believes that it was being used as a pawn to bring pressure on
Recoton. Not only did Mr. Mohr spend most of his time on the phone with
Recoton and Jensen, but he even gave Mr. Jurick updates on the process of
Recoton's offer. With little progress being made, the Emerson
representatives informed Shaw and Scott Mohr that they would be agreeable
to participating in a meeting among all of the principals (Emerson, Jensen,
and Recoton) with a
<PAGE>
mutual agreement to a floor price to the outside stockholders of Jensen of
$10.25 per share. Mr. Mohr and Shaw appeared to accept the foregoing
framework as a fair and pragmatic step if Recoton's apparently forthcoming
offer would not resolve the situation for Jensen. Mohr also promised to
contact Jurick regarding the proposed meeting and new Recoton proposal on
June 21, 1996. At this point, the meeting concluded. Mr. Mohr never
called.
Meanwhile, while the meeting in Cleveland was occurring, Lehman
Brothers wrote Emerson to confirm that the Special Committee had "been
advised that Recoton is prepared to submit a new proposal which will be an
improvement on its last proposal and that Recoton seeks prompt Committee
action on its proposal." This letter nowhere indicated the nature of the
improvement such that Emerson did not and could not know whether Recoton
was submitting a higher bid, I.E., a higher price per share, and/or was
submitting a bid that removed some or all of the many legal problems
Emerson believes exists with the existing Recoton proposal and related Shaw
purchase of the OEM Business. Also, Emerson believes that Mr. Shaw was
communicating all of Emerson's proposals to Recoton. Accordingly, Emerson,
not knowing the nature of the expected Recoton proposal, could not submit a
meaningful counterproposal until it learned the specifics of Recoton's new
proposal. Emerson communicated the foregoing concerns to Jensen, but did
not receive a reply.
THIRD TWO-TIER PROPOSAL
After, Emerson believes, delaying repeatedly to avoid having to accept
a higher bid from Emerson, as evidenced in part by Jensen not accepting an
Emerson transaction and delaying its decision even when told that Lehman
Brothers had determined, at least by June 14, 1996, that Shaw's purchase
price for the OEM Business was inadequate, on June 24, 1996, Jensen
announced that it had approved yet another merger offer from Recoton, in
which all Jensen stockholders would receive $11.00 per share in cash,
except for Shaw and Blair, both of which would receive $8.90 per share in
cash. In addition, Jensen would continue to be required to sell the OEM
Business to the Shaw Group at a substantial discount from its book and,
Emerson believes, fair values. Jensen claims that Emerson agreed to the
end of the auction process at this time. Rather, Emerson was pressing for
Jensen's Special Committee and Board to establish reliable and fair
guidelines and deadlines and then make a decision, although Emerson
continued to express its concerns as to the fairness of the process and
Shaw's role in it, and its desire to continue its pursuit of a Jensen
acquisition. As previously stated, Jensen accepted the Third Two-Tier
Recoton Proposal without first informing Emerson of its terms and seeking
Emerson's reaction to it.
JUNE 25 EMERSON PROPOSAL
In response to the Third Two-Tier Recoton Proposal, on June 25, 1996,
Emerson delivered to Jensen a definitive proposal to acquire Jensen through
a merger in which all of Jensen's stockholders would receive $12.00 per
share in cash, except for Shaw and Blair, both of which would receive $8.90
per share (again, the same consideration they had agreed to accept under
the Third Two-Tier Recoton Proposal, and under previous Recoton proposals).
Despite this clearly
<PAGE>
superior offer, Jensen rejected the proposal and refuses to negotiate with
Emerson. Instead, Jensen insists on favoring the interests of its largest
"inside" stockholder by continuing to accept the Third Two-Tier Recoton
Proposal. In announcing the June 25 Emerson Proposal, Emerson expressed
its skepticism concerning Jensen's willingness to consider the proposal in
good faith:
Emerson believes no proposal from Emerson will be fairly
considered by the Jensen Board. Accordingly, in advising the
Jensen Board of its latest proposal, Emerson has further notified
the Jensen Board that it intends to file proxy solicitation
materials with the Securities and Exchange Commission and, upon
approval of such materials, will actively solicit Jensen
stockholders with respect to the transaction. In addition,
Emerson believes that final determination of the issues raised in
the various stockholders lawsuits brought against Jensen, Jensen
Board members, Shaw, and Recoton in the Delaware Chancery Court,
when coupled with solicitation of Jensen's outside stockholders,
will finally resolve this matter.
Despite what Emerson believes is the clearly superior offer contained
in its June 25, 1996 proposal, on June 26, 1996, Jensen issued a press
release stating that its Board of Directors, based upon a recommendation of
the Special Committee, had rejected Emerson's latest proposal to acquire
Jensen, had reaffirmed the agreement with Recoton announced by Jensen on
June 24, 1996, and had determined that the auction process was concluded.
In its press release on June 26, 1996, Jensen stated that neither Shaw
nor Blair had agreed to accept less from Emerson than is being paid to
other stockholders (ALTHOUGH BOTH WERE CERTAINLY WILLING TO ACCEPT THE SAME
$8.90 PER SHARE IN CONSIDERATION FROM RECOTON UNDER THREE SEPARATE
AGREEMENTS). Both were reported to have advised the Jensen Special
Committee that they would vote against the Emerson proposal if it was
submitted to Jensen's stockholders. Emerson wonders why its cash is not as
good at the same price to Shaw and Blair as Recoton's?
Jensen also reported that:
Absent their consent to the lesser amount, and a vote in
favor of a merger on such terms, the Special Committee concluded,
based on the advice of its Delaware counsel, that the Emerson
proposal could not be consummated due to the lack of the
necessary stockholder vote and that it would be improper to
recommend the two-tier proposal as a matter of Delaware law and
in light [of] fiduciary duties owed to all stockholders,
including Mr. Shaw and the Blair Fund.
On July 2, 1996, Emerson filed its counterclaim and third-party
complaint. See "Certain Litigation Concerning the Jensen/Recoton Merger."
