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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9/A
(Rule 14d-101)
SOLICITATION/RECOMMENDATION STATEMENT
under
SECTION 14(D)(4) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 3)
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BI INCORPORATED
(Name of Subject Company)
BI INCORPORATED
(Name of Person(s) Filing Statement)
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Common Stock, no par value
(Title of Class of Securities)
055467 20 3
(CUSIP Number of Class of Securities)
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David J. Hunter
President
6400 Lookout Road
Boulder, Colorado 80301
(303) 218-1000
(Name, address and telephone number of person authorized
to receive notice and communications on behalf of the
person(s) filing statement)
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Copy to:
John G. Lewis, Esq.
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway, 26th Floor
Denver, Colorado 80202
(303) 623-2700
[ ]Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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INTRODUCTION
This Amendment No. 3 to the Solicitation/Recommendation Statement on
Schedule 14D-9 amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9 originally filed on August 18, 2000, and amended
on August 23, 2000 and August 25, 2000, by BI Incorporated, a Colorado
corporation (the "Company"), relating to an offer by KBII Acquisition Company,
Inc. ("Offeror"), a Colorado corporation and a wholly-owned subsidiary of KBII
Holdings, Inc. ("Parent"), a Delaware corporation, to purchase all of the
outstanding shares of the Company, at a price of $8.25 per share, net to the
seller in cash, without interest, upon the terms and subject to the conditions
set forth in the Offer to Purchase dated August 18, 2000, and amended and
supplemented on September 19, 2000, and the related Letter of Transmittal.
Capitalized terms used but not defined herein shall have the meanings assigned
to them in the Schedule 14D-9.
The Company and its executive officers have determined to provide the
disclosure required by Rule 13e-3 and Schedule 13E-3, which address so called
"affiliate going private transactions." The Company's Schedule 13E-3 was filed
with the Securities and Exchange Commission on September 19, 2000.
This amended Schedule 14D-9 should be read in conjunction with the
Company's Schedule 14D-9 filed on August 18, 2000 and the amendments thereto.
Certain items in this Schedule 14D-9 incorporate by reference portions of
other documents, including the Schedule TO and Offer to Purchase filed by
Offeror on August 18, 2000, and the amended Schedule TO and Supplement to the
Offer to Purchase filed by Offeror on September 19, 2000, which should be
reviewed by shareholders.
SPECIAL FACTORS
Purposes, Alternatives, Reasons and Effects.
The information set forth at Item 4 of this Schedule 14D-9 under the
caption "The Solicitation or Recommendation--Background" is incorporated
herein by reference.
Purposes.
The information set forth under the following captions in the Offer to
Purchase is incorporated herein by reference:
Purpose of the Offer; The Merger; Plans for the Company
Special Factors--Interests of Certain Persons in the Offer and the Merger
Additionally, the structure of the transaction which will ultimately result
in the Management Shareholders receiving an equity interest in Parent is
designed to encourage the ongoing participation of the Management Shareholders
in the Company's operations following completion of the transaction.
Alternatives.
The information set forth at Item 4 of this Schedule 14D-9 under the
following captions is incorporated by reference:
The Solicitation or Recommendation--Background
The Solicitation or Recommendation--Reasons for Rejection of Alternatives
Reasons.
The information set forth at Item 4 of this Schedule 14D-9 under the
caption "The Solicitation or Recommendation--Background" is incorporated
herein by reference.
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Effects.
The information set forth at Item 4 of this Schedule 14D-9 under the
captions "The Solicitation or Recommendation--Benefits and Detriments of the
Offer and Merger to the Company and the Company's Shareholders" is
incorporated herein by reference. The information set forth under the
following captions in the Offer to Purchase is incorporated herein by
reference:
Effect of the Offer and Merger; Market for Shares; Nasdaq Listing; SEC
Registration;
Margin Regulations
Certain Federal Tax Consequences
The information set forth under the caption entitled "Special Factors--
Purpose of the Offer; The Merger; Plans For the Company" in the Offer to
Purchase is incorporated herein by reference.
Fairness of the Transaction.
Fairness.
The Company and the Management Shareholders (as hereafter defined)
reasonably believes that the transaction is fair to the Company's unaffiliated
security holders.