JULY 16 EMERSON PROPOSAL
On July 16, 1996, Emerson delivered to the Special Committee and Blair
a revised proposal to acquire Jensen (including the OEM Business) through a
merger in which all of Jensen's stockholders would receive $12.00 per share
in cash, except for Shaw and Blair. Shaw's shares would continue to be
purchased at $8.90 per share (as set forth in the June 25 Emerson Proposal
and as he repeatedly agreed to accept from Recoton), while Blair would
receive $10.00 per share ($1.10 PER SHARE MORE, or approximately $1.7
million, than Blair had agreed to accept from Recoton). The higher price
offered Blair under the July 16 Emerson Proposal resulted from the fact
that it appears to Emerson and certain Jensen stockholders that the
agreement previously entered into between Blair and Recoton (except for the
stock option provision, under which Blair had given voting control over its
shares to Recoton and had agreed not to sell its shares to any other
party), terminated no later than July 15, 1996. Such agreement provided it
would terminate (except for the stock option provision) on the later of the
termination of the "Revised Merger Agreement" (defined as the Third Amended
and Restated Recoton Merger Agreement of May 10, 1996) or the "Termination
Date" (a term not defined in such agreement, but defined in the Revised
Merger Agreement as July 15, 1996, which date could be extended in
Recoton's sole discretion to December 31, 1996). Jensen and Recoton have
entered into a new Recoton Merger Agreement which states that it supersedes
and replaces all prior agreements (thereby terminating the Revised Merger
Agreement) and it does not appear that Recoton extended the Termination
Date in the Revised Merger Agreement. This belief is also espoused in a
Supplemental Complaint filed in the Delaware stockholder litigation against
Jensen, Recoton, Blair, Shaw, and the Jensen directors on July 16, 1996.
On July 17 and 18, 1996, Emerson received correspondence from counsel
to Blair and the Special Committee, respectively, indicating Blair's
position that the amended Stock Option and Voting Agreement was still in
effect and that the Special Committee had rejected the July 16 Emerson
Proposal. Jensen also rejected Emerson's request that the standstill
agreement, prohibiting Emerson from purchasing shares of Jensen stock, be
waived, although, based on Jensen's representations at the time the
agreement was signed, Recoton appears to have been released from an
identical restriction. Specifically, Blair's counsel stated the following
in his July 17, 1996 letter to Emerson's counsel:
I have relayed the offer [Emerson] made yesterday afternoon
to William Blair Leveraged Capital Fund, L.P. ("Blair") to
purchase Blair's outstanding holdings of International Jensen.
As Gene stated, the Emerson offer to Blair is premised on the
proposition that the Amended and Restated Stock Option and Voting
Agreement of May 9, 1996 between Blair and Recoton has terminated
(with the exception of Recoton's option under Section 1.2(a) of
that agreement).
Blair does not agree with that premise. Blair's May 9th
Agreement with Recoton continues in full force and affect.
Indeed, Emerson appears to recognize as much since contained in
your offer to Blair was a pledge that Emerson would
<PAGE>
indemnify Blair from any and all claims brought by Recoton as a
result of the proposed sale.
Consequently, Blair will not consider Emerson's offer.
Moreover, Blair considers Emerson's invitation that Blair breach
its May 9th agreement with Recoton an intentional attempt to
interfere with Blair's contractual relations. As such, Blair
request that all such activities cease immediately.
In response, on July 22, 1996, Emerson's counsel sent the following
letter to Blair's counsel:
I am in receipt of your letter to me dated July 17, 1996. I
must confess my confusion at the tone and substance of your
letter. The offer of Emerson Radio Corp. ("Emerson") to William
Blair Leveraged Capital Fund, L.P. ("Blair") was intended to
resolve all outstanding matters between Emerson and Blair,
provide Blair with significantly more cash for its shares of
common stock of International Jensen Incorporated ("Jensen"), and
to allow Blair to make an independent decision regarding the best
offer to purchase its shares of Jensen stock, free of any
perceived impediments.
In that regard, I would appreciate your interpretation of
the Amended and Restated Stock Option and Voting Agreement of May
9, 1996 (the "Agreement") between Blair and Recoton Corporation
as to how this Agreement should not be deemed to have terminated
(with the exception of Recoton's option under Section 1.2(a) of
the Agreement). Further, in light of the opportunities that
Blair would have upon termination of the Agreement, Blair should
be willing to permit an expedited determination by the Delaware
Chancery Court as to the status of that Agreement. As you know,
the effect of this Agreement allegedly has also had a significant
impact on the deliberations of the Special Committee of the
Jensen Board. An expeditious determination of the status of the
Agreement could well be a critical element of the Special
Committee's determinations as well. As you know, Blair's WISH to
support the Blair/Recoton bid is vastly outweighed by its
fiduciary OBLIGATIONS to Jensen's stockholders.
Emerson would appreciate an explanation from Blair of the
statement in the last paragraph of your letter that "Blair
considers Emerson's invitation that Blair breach its May 9th
Agreement with Recoton an intentional attempt to interfere with
Blair's contractual relations." Emerson does not understand how
this can be the case, particularly in light of Blair's fiduciary
duties to the minority stockholders of Jensen, and, in fact, to
the participants in the Blair Fund.
I would also like to address two other matters in your
letter. I do not understand how you could have so misconstrued
Emerson's offer of
<PAGE>
indemnification for Blair. Emerson clearly does not believe that
the Agreement continues in full force and effect. Rather, it is so certain
that the Agreement has terminated, it would be willing to indemnify Blair
from any claims brought by Recoton as a result of Emerson's proposed offer
to purchase Blair's Jensen stock. This offer was meant to reassure Blair,
but apparently Blair is more concerned about justifying its inaction.
No response has been received to this letter, although Blair has filed
a motion to dismiss Emerson's third-party claim against Blair.
The Special Committee's counsel, in his July 18, 1996 letter to
Emerson's counsel, stated in part:
The proposal contained in the press release enclosed with
your July 16 letter is identical to Emerson's June 25 proposal
except that, instead of a two-tier transaction ($8.90 for Shaw
and Blair, and $12 for the public), the consideration Emerson
says it is willing to pay is divided into three tiers ($8.90 for
Shaw, $10 for Blair, and $12 for the public). As with Emerson's
prior two-tier proposals contemplating per share amounts to be
paid to the public in the merger different from amounts to be
paid Shaw and Blair, the current three-tier proposal is not
acceptable. To repeat for emphasis, the Special Committee, based
on advice as to Delaware law, will not approve, and recommend to
Jensen's stockholders, a merger agreement providing less per
share to some common stockholders than to others, without the
consent of the common stockholders receiving less. And, again to
repeat, even if the Special Committee could, and did, make such a
recommendation, the current Emerson three-tier proposal (like
Emerson's earlier two-tier proposal) cannot be effected over the
opposition of the stock owned by Shaw and Blair.
Emerson's counsel, by letter dated July 22, 1996, responded to the
letter from the Special Committee's counsel as follows:
I am in receipt of your letter to me dated July 18, 1996.
As indicated in your letter, the Special Committee of the Board
of Directors of International Jensen Incorporated ("Jensen") has
once again chosen to avoid negotiation of a proposal from Emerson
Radio Corp. ("Emerson") which would provide higher consideration
to Jensen's public stockholders. Further, the Special Committee
has not addressed the issues of whether it will consider a waiver
of the standstill provisions of the letter agreement signed by
Emerson pertaining to Jensen to allow Emerson to purchase any
shares of Jensen stock, including specifically Blair's stock.
Consequently, Emerson would appreciate a specific response as to
whether Jensen will grant even a limited waiver of the standstill
provision of the Confidentiality Agreement (the validity of which
Emerson still questions).
<PAGE>
You are hereby advised that Emerson believes Blair's
positions are incorrect in fact and in law, and that Blair's
desire to continue to support the Shaw/Recoton proposal, although
it is no longer constrained to do so, does not relieve the
Special Committee of its fiduciary obligations to its public
stockholders. Consequently, Emerson requests the Special
Committee's positions and basis for decisions on the standstill
provisions of the Confidentiality Agreement and on good faith
negotiations with Emerson. Further, as the Blair Agreement with
Recoton has been the basis of the Special Committee's rejection
of Emerson's offers in the past, the Special Committee should
make its own determination as to its validity, rather than
continuing to abdicate its responsibilities to Shaw, Blair, or
Recoton. In that regard, Emerson would encourage the Special
Committee to seek an expedited determination by the Delaware
Chancery Court as to the validity or termination of such
Agreement. Emerson awaits your prompt response.
In addition, attached to such letter was a press release which announced
that, despite Jensen's rejection of the July 16 Emerson Proposal, Emerson
reaffirmed its intention to acquire Jensen on such terms.
After receiving no response from Jensen concerning the July 22, 1996
letter from Emerson's counsel, on July 24, 1996, Emerson announced in a
press release that it was providing an additional proposal to the July 16
Emerson Proposal. Under the terms of this July 24 OEM Proposal, Emerson
would agree immediately to purchase all of the assets and businesses and
assume all of the related liabilities solely of the OEM Business in the
same manner as set forth in the current agreement between Jensen and Shaw,
whereby Shaw would purchase the OEM Business at a price of approximately
$18.2 million. Emerson would purchase the OEM Business at the same price
but would, in addition, establish a fund at the closing of the sale of the
OEM Business to Emerson of approximately $2.2 million (or $1.00 per share
if paid to Jensen's public stockholders) for direct distribution to
stockholders other than Shaw and Blair if Recoton acquires Jensen,
providing Jensen's public stockholder's with an aggregate consideration of
$12.00 per share. If Emerson is able to acquire the entirety of Jensen for
$12.00 per share to the public stockholders, the $2.2 million would be
applied to the merger consideration being paid by Emerson.
In connection with the July 24 OEM Proposal, Emerson would expressly
waive certain provisions of the OEM side agreements which Shaw negotiated
in his favor as part of the Jensen/Recoton Merger. The result of the July
24 OEM Proposal, if the same was approved, was that Jensen's public
stockholders would be assured of receiving $12 per share for their stock
whether Emerson's $12 proposal or Recoton's $11 proposal prevails. On July
25, 1996, Emerson clarified its July 24 Emerson Proposal by stating to the
Jensen Board its willingness to discuss modifying its proposal to provide
for distribution of the $2.2 million additional amount to all stockholders
of Jensen if the Special Committee so requests.
<PAGE>
The Special Committee's counsel acknowledged on July 25, 1996, receipt
of this letter and Emerson's July 24, 1996 proposal, both of which were to
be considered by the Special Committee.
On July 30, 1996, Emerson filed a complaint in the Court of Chancery
of the State of Delaware against Jensen, all of its directors, Blair,
Recoton, and certain affiliates of the foregoing alleging violations of
Delaware law involving Jensen's auction process, interference with
prospective economic advantage, and aiding and abetting breaches of
fiduciary duties. In particular, the complaint seeks an order enjoining
the consummation of the Jensen/Recoton Merger and the sale of the OEM
Business to Shaw. The complaint also seeks to require Jensen and its Board
of Directors to provide relevant due diligence materials to Emerson and to
engage in good faith negotiations with Emerson by asking the Court to order
Jensen and its Board of Directors to conduct a fair auction on a level
playing field. Emerson is also requesting the Court to award damages and
further relief as would be just and equitable. The Court has ordered
expedited discovery and has scheduled a hearing on the matter and a similar
motion for preliminary injunction on behalf of Jensen's stockholders for
August 15, 1996.
On August 2, 1996, Emerson voluntarily dismissed Blair from the
Chicago litigation. In addition, on August 2, 1996, Emerson received a
letter from counsel to the Special Committee notifying Emerson that the
Special Committee had rejected the July 24 OEM Proposal to purchase the OEM
Business. The letter stated in part:
After consideration, the Special Committee has determined not to
accept Emerson's OEM proposal for reasons which I shall now
summarize in the briefest way.
The Jensen public stockholders have currently available to them a
transaction which, if approved at the stockholders' meeting on
August 28, will provide them with $11 for each share of their
Jensen stock. If the Emerson OEM proposal were accepted by the
Special Committee, the Recoton transaction would be lost since
Recoton has advised the Special Committee that it will not
proceed with the Jensen-Recoton merger if OEM is sold to Emerson.
That will result in the payment by Jensen to Recoton of the
required fees and expenses. And, even were Recoton willing to so
proceed, Mr. Shaw has informed the Special Committee that he
would not accept $8.90 for his stock from Recoton if the OEM
business were sold to Emerson. To reallocate the Recoton merger
consideration to provide equal treatment for Shaw would result in
a per share price to the public of less than $11 per share.
The letter also avoided making a decision on Emerson's request that Jensen
grant a waiver of the standstill provision of the Confidentiality
Agreement.
On August 5, 1996, Emerson issued a press release indicating its
belief that all material issues with regard to its purchase of Jensen
and/or the OEM Business and the competing Recoton/
<PAGE>
Shaw proposals, will be finally addressed in the pending Delaware
stockholder litigation and Emerson's recently filed Delaware lawsuit. In
addition, Emerson reaffirmed its commitment to its July 16 and July 24
proposals and stated that it would await a final determination by the
courts and/or Jensen's stockholders.
Emerson believes it would be proper for the Jensen Board to recommend
its tiered proposals, in light of what Emerson believes to be the bad faith
and improper conduct of Shaw and Blair throughout the auction process in
selling Jensen. Further, Emerson believes that Shaw and Blair are
continuing to breach their fiduciary duties to the public stockholders of
Jensen by not agreeing to the Emerson proposals, IN WHICH THEY RECEIVE THE
SAME OR HIGHER CASH CONSIDERATION FOR THEIR SHARES THAN THEY HAVE
REPEATEDLY AGREED TO ACCEPT FROM RECOTON, WHILE FORCING JENSEN'S
STOCKHOLDERS TO RECEIVE LESS THAN THEY WOULD RECEIVE UNDER THE EMERSON
PROPOSAL. Emerson believes that only the self-interested nature of the
Recoton/Shaw transaction and the bad faith and improper conduct of Shaw, in
receiving at least an effective $4.00 premium, and Blair can explain why
you are being asked to take less than under Emerson's proposal.