Factors considered in determining fairness.
The information set forth at Item 4 of this Schedule 14D-9 under the
caption "The Solicitation or Recommendation--Fairness Opinion" is incorporated
herein by reference.
Approval of security holders.
Approval of at least a majority of the unaffiliated security holders is not
required.
Unaffiliated representative.
A majority of the directors who are not employees of the Company did not
retain an unaffiliated representative to act solely on behalf of unaffiliated
security holders for the purpose of negotiating the terms of the transaction.
Approval of directors.
The directors of the Company who are not employees of the Company
unanimously approved the transaction.
Other offers.
The information set forth at Item 4 of this Schedule 14D-9 under the
following captions is incorporated by reference:
The Solicitation or Recommendation--Background
The Solicitation or Recommendation--Reasons for Rejection of Alternatives
Reports, Opinions, Appraisals and Negotiations.
Report, opinion or appraisal.
The Company received a fairness opinion from SunTrust Equitable Securities,
which is attached to the Schedule 14D-9 filed on August 18, 2000, as Annex A
and is incorporated herein by reference.
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Preparer and summary of the report opinion or appraisal.
The information set forth at Item 4 of this Schedule 14D-9 under the
caption "The Solicitation or Recommendation--Opinion of Financial Advisor" and
the fairness opinion of SunTrust Equitable Securities attached to the Schedule
14D-9 as Annex A to the Schedule 14D-9 filed August 18, 2000, are incorporated
herein by reference.
Availability of documents.
A copy of the fairness opinion from SunTrust Equitable Securities will be
made available at the principal executive offices of the Company during its
regular business hours by any interested equity security holder of the Company
or representative thereof who has been so designated in writing. Additionally,
the fairness opinion of SunTrust Equitable Securities is attached to the
Schedule 14D-9 as Annex A and is incorporated herein by reference. The
material prepared by SunTrust Equitable Securities for presentation to the
Company's Board of Directors is filed as Exhibit (c)(2) to the Company's
Schedule 13E-3, filed with the Securities and Exchange Commision on September
19, 2000.
Item 1. Subject Company Information.
Item 1 is hereby amended and supplemented by replacing the section entitled
"Securities" in its entirety with the following:
Securities.
The title of the class of equity securities to which this Schedule 14D-9
relates is the common stock, no par value, of the Company, including the
associated common stock purchase rights under the Amended and Restated Rights
Agreement dated December 1, 1999, and amended August 9, 2000, between the
Company and Computershare Trust Company, Inc. (f/k/a American Securities
Transfer & Trust, Inc.), as Rights Agent (collectively the "Shares"). A total
of 7,972,905 Shares were outstanding on September 15, 2000. An additional
1,640,268 Shares were subject to outstanding stock options on September 15,
2000.
Item 4. The Solicitation or Recommendation.
Recommendation of the Board of Directors.
Recommendation of the Special Committee. At a meeting held on August 9,
2000, the Special Committee unanimously recommended (i) that the Board of
Directors find that the Merger Agreement, the Offer and the Merger are fair to
and in the best interests of the Company's shareholders (other than those
shareholders who comprise executive management and will be receiving
consideration other than cash for their Company securities (the "Management
Shareholders")) and (ii) that the form, terms and conditions of the Merger
Agreement be approved by the Board of Directors and that the Board of
Directors recommend to the shareholders of the Company that they tender their
shares pursuant to the Offer.
Recommendation of the Company's Board Of Directors. At a meeting held on
August 10, 2000, after hearing the Special Committee's recommendation, the
Company's Board of Directors, by unanimous vote of those present, and based
on, among other things, the recommendation of the Special Committee, (i)
determined that the Offer and the Merger are fair to and in the best interests
of the Company's shareholders (other than the Management Shareholders), (ii)
approved the form, terms and conditions of the Merger Agreement; and (iii)
recommended that the Company's shareholders tender their shares in the Offer.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY TENDER THEIR SHARES IN THE OFFER.
Copies of a letter to the shareholders of the Company communicating the
Board's recommendation and the Company's press release announcing the Merger
Agreement and the transactions contemplated thereby are filed as Exhibits
(a)(3) and (a)(4) hereto, respectively, and are incorporated herein by
reference.