SEND A MESSAGE TO THE JENSEN BOARD, SHAW, AND BLAIR THAT THEIR
ATTEMPTS TO DEPRIVE YOU OF ADDITIONAL VALUE AND TO DIVERT THAT VALUE TO
SHAW ARE NOT ACCEPTABLE. LET THE JENSEN BOARD, SHAW, AND BLAIR KNOW THAT
YOU REQUIRE THEM TO NEGOTIATE IN GOOD FAITH WITH EMERSON TO CONSUMMATE THE
TRANSACTION EMERSON HAS PROPOSED, WHICH IS FREE OF ANY SELF-INTERESTED
TRANSACTIONS.
<PAGE>
JENSEN/RECOTON MERGER
Jensen has indicated it has first mailed the Jensen Proxy Statement to
Jensen stockholders on July 23, 1996, describing the terms of the
Jensen/Recoton Merger, as well as other related matters. A summary
description of the Jensen/Recoton Merger based on publicly available
information appears below under "Summary of the Jensen/Recoton Merger."
Emerson is soliciting proxies from stockholders of Jensen in
opposition to the Jensen/Recoton Merger. Emerson urges all stockholders of
Jensen to vote AGAINST the Jensen/Recoton Merger and to seek dissenters'
rights.
SUMMARY OF THE VARIOUS JENSEN/RECOTON MERGER PROPOSALS
The Jensen/Recoton Merger provides for the merger of a wholly-owned
subsidiary of Recoton with and into Jensen. Under the terms of the
Jensen/Recoton Merger, as originally proposed, each outstanding share of
Jensen common stock would have been converted into the right to receive
$8.90, payable 40% in Recoton common stock and 60% in cash. In addition,
under the originally approved Recoton Merger Agreement, Jensen was required
to sell the OEM Business prior to the closing to the Shaw Group (which
Jensen has disclosed in the Jensen Proxy Statement to be a corporation
wholly-owned by Shaw, with Shaw as its sole director and President) for
approximately $15 million, when the net book value of the OEM Business was
approximately $27.6 million. On May 1, 1996, Jensen announced that it had
accepted an "enhanced" offer from Recoton in which Recoton raised the price
it proposed to pay in the Jensen/Recoton Merger to $9.15 per share to all
Jensen stockholders other than Shaw and Blair, both of which would receive
$9.00 per share. Under the revised offer, the consideration would be
payable approximately 44% in Recoton stock and 56% in cash, with Jensen
still required to sell the OEM Business to Shaw. On May 10, 1996, it was
announced that Jensen had accepted a modified offer from Recoton in which
all Jensen stockholders would receive $10.00 per share, except for Shaw and
Blair, each of which would receive $8.90 per share. Under this structure,
Jensen was still required to sell the OEM Business to Shaw for well below
its net book value.
Finally, on June 24, 1996, Jensen announced that it had accepted yet
another proposal which provided for the payment in cash of $11.00 per share
to all stockholders, except for Shaw and Blair, both of which would
continue to receive $8.90 per share. In addition, Jensen would continue to
be required to sell the OEM Business to the Shaw Group at a substantial
discount from its net book and, Emerson believes, fair values.
Simultaneous with the execution of the initial Recoton Merger
Agreement, Jensen and Recoton entered into a trademark lock-up agreement
under which Recoton acquired from Jensen for $10,000 per month an exclusive
worldwide license to Jensen's AR Trademarks. The license under this
agreement was effective as of the date of the agreement and expires at the
earlier of the Effective Time (as defined in the Recoton Merger Agreement),
the date of the exercise of the Option (as defined below), or at the end of
one year. Recoton also acquired an option (the "Option") to purchase the
AR Trademarks for $6 million. As disclosed in the Jensen Proxy
<PAGE>
Statement, this Option amount was the termination fee imposed on Jensen for
terminating the Jensen/Recoton Merger. Thus, the net effect of a
termination of the Recoton/Jensen Merger Agreement by Jensen would have
been that Recoton could have "acquired" the AR Trademarks (valued in the
trademark lock-up agreement at $6 million) for no real value.
Apparently in response to the Delaware litigation challenging the
validity of the arrangements relating to the AR Trademarks and the
termination provisions of the Recoton Merger Agreement, the Jensen Board,
in concert with Shaw, Blair, and Recoton, amended these arrangements in
conjunction with the Second Two-Tier Recoton Proposal.
Specifically, the AR Trademarks license agreement was amended so that
Recoton's option to purchase and Jensen's option to sell the AR Trademarks
would be for $3.5 million, "an amount believed by Jensen's Special
Committee and Jensen's Board of Directors to be more than fair value for
the trademark," according to Jensen's press release. In effect, Jensen and
Recoton were conceding that the $6 million Option price in the previous
agreement to which they both voluntarily agreed was artificial, unrelated
to the fair value of those assets, and SOLELY DETERMINED BY THE $6 MILLION
TERMINATION FEE IN THE EARLIER VERSION OF THE RECOTON MERGER AGREEMENT.
Likewise, in the merger agreement memorializing the Second Two-Tier
Recoton Proposal, the termination arrangements were modified so that Jensen
would be required to pay Recoton a termination fee of $1.5 million plus
expenses of up to $2.5 million. The net effect of these changes is that if
Jensen terminates the Jensen/Recoton Merger, Jensen will be required to pay
Recoton up to $4 million in termination fees and expenses. Also, as a
result of its arrangements with Blair and Shaw, Recoton may obtain
additional amounts from topping offers.
Jensen has told Emerson that, on June 4, 1996, Recoton informed Jensen
that it had increased its offer to $10.25 per share for all stockholders
except Shaw and Blair. Finally, on June 24, 1996, Jensen announced that it
had approved yet another offer from Recoton to merge in which all Jensen
stockholders would receive $11.00 per share in cash, except for Shaw and
Blair, each of which would receive $8.90 per share in cash. In addition,
Jensen would continue to be required to sell the OEM Business to the Shaw
Group for well below the net book value of the OEM Business, nor, Emerson
believes, its fair value. In connection with the Third Two-Tiered Recoton
Proposal, Jensen inexplicably agreed to extend the license on the AR
Trademarks for FOUR additional years.