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Background.
Prior to 1996, the Company's business involved primarily home incarceration
electronic monitoring ("EM"), both selling EM products and providing
monitoring services. In that time frame, based on changes in the corrections
industry toward privatization, the Company's Board believed that there was an
opportunity to create a large, profitable, differentiated corrections company
that could substantially benefit the Company's shareholders. In 1996 and 1997,
the Company made acquisitions in the community correctional services ("CCS")
area, creating a CCS business unit in 1996.
During 1997, the Company's Board of Directors and the management team were
concerned about the overall deterioration of the stock prices of the publicly
traded corrections companies. Additionally, there was disappointment in the
price and trading volume of the Company's stock in light of the Company's
business strategy and performance. Due to these factors, both management and
the Board of the Directors began considering ways to improve the Company's
stock price and deliver greater value to the shareholders.
The Company was able in fiscal years 1997 and 1998 to create strong
recurring revenue and to grow its CCS division. However, at the end of fiscal
year 1998, the Company was not experiencing the growth in earnings and the
cash flow return that the Board desired from the Company's diversification and
growth. In the calendar year 1998, the Board of Directors considered a number
of alternatives including (i) the possibility of a business combination with
another corrections industry company, (ii) additional financing to allow
expansion, (iii) acquisitions of existing companies or businesses to achieve
the Company's goals, and (iv) a sale or leveraged buyout of the Company.
The Company experienced an increase in its market valuation in the first
half of calendar year 1998 but the price was already eroding by the June 30,
1998 fiscal year end. At a meeting of the Board of Directors held November 5,
1998, the option of divesting the Corrections Information Systems division
("CIS") was discussed as one means for enhancing shareholder value. A decision
was made to divest CIS which had proved to be less strategic than originally
thought and was a drain on cashflow. The Company retained SunTrust Equitable
Securities to assist in that divestiture. SunTrust Equitable Securities began
the process of preparing CIS for sale and preparing marketing materials during
the period November 1998 to March 1999 and, upon completion of the materials,
began contacting prospective buyers. Negotiations, presentations and due
diligence with Compudyne Corporation occurred over several months prior to the
sale of CIS to Compudyne in June 1999.
In late 1998 and early 1999 the Company conducted conversations with four
different private equity groups that approached the Company on an unsolicited
basis regarding a potential buyout. During that period there was continued
market deterioration and the Company was under-performing relative to its
operating plan. The Board of Directors and management concluded that the
Company should consider retaining an investment banking firm to discuss the
full range of alternatives that might be available and to provide guidance on
valuation expectations. There was a view by the Board of Directors and
management at that time that if a sale strategy was considered, a strategic
buyer might yield a higher valuation than that of a financial buyer.
At its November 1998 meeting, the Board of Directors formally charged
management with seeking ways to maximize shareholder value. SunTrust Equitable
Securities was retained by the Company on November 25, 1998 to evaluate
strategic alternatives, as well as to divest CIS. The Company selected
SunTrust Equitable Securities based in large part on the firm's expertise and
experience in the corrections industry and with mergers and acquisitions
specifically. SunTrust Equitable Securities actively followed all the
companies within the corrections industry from a research standpoint,
including the Company, and their investment banking group had been involved in
several capital raising and advisory transactions with many of the players in
the industry.
Upon being retained, SunTrust Equitable Securities spent the next several
weeks conducting significant due diligence on the Company including site
visits, management interviews and review of historical and projected financial
and operating data. In February 1999, SunTrust Equitable Securities made a
presentation to the Board of Directors in which it outlined and discussed
various strategic alternatives including a strategic alliance or joint
venture, private equity infusion, sale or leveraged buyout. In addition,
SunTrust Equitable Securities provided preliminary valuation analysis which
presented various equity values for the Company under certain
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assumptions. The value range presented, which was based on then current market
dynamics and the specific assumptions available at that time, was between
$12.22 and $18.39 per share. The range in per share values was largely
attributable to reliance on various valuation methodologies and multiple
comparable company analysis.
The Board of Directors and management continued to monitor the situation
over the ensuing several months. During the summer and fall of 1999, SunTrust
Equitable Securities and management of the Company had several phone
conversations and face-to-face meetings to discuss strategy and to offer
opinions on strategic alternatives that would maximize shareholder value.
During that time frame, there were discussions regarding the perceived factors
that were preventing the Company from enjoying a strong stock price, robust
trading volume and significant interest from the research community. It was
the belief of SunTrust Equitable Securities that the Company was likely too
small in terms of market capitalization to realistically capture the attention
of the investment community and research analysts. This was particularly true
given the recent dramatic move by the financial community towards technology
and large capitalization stocks and away from non-technology small cap stocks
in general.
A strategy was developed that entailed the Company growing via strategic
acquisitions and, in doing so, becoming a much larger, more diverse firm. It
was believed at the time that if the Company could increase substantially in
size and continue to execute successfully on their business plan, the interest
in the Company would increase. To accomplish this growth, the strategy
contemplated rolling up multiple players in the fragmented
corrections/treatment industry.
It was agreed that SunTrust Equitable Securities would approach three
parties (A,B,C) to discuss the merits of a business combination. Over the next
couple of months meetings were scheduled with each of the three parties during
which each party discussed their respective businesses and the synergies that
might exist between the companies.
After the discussions, it was concluded that Party A did not have a
sufficiently strong base business or management team to warrant further
discussions. Party B, while an attractive candidate, was not receptive to
being acquired at that time. With respect to Party C, a compelling argument
could not be developed as to why the two companies should be combined given
their respective business focuses.
Without significant progress resulting from contacting the three specific
parties, the Board of Directors and management decided to more formally and
comprehensively explore a wide range of alternatives. SunTrust Equitable
Securities was asked to revise the valuation materials previously presented
and provide the Board of Directors with an updated presentation during the
November 19, 1999 Board meeting. SunTrust Equitable Securities presented a
revised range of values, based on then current market dynamics and specific
assumptions available at that time, of $9.76 to $17.52 per share. Again, the
variance in values was largely attributable to multiple valuation
methodologies being employed and reliance on multiple comparable companies.
The Board of Directors decided to charge SunTrust Equitable Securities with
formally exploring alternatives available to the Company for maximizing
shareholder value, with the focus being on a strategic combination or sale.
Also at that meeting, a special committee of independent directors was formed
to consider strategic alternatives presented to the Company, to enter into
discussions and negotiations related to such alternatives and to recommend to
the Board of Directors what action, if any, should be taken.
At that meeting, a discussion was held regarding whether to publicly
disclose SunTrust Equitable Securities' activities and the pros and cons of
doing so. It was decided by the Board of Directors that, in order to ensure
that the Company received the broadest range of interest possible, a public
announcement would be made.
During that same meeting, the Board of Directors acted on previously held
discussions regarding the adoption of a shareholder rights plan. The Board of
Directors chose to adopt the plan to provide the Company with ample time to
consider fair and compatible offers from parties interested in pursuing
constructive strategic paths with the Company. The plan also optimized the
probability of fair compensation for all the shareholders by encouraging
interested parties to negotiate with the Board of Directors. SunTrust
Equitable Securities reviewed previously distributed materials regarding
shareholder rights plans in general and the particular price and terms
appropriate for the Company. In consultation with legal counsel, the Company's
Board of Directors approved the adoption of a shareholder rights plan at the
November 16, 1999 meeting.