Except for the Recoton/Shaw June 24, 1996 proposal, none of their
proposals has even equaled, on an aggregate basis, Jensen's net book value.
To protect Shaw's highly favorable deal, Shaw has consistently agreed to
subsidize Recoton's bid by agreeing to pay slightly more for the OEM
Business (although Emerson believes still well below its fair value, as
reflected in the opinion provided by Lehman Brothers as discussed in the
Jensen Proxy Statement) to assist Recoton and largely fund Recoton's
proposals.
<PAGE>
In conjunction with the sale of the OEM Business to the Shaw Group, a
number of side agreements which further benefit Shaw were negotiated.
Included among these side agreements are (i) a Non-Competition Agreement
which prohibits Jensen from competing with the Shaw Group in the OEM
Business niche for a period of five consecutive years, (ii) a Management
Sharing Agreement which allows Shaw to retain his highly compensated
management to run the OEM Business while having Recoton pay 75% of the cost
of such employees, and (iii) a License Agreement by which Jensen grants the
Shaw Group the exclusive right to use the various Jensen trademarks for
audio equipment sold to vehicular original equipment manufacturers through
the OEM Business for a period of 10 years, at what Emerson believes to be
extremely favorable rates. For example, the Shaw Group is required to pay
a royalty of only 1% of net revenues with respect to OEM Business audio
equipment utilizing the "Jensen" trademark. In addition, on a change in
control of the OEM Business (meaning if Shaw sells the OEM Business), the
new owner would be required to pay significantly increased royalty amounts
for use of the Jensen trademarks. This is further evidence of the highly
favorable deal Shaw has been afforded.
The obligation of the parties to effect the Jensen/Recoton Merger is
subject to certain conditions, among other things, approval by stockholders
of Jensen and certain regulatory approvals. According to the Jensen Proxy
Statement, Jensen has fixed August 28, 1996 as the date of the Special
Meeting and July 15, 1996 as the Record Date for determining those
stockholders of Jensen who will be entitled to vote at the Special Meeting.
The Recoton Merger Agreement and the OEM Business sales agreement (ALTHOUGH
THE JENSEN PROXY STATEMENT DOES NOT REQUIRE A SEPARATE VOTE ON THE OEM
BUSINESS SALES AGREEMENT AS REQUIRED BY THAT AGREEMENT) both require the
affirmative vote of (i) a majority of the outstanding shares of Jensen
common stock and (ii) a majority of the outstanding shares of Jensen common
stock WHICH ARE VOTED AT THE SPECIAL MEETING other than shares held
directly or indirectly by Shaw. Shaw and Blair/Recoton control
approximately 63% of Jensen's outstanding shares, and Blair/Recoton
controls approximately 41% of Jensen's outstanding shares excluding those
owned by Shaw. Depending on attendance at the Special Meeting, Recoton may
control a larger percentage of the shares WHICH ARE VOTED at the Special
Meeting, thus enabling Shaw and Recoton to effectively control approval of
the proposal put forward by them.
<PAGE>
ANALYSIS OF CONSIDERATION UNDER VARIOUS JENSEN/RECOTON MERGER PROPOSALS
AMENDED RECOTON MERGER AGREEMENT (JANUARY 3, 1996)
($8.90 to All Stockholders)
Total (Millions) Cash (60%) Stock (40%)
Consideration
Shaw 18.8 11.3 7.5
Blair 13.2 7.9 5.3
Public 18.8 11.3 7.5
Total 50.8 30.5 20.3
OEM Sale 15.0 15.0
Net Cost 35.8 15.5
SECOND AMENDED RECOTON MERGER AGREEMENT (MAY 1, 1996)
($9.00 to Shaw and Blair; $9.15 to Other Stockholders)
Total (Millions) Cash (60%) Stock (40%)
Consideration
Shaw 19.0 10.6 8.4
Blair 13.4 7.4 6.0
Public 19.4 10.9 8.6
Total 51.8 28.9 22.9
OEM Sale 15.2 15.2
Net Cost 36.6 13.7
THIRD AMENDED RECOTON MERGER AGREEMENT (MAY 10, 1996)
($8.90 to Shaw and Blair; $9.90 to Other Stockholders)
Total (Millions) Cash (60%) Stock (40%)
Consideration
Shaw 18.8 10.5 8.3
Blair 13.2 7.2 6.0
Public 21.2 11.6 9.6
Total 53.2 29.3 23.9
OEM Sale 16.5 16.5
Net Cost 36.7 12.8
FOURTH AMENDED RECOTON MERGER AGREEMENT (JUNE 24, 1996)
($8.90 to Shaw and Blair; $11.00 to Other Stockholders)
Total (Millions) Cash (100)
Consideration
Shaw 18.8 18.8
Blair 13.2 13.2
Public 23.5 23.5
Total 55.5 55.5
OEM Sale 18.2 18.2
Net Cost 37.3 37.3
OTHER INFORMATION
All outstanding shares of Jensen common stock as of the close of
business on the Record Date will be entitled to vote at the Special
Meeting. Each share of Jensen common stock is entitled to one vote.
According to the Jensen Proxy Statement, there were outstanding 5,738,132
shares of Jensen common stock as of July 15, 1996. As of the Record Date
and the date hereof, Emerson owns no shares of Jensen common stock, of
record or beneficially. Shares of Jensen common stock not voted (including
broker non-votes) and shares of Jensen common stock voted to "abstain" from
such vote will have the same effect as a vote "against" the Jensen/Recoton
Merger. Jensen has indicated in the Jensen Proxy Statement that failures
to vote and abstentions will not, however, be considered in determining
whether a majority of the shares voted at the Special Meeting other than
shares held by Shaw have voted in favor of the Jensen/Recoton Merger.
The accompanying BLUE proxy will be voted in accordance with the
stockholder's instructions on such BLUE proxy. Stockholders may vote
against the Jensen/Recoton Merger, including the sale of the OEM Business
to Shaw, by marking the proper boxes on the BLUE proxy. If no instructions
are given, the BLUE proxy will be voted AGAINST the Jensen/Recoton Merger,
including the sale of the OEM Business to Shaw.
EMERSON STRONGLY RECOMMENDS A VOTE AGAINST THE JENSEN/RECOTON MERGER.