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Immediately following the Board meeting SunTrust Equitable Securities began
working with management on a public information book which contained 5 year
projections prepared by management to be made available to selected interested
parties who would enter into Confidentiality Agreements. Simultaneous with
that undertaking, SunTrust Equitable Securities worked with management to
create a comprehensive list of strategic partners and financial buyers to be
contacted. Beginning in late November 1999 and continuing through January
2000, SunTrust Equitable Securities contacted prospective partners and/or
buyers to assess their level of interest in discussing a potential transaction
with the Company. SunTrust Equitable Securities contacted 91 parties, of which
41 were strategic in nature and 50 were financial buyers. After engaging in
one-on-one discussions about the Company and the opportunity, 38 parties
expressed an interest in reviewing information on the Company and discussing
the situation further. Confidentiality agreements were executed with 37 of the
38 interested parties (with the one party not signing a confidentiality
agreement receiving only publicly available information but not the
projections prepared by management). Accompanying the materials disbursed to
the interested parties SunTrust Equitable Securities also forwarded a letter
outlining the process the parties should follow to continue exploring the
opportunity. In that letter, and in a subsequent letter containing additional
supplemental information, the parties were requested to submit in writing
preliminary indications of interest outlining: the purchase price, proposed
structure and form of consideration for a combination with or acquisition of
the Company, an indication of whether or not the proposal was subject to
financing or any other contingency, a list of additional information needs,
plans for integration and operation of the Company following the transaction,
and the level of review by senior officers that the potential transaction had
received and a preliminary timetable for the closing of the transaction.
During the period of time between the delivery of the initial materials and
the due date of the preliminary indication of interest, SunTrust Equitable
Securities had numerous additional discussions with several of the parties and
provided supplemental information as requested and appropriate for that stage
of the process. Additionally, during this time period members of senior
management were made available via conference calls to discuss the business or
specific questions if requested to do so by the parties.
From the period of February 3, 2000 to February 14, 2000, SunTrust
Equitable Securities received eight indications of interest. In early February
2000, the Company's stock was trading in the $8.00 range.
Party 1 was a publicly-traded strategic buyer who proposed a tax-free
stock-for-stock pooling of interest transaction at $8.00 per share.
Party 2 was a publicly-traded equity investment firm who proposed either a
100% cash transaction or a tax-free stock-for-stock exchange at $9.91--$11.91
per share. The proposal was contingent upon third party senior debt and junior
capital from Party 2 or Party 2's common stock. The interest was predicated on
management's willingness to stay post transaction and the Company's ability to
meet the projections presented.
Party 3 was a private equity firm who proposed a 100% cash transaction at
$8.00 - $9.00 per share. The offer was contingent upon externally raised
financing. Interest was also predicated on management remaining with the
Company and an assumed earnings before interest, taxes, depreciation and
amortization ("EBITDA") run rate of $14.0 million.
Party 4 was a publicly-traded company operating in the broader corrections
industry who proposed either a 100% cash purchase or a 59.5% cash / 40.5%
stock purchase at $10.00 - $11.00 per share. The offer was contingent upon
external financing. Concerns were expressed over results reported for first
half of the fiscal year ended June 30, 2000. Interest was also predicated on
the Company being on pace to hit the projections provided.
The fifth party, Kohlberg & Co., L.L.C. ("Kohlberg"), was a private equity
firm which proposed a 100% cash purchase at $11.00 - $12.00 per share. The
offer was contingent upon raising senior and subordinated debt along with up
to $45 million in equity being provided by Kohlberg.
Party 6 was a private equity firm that proposed a 100% cash purchase at
$7.50 per share. Interest was silent on financing and was predicated on
forming a strong relationship with management.
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Party 7 was a private equity arm of a large bank who proposed a 100% cash
transaction at $9.09 - $9.64 per share. The offer was contingent upon raising
external senior and subordinated debt financing, management co-investing and
that the Company be on pace to deliver $14.5 million in EBITDA for the fiscal
year ended June 30, 2000.
Party 8 was a large, public international firm operating various lines of
business that proposed either a 100% cash acquisition at $10.08 per share or a
joint venture. This party expressed desire to retain existing management,
preference for joint venture and the need for indemnification from lawsuits.
The Board of Directors met on February 17, 2000 to receive a presentation
by SunTrust Equitable Securities on the status of the marketing process and to
discuss which, if any, of the indications of interest received warranted
further consideration.
The Board considered the following factors regarding the indications of
interest before determining whether to continue and, if so, with which
parties. The factors considered included, but were not limited to, the
following: (i) the strategic fit of the prospective partner, (ii) the
valuation and terms of the indication of offer, (iii) the level of seriousness
demonstrated by the party producing the indication of interest and the amount
of work completed leading up to the indication, (iv) the party's knowledge of
the community corrections subset of the overall corrections industry, and (v)
consideration of the party's reputation and capability to consummate the
transaction proposed including access to equity capital and bank financing.
Based on factors noted above the Board of Directors decided to invite three
parties (Party 2, Kohlberg and Party 8) to participate in on-site management
presentations and additional due diligence.
SunTrust Equitable Securities contacted each of the three parties and
scheduled site visits to participate in management presentations and review
information available in a data room.
In March 2000, Kohlberg provided management of the Company with a
preliminary due diligence request list, and Kohlberg conducted additional due
diligence during the ensuing weeks through receipt of its information requests
as well as telephone conversations with management.
On March 7, 2000, representatives of Kohlberg traveled to the Company's
headquarters in Colorado for a presentation by management and tours of the
Company's Boulder and Denver facilities. On March 8, 2000, representatives of
Kohlberg met with management and representatives of SunTrust Equitable
Securities to conduct preliminary business and financial due diligence and
review the materials provided in the Company's data room.
Party 8 visited the Company's offices on March 9, 2000 and March 10, 2000.
A management presentation was conducted during the first half of the day,
followed by a site visit at the Denver community corrections facility and then
by dinner. The second day representatives from Party 8 reviewed information in
the data room and conducted additional management interviews.
Party 2 visited the Company's Chicago community corrections facility on
February 25, 2000 with a member of the Company's management. Party 2 then
visited the Company's offices on March 23, 2000 and March 24, 2000. A
management presentation was conducted during the first half of the day
followed by a site visit to the Denver community corrections facility.
Following the management presentations, SunTrust Equitable Securities and
the management of the Company responded to additional information requests and
specific questions from each of the parties involved both in writing and via
conference calls.
After Party 2, Party 8 and Kohlberg completed management presentations and
data room due diligence, the Company collected input to determine which, if
any, of the indications of interest were attractive enough to warrant further
discussion. It was determined that work would continue with each of the three
parties, however with special emphasis on Party 8. It was the view at the time
that Party 8, as a large strategic buyer, might be in a better position to
take a long-term view of the business and industry and be less concerned about
the short-term earnings volatility being experienced by the Company.
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Toward the end of March 2000, it became apparent that the Company would not
achieve the third quarter results previously expected and that information was
conveyed to the three interested parties.
On April 8, 2000, Party 8 provided a list of additional questions for the
management team of the Company to discuss on a scheduled April 11 conference
call.
On April 11, 2000, the Company's senior management team participated in a
conference call with Party 8 during which additional diligence questions and
operational issues were addressed.
On April 17, 2000, management of the Company informed Kohlberg that it was
also revising downward its EBITDA forecast for fiscal 2000 and provided
Kohlberg with its reforecast. Based on this information, Kohlberg determined
that the Company's performance did not support the valuation provided in its
initial indication of interest.
On April 18, 2000, Party 8 informed SunTrust Equitable Securities that
based on the due diligence conducted Party 8 would have difficulty getting to
the $10.50 offer price. Specifically, Party 8 expressed concerns over the
EBITDA run rate versus projections and the higher than expected level of
capital expenditures. Party 8 was also concerned over the anticipated release
of the Company's third quarter earnings.
On April 20, 2000, the Company and Party 8 scheduled a face to face meeting
for May 2, 2000 and May 3, 2000 at Party 8's offices to better address the
concerns being raised by Party 8.
On April 24, 2000, Kohlberg contacted SunTrust Equitable Securities and
informed them they were uncomfortable with the $11.50 price per share
originally expressed due to a concern over growth prospects and margin
pressure. Kohlberg suggested their revised interest level would be
approximately $8.50 per share in cash.
On April 26, 2000, the Company released its third quarter results and
conducted its regular analysts call.
On April 27, 2000, representatives from Party 8 visited the Company's
offices to conduct additional due diligence and to gather additional
information necessary for their business justification case to be presented to
their parent company.
On April 27, 2000, there was a review of the status of the discussions with
Party 2, Party 8 and Kohlberg. During that review it was decided that Kohlberg
and Party 8 were the most serious and that meetings with each party would be
scheduled to facilitate further discussions.