A VOTE AGAINST THE RECOTON MERGER SHOULD NOT BE CONSTRUED AS A VOTE IN
FAVOR OF EMERSON'S PROPOSALS. HOWEVER, UNLESS THE PROPOSED TRANSACTIONS
WITH RECOTON AND MR. SHAW ARE DEFEATED AT THE JENSEN SPECIAL MEETING OF
STOCKHOLDERS, YOU WILL NOT HAVE THE POTENTIAL OPPORTUNITY TO CONSIDER OR
VOTE ON THE EMERSON PROPOSALS, WHICH EMERSON BELIEVES ARE IN YOUR BEST
INTEREST, OR EVEN THAT THE JENSEN BOARD WILL CONSIDER EMERSON'S PROPOSALS.
<PAGE>
VOTING YOUR SHARES
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, WE URGE YOU TO
VOTE AGAINST THE JENSEN/RECOTON MERGER, INCLUDING THE SALE OF THE OEM
BUSINESS TO SHAW, ON THE ENCLOSED BLUE PROXY AND IMMEDIATELY MAIL IT IN THE
ENCLOSED ENVELOPE. YOU MAY DO THIS EVEN IF YOU HAVE ALREADY SENT IN A
DIFFERENT PROXY SOLICITED BY JENSEN'S BOARD OF DIRECTORS. IT IS THE LATEST
DATED PROXY THAT COUNTS. EXECUTION AND DELIVERY OF A PROXY BY A RECORD
HOLDER OF SHARES OF JENSEN COMMON STOCK WILL BE PRESUMED TO BE A PROXY WITH
RESPECT TO ALL SHARES OF JENSEN COMMON STOCK HELD BY SUCH RECORD HOLDER
UNLESS THE PROXY SPECIFIES OTHERWISE.
YOU MAY REVOKE ANY PROXY YOU SUBMIT (WHETHER THE PROXY FORM SOLICITED
BY JENSEN OR THE BLUE PROXY SOLICITED BY EMERSON) AT ANY TIME PRIOR TO ITS
EXERCISE BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON, BY
SUBMITTING A DULY EXECUTED LATER DATED PROXY OR BY SUBMITTING A WRITTEN
NOTICE OF REVOCATION. UNLESS REVOKED IN THE MANNER SET FORTH ABOVE, DULY
EXECUTED PROXIES IN THE FORM ENCLOSED WILL BE VOTED AT THE SPECIAL MEETING
ON THE PROPOSED JENSEN/RECOTON MERGER, INCLUDING THE SALE OF THE OEM
BUSINESS TO SHAW, IN ACCORDANCE WITH YOUR INSTRUCTIONS. IN THE ABSENCE OF
SUCH INSTRUCTIONS, SUCH PROXIES WILL BE VOTED AGAINST THE JENSEN/RECOTON
MERGER. IF ANY OTHER MATTERS ARE PROPERLY BROUGHT BEFORE THE SPECIAL
MEETING, SUCH PROXIES WILL BE VOTED ON SUCH MATTERS AS EMERSON, IN ITS SOLE
DISCRETION, MAY DETERMINE.
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE, AND RETURN THE BLUE PROXY TODAY.
IF YOU HAVE ALREADY SENT A PROXY TO THE BOARD OF DIRECTORS OF JENSEN,
YOU MAY REVOKE THAT PROXY AND VOTE AGAINST THE JENSEN/RECOTON MERGER,
INCLUDING THE SALE OF THE OEM BUSINESS TO SHAW, BY SIGNING, DATING AND
MAILING THE ENCLOSED BLUE PROXY.
If you have any questions about the voting of shares of Jensen common
stock, please call:
GEORGESON & COMPANY INC.
Call Toll Free: (800) 223-2064
In New York City, call: (212) 440-9800
<PAGE>
CERTAIN LITIGATION CONCERNING
THE JENSEN/RECOTON MERGER
On May 9, 1996, Randi Marcus, a Jensen stockholder, filed suit in the
Court of Chancery in Delaware against Jensen, Shaw, the other members of
the Jensen Board, Recoton, and Blair seeking, among other things, to block
the Jensen/Recoton Merger. The complaint (the "Complaint") alleges that
the directors of Jensen breached their fiduciary duties, that they were
aided and abetted by "potential acquirors" and that certain specified
agreements were invalid. Ms. Marcus also challenged the proposed sale of
Jensen's OEM Business to the newly-formed group led by Shaw. Based on the
foregoing allegations, Ms. Marcus requested, among other things, the
following relief from the Court: (a) temporary, preliminary and permanent
injunctive and declaratory relief against the sale of the OEM Business, the
Recoton transaction, the related transactions contemplated by the OEM
Agreement and the Recoton Merger Agreement and any golden parachute
payments due Shaw, and (b) rescission of any of the transactions referred
to that are consummated. On May 15, 1996, Ms. Marcus filed an Amended and
Supplemental Complaint in the same matter which supplemented facts that had
become known to the plaintiff after the filing of the Complaint on May 9,
1996. The Amended and Supplemental Complaint generally requested the same
relief as the Complaint.
On May 10, 1996, Jensen filed suit in the Federal District Court in
Chicago, Illinois, seeking an order restraining Emerson and its President,
Eugene I. Davis, from violating the federal proxy rules or misusing any
confidential information provided by Jensen in connection with Emerson's
offer to acquire Jensen. On May 13, 1996, the Court entered a TRO against
Emerson and Mr. Davis, based only on papers submitted by Jensen, which
subsequently has expired and which the Court refused to extend over
Jensen's objections. On May 20, 1996, Emerson filed a counterclaim and
third-party complaint against Jensen and Shaw, seeking damages for fraud,
rescission of the Confidentiality Agreement Emerson and Davis are alleged
to have breached, and a declaratory judgment that Jensen may not enforce
the Confidentiality Agreement with respect to certain information. In
addition, until all claims are finally resolved, Emerson moved the court to
enjoin Jensen from enforcing the Confidentiality Agreement with respect to
certain information, or in the alternative, enjoin Jensen from soliciting
any proxies with respect to the Jensen/Recoton Merger. On July 2, 1996,
Emerson amended its third-party complaint to, among other things, sue
Recoton and Blair for conspiracy with regard to the actions of Jensen and
Shaw set forth above. Jensen subsequently attempted to silence Emerson
through the filing of a civil contempt motion. The Court denied Jensen's
motion.
On May 22, 1996, Harbor Finance Partners, a stockholder of Jensen,
filed an action in the Court of Chancery of the State of Delaware against
Jensen, Blair, Shaw, the other members of the Jensen Board, Recoton, and RC
Acquisition Sub, Inc., seeking to enjoin the Jensen/Recoton Merger. The
complaint alleged (i) breaches of fiduciary duty by Jensen's directors,
including allegedly failing to act in good faith to negotiate with both
Emerson and Recoton, rejecting an allegedly higher priced all cash
transaction with Emerson and failing to act reasonably to obtain the best
price in the sale of Jensen; and (ii) that all of the defendants aided and
abetted the alleged breaches of fiduciary duty. The plaintiff requested
that the lawsuit be maintained as a
<PAGE>
class action on behalf of all public stockholders of Jensen and sought
temporary and permanent injunctive and declaratory relief, rescission of
the Jensen/Recoton Merger should it occur, the establishment of a
stockholders' committee to participate in the sale of Jensen, the awarding
of compensatory damages against the defendants, and such other further
relief as may be just and proper and an award of attorneys' fees and
expenses.
On July 8, 1996, the existing Delaware plaintiffs filed a Consolidated
Class Action Complaint (the "Class Action Complaint") in the Court of the
Chancery in Delaware. The Class Action Complaint alleges claims similar to
those previously made by Ms. Marcus and Harbor Finance Partners with
additional allegations charging that the wrongful conduct of the defendants
continued through Jensen's acceptance of the Third Two-Tier Recoton
Proposal and the rejection of the June 25 Emerson Proposal.
On July 16, 1996, plaintiffs in the consolidated class action filed a
supplemental complaint in the Delaware Chancery Court asserting a new claim
that the Stock Option and Voting Agreement between Blair and Recoton had
terminated and that Blair was free to sell its shares to Emerson or vote
them in favor of the July 16 Emerson Proposal. Also, on July 16, 1996, the
Delaware court denied a motion by plaintiffs for an order expediting
discovery and to schedule a hearing on the application of a preliminary
injunction in the case.
On July 23, 1996, Blair filed a motion seeking to dismiss the third-
party action filed against it in the Federal District Court in Chicago.
On July 30, 1996, Emerson filed a complaint in the Court of Chancery
of the State of Delaware against Jensen, all of its directors, Blair,
Recoton, and certain affiliates of the foregoing alleging violations of
Delaware law involving Jensen's auction process, interference with
prospective economic advantage, and aiding and abetting breaches of
fiduciary duties. In particular, the complaint seeks an order enjoining
the consummation of the Jensen/Recoton Merger and the sale of the OEM
Business to Shaw. The complaint also seeks to require Jensen and its Board
of Directors to provide relevant due diligence materials to Emerson and to
engage in good faith negotiations with Emerson by asking the Court to order
Jensen and its Board of Directors to conduct a fair auction on a level
playing field. Emerson is also requesting the Court to award damages and
further relief as would be just and equitable. The Court has ordered
expedited discovery and has scheduled a hearing on the matter and on a
motion for preliminary injunction filed on behalf of Jensen's stockholders
for August 15, 1996.
On July 31, 1996, Recoton and Shaw filed separate motions seeking to
dismiss the third-party actions filed against them in the Federal District
Court in Chicago, while Jensen filed a motion seeking to dismiss the
counterclaims of Emerson filed against them in the same action. All of
such motions were denied on August 6, 1996.
On August 2, 1996, Emerson voluntarily dismissed Blair from the
Chicago litigation.
<PAGE>
SOLICITATION OF PROXIES
Proxies will be solicited by mail, telephone, telefax, and in person.
Emerson has retained Georgeson & Company, Inc. ("Georgeson") for
solicitation and advisory services in connection with solicitations
relating to the Special Meeting, for which Georgeson is to receive a fee of
not to exceed $75,000 of which $10,000 represents a nonrefundable
commitment to represent Emerson; $25,000 upon mailing of this Proxy
Statement; $15,000 two weeks following; and an additional $25,000 upon the
success of the solicitation of proxies for the Special Meeting. Emerson
has also agreed to reimburse Georgeson for its reasonable out-of-pocket
expenses and indemnify Georgeson against certain liabilities and expenses,
including reasonable legal fees and related charges. Georgeson will
solicit proxies for the Special Meeting from (i) brokers, banks and other
institutional holders of Jensen stock and (ii) non-objecting beneficial
owners and individual holders of record. Directors, officers, and
employees of Emerson may assist in this solicitation of proxies without any
additional remuneration. See Schedule I attached hereto. The entire
expense of soliciting proxies for the Special Meeting by or on behalf of
Emerson is being borne by Emerson.
Bankers Trust acted as financial advisor to Emerson in connection with
its efforts to acquire Jensen. Emerson had agreed to pay Bankers Trust an
initial financial advisory fee of $50,000; a fee of 1% of the financing
amount, not to exceed $350,000, for the provision of a Highly Confident
Letter and/or a Commitment Letter with respect to Bankers Trust view of the
financeability of the transaction or a commitment to finance the
transaction; a $100,000 work fee in connection with any tender or exchange
offer for Jensen securities; a success fee equal to 1% of the consideration
paid in connection with the successful consummation of the acquisition, not
to exceed $500,000; plus 1% of the consideration for the transaction if
Emerson should acquire any assets or securities of Jensen or any of its
subsidiaries other than pursuant to an acquisition transaction. Emerson
also had agreed to reimburse Bankers Trust for its reasonable out-of-pocket
expenses, including the fees and expenses of its legal counsel, incurred in
connection with its engagement, and to indemnify Bankers Trust and certain
related persons against liabilities and expenses in connection with its
engagement. Bankers Trust has rendered various investment banking and
other advisory services to Emerson and its affiliates in the past and is
expected to continue to render such services, for which it has received and
will continue to receive customary compensation from Emerson.
<PAGE>
CERTAIN INFORMATION ABOUT EMERSON
Emerson, one of the nation's largest volume consumer electronics
distributors, directly and through subsidiaries, designs, sources, imports,
and markets a variety of video and audio consumer and microwave oven
products. The Company distributes its products primarily through mass
merchants and discount retailers. The Company relies primarily on the
strength of its trademark, a nationally recognized trade name in the
consumer electronics industry. The trade name "Emerson Radio" dates back
to 1912 and is one of the oldest and most well respected names in the
consumer products industry. In addition, the Company offers audio products
for sale under the "H.H. Scott" and "Electrophonic" brand names.
Emerson believes it possesses an advantage over its competitors due to
(i) the Emerson Radio brand recognition, (ii) its extensive distribution
base and established relations with customers in the mass merchant and
discount retail channels of distribution, (iii) its sourcing expertise and
established vendor relations, and (iv) an infrastructure boasting personnel
experienced in servicing and providing logistical support to the domestic
mass merchant distribution channel. The Company's core business consists
of the distribution and sale of various low to moderately priced product
categories, including black and white and color televisions, VCR's, video
cassette players, TV/VCR combination units, home stereo and portable audio
products, and microwave ovens.
The Company was originally formed in the State of New York in 1956
under the name Major Electronics Corp. In 1977, the Company reincorporated
in the State of New Jersey and changed its name to Emerson Radio Corp. On
April 4, 1994, Emerson was reincorporated in Delaware by merger of its
predecessor into its wholly-owned Delaware subsidiary formed for such
purpose. The Company is currently headquartered in Parsippany, New Jersey.
<PAGE>
OTHER INFORMATION
The information concerning Jensen and the Jensen/Recoton Merger
contained herein has been taken from, or based upon, publicly available
documents on file with the Securities and Exchange Commission, other
publicly available information, and non-confidential information provided
to Emerson by Jensen. Emerson was not involved in the preparation of such
information and statements and is not in a position to verify any such
information or statements. Accordingly, Emerson does not take any
responsibility for the accuracy or completeness of such information or for
any failure by Jensen to disclose events that may have occurred and may
affect the significance or accuracy of any such information.
Reference is made to the Jensen Proxy Statement for information
concerning the common stock of Jensen, the beneficial ownership of such
stock by the principal holders thereof, other information concerning
Jensen's management, the procedures for submitting proposals for
consideration at the next annual meeting of stockholders of Jensen,
information regarding the terms of the Recoton Merger Agreement, OEM
Business sales agreement, and the agreements contemplated thereby, the
financial statements of Jensen and pro forma presentations, and certain
other matters regarding Jensen and the Special Meeting. Emerson assumes no
responsibility for the accuracy or completeness of any such information.
Emerson is not aware of any other matter to be considered at the
Special Meeting. However, if any other matter properly comes before the
Special Meeting, Emerson will vote all proxies held by it as Emerson, in
its sole discretion, may determine.
PLEASE SIGN, DATE AND MAIL THE ENCLOSED BLUE PROXY TODAY. NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES. BY SIGNING AND MAILING THE
ENCLOSED BLUE PROXY, ANY PROXY PREVIOUSLY SIGNED BY YOU RELATING TO THE
SUBJECT MATTER HEREOF WILL BE AUTOMATICALLY REVOKED.
EMERSON RADIO CORP.
Dated August 8, 1996
<PAGE>
SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS AND
EXECUTIVE OFFICERS OF EMERSON RADIO CORP.
AND CERTAIN EMPLOYEES AND OTHER
REPRESENTATIVES OF EMERSON RADIO CORP.
The following table sets forth the name and title of persons who may
be deemed to be participants on behalf of Emerson Radio Corp. in the
solicitation of proxies from stockholders of International Jensen
Incorporated. The principal business address of each director, executive
officer, employee, or representative is Nine Entin Road, Parsippany, New
Jersey 07054.
DIRECTORS AND EXECUTIVE OFFICERS OF EMERSON RADIO CORP.
NAME POSITION
Geoffrey P. Jurick Chairman of the Board and Chief Executive Officer,
Director
Eugene I. Davis President, Director
Robert H. Brown Director
Peter G. B<u">nger Director
Jerome H. Farnum Director
Raymond L. Steele Director
John P. Walker Executive Vice President; Chief Financial Officer
Marino Andriani President of Emerson Radio Consumer Products
Corporation
(a wholly-owned subsidiary of the Company)
John J. Raab Senior Vice President - Operations
Eddie Rishty Senior Vice President - Controller and Logistics
Elizabeth J. Calianese Vice President - Human Resources; Secretary
<PAGE>
FORM OF PROXY CARD
PROXY SOLICITED BY EMERSON RADIO CORP.
IN OPPOSITION TO THE PROXY SOLICITED BY THE DIRECTORS OF
INTERNATIONAL JENSEN INCORPORATED
The undersigned, a holder of record of shares of common stock, par
value $.01 per share (the "Shares"), of International Jensen Incorporated,
a Delaware corporation ("Jensen"), at the close of business on July 15,
1996 (the "Record Date"), hereby appoints Geoffrey P. Jurick, Eugene I.
Davis, and John P. Walker, or any of them, as proxy or proxies of the
undersigned, each with full power of substitution, to attend the Special
Meeting of Jensen Stockholders to be held at the International Office
Center, First Floor Auditorium, Building 200, Lincolnshire, Illinois 60069,
on August 28, 1996, at 9:00 a.m. (and any adjournments, postponements,
continuations or reschedulings thereof), at which holders of Shares will be
voting on, among other things, approval and adoption of the Fourth Amended
and Restated Agreement and Plan of Merger, dated as of January 3, 1996, by
and among Jensen, Recoton Corporation ("Recoton") and RC Acquisition Sub,
Inc. ("Acquisition Sub") (the "Recoton Merger Agreement"), providing for
the merger of each of Acquisition Sub with and into Jensen, with Jensen
surviving, and OEM Agreement and to vote as specified in the proxy all the
Shares which the undersigned would otherwise be entitled to vote if
personally present. The undersigned hereby revokes any previous proxies
with respect to the matters covered in this Proxy.
THE BOARD OF DIRECTORS OF EMERSON RADIO CORP. RECOMMENDS A VOTE
AGAINST APPROVAL AND ADOPTION OF THE RECOTON MERGER AGREEMENT AND THE
PROPOSED JENSEN/RECOTON TRANSACTION, INCLUDING THE SALE OF THE OEM BUSINESS
TO SHAW. IF RETURNED CARDS ARE SIGNED BUT NOT MARKED, THE UNDERSIGNED WILL
BE DEEMED TO HAVE VOTED AGAINST APPROVAL AND ADOPTION OF THE RECOTON MERGER
AGREEMENT AND THE PROPOSED JENSEN/RECOTON TRANSACTION.
<PAGE>
(REVERSE OF PROXY CARD)
EMERSON RADIO CORP. RECOMMENDS A VOTE AGAINST PROPOSAL 1.
1. The approval and adoption of the Fourth Amended and Restated Agreement
and Plan of Merger dated as of January 3, 1996, among Jensen, Recoton
Corporation, a New York corporation ("Recoton"), and RC Acquisition
Sub, Inc., a Delaware corporation and wholly-owned subsidiary of
Recoton, and the transactions contemplated thereby, including the
Jensen/Recoton Merger and the sale of the OEM Business to IJI
Acquisition Corp., an Illinois corporation solely owned by Robert G.
Shaw.
[_] AGAINST [_] FOR [_] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Special Meeting or any
adjournments, postponements, continuations or reschedulings thereof.
Dated:_____________________, 1996
_________________________________
Signature (Title, if any)
_________________________________
Signature if held jointly
Please sign your name exactly as it appears
hereon. When Shares are held of record by
joint tenants, both should sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title
as such. If a corporation, please sign in
full corporate name by president or
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE, PLEASE CONTACT GEORGESON &
COMPANY INC. AT 1-800-223-2064.