On April 28, 2000, the planned trip to Party 8's offices was rescheduled
for May 4, 2000 and May 5, 2000 to afford Party 8 additional time to review
the situation internally.
By the end of April, the Company's stock price had fallen to the $7.00
range.
On May 1, 2000, David J. Hunter, President of the Company, called
Christopher Lacovara, a principal of Kohlberg, to request an additional
meeting to discuss Kohlberg's interest in continuing discussions regarding a
potential transaction with the Company.
On May 2, 2000, SunTrust Equitable Securities was informed by Party 8 that
they were unable to support a price above the current market price and would
prefer to let three to six months lapse to allow them time to conduct further
research on the American Corrections market.
On May 8, 2000, SunTrust Equitable Securities received a call from Party 4
inquiring as to the status of the process. Party 4, during the course of the
conversation, expressed a weakening interest in the Company's market area, and
indicated it was pursuing another transaction outside the Company's areas of
focus and further expressed both a concern over the Company's third quarter
earnings and a reduced level of interest in the Company.
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On May 8, 2000, the Company's Board of Directors met and discussed the
status of the process and a strategy for moving forward. It was decided that
SunTrust Equitable Securities would reassess the interest of Party 1. SunTrust
Equitable Securities updated the Board of Directors on the interest level of
Party 4. Additionally, it was decided that a trip would be scheduled to meet
with Kohlberg to discuss the Company's third quarter and projected performance
face to face. A meeting was scheduled for May 12, 2000.
On May 12, 2000, representatives of management of the Company, Kohlberg and
SunTrust Equitable Securities met in New York to discuss the Company's year-
to-date performance, the revisions to its fiscal year 2000 forecast, and its
prospects for fiscal year 2001. During the ensuing three weeks, Kohlberg
revised its financial analysis based on the new information provided by
management and contacted several financing institutions to discuss financing
for the transaction.
On May 22, 2000, Kohlberg submitted a draft letter of intent which included
a purchase price of $8.00 per share. The Company, through SunTrust Equitable
Securities, rejected this price, but indicated that a price of $9.00 per share
would likely be acceptable.
On May 22, 2000, members of the management of the Company and
representatives from Party 1 participated in a conference call to continue
discussing the possibility of a combination. A conclusion was reached
following the conversation that a combination did not make sense as a stock-
for-stock exchange at the current market value for the Company due to the lack
of a synergistic fit between the two companies.
On May 24, 2000, the Special Committee met to discuss the status of the
discussions with each of the parties and to discuss the strategy for moving
forward. In particular, attention was given to the status of the Kohlberg
negotiations, which included an update on their lack of flexibility regarding
the Company's $9.00 counter offer.
On May 25, 2000, the Board of Directors met telephonically. They were
briefed by the Special Committee on the status of concerning possible
strategic or financial combinations and the offer from Kohlberg. The Board of
Directors authorized the Special Committee to continue to pursue a counter-
proposal at $9.00 per share.
By the end of May 2000, the Company's stock price had fallen to
approximately $5.50 per share.
On June 2, 2000, Jeremy Kendall, Chairman of the Board for the Company,
contacted Christopher Lacovara, a principal of Kohlberg, directly to express
the Special Committee's position regarding valuation and what was necessary
for exclusivity to be granted.
On June 6, 2000, the Board of Directors met telephonically and after
extensive discussion and consideration of various issues and alternatives,
approved execution of a Letter of Intent (the "Letter of Intent") between the
Company and Kohlberg at $8.75 per share, which contained a three-week period
to allow Kohlberg to confirm their willingness to go forward at that price.
On June 6, 2000, Kohlberg and the Company signed the Letter of Intent for
an acquisition of the Company for a purchase price of $8.75 per share. The
Letter of Intent provided for a three-week period during which Kohlberg had
the opportunity to confirm the price per share at which it would be prepared
to complete the transaction.
On June 13, 2000, representatives of Kohlberg, Credit Agricole Indosuez
("Indosuez"), The Prudential Insurance Company of America (the "Subordinated
Agent"), SunTrust Equitable Securities and management of the Company met at
the Company's headquarters for a presentation by management and tours of its
Boulder and Denver facilities.
On June 14, 2000, Kohlberg met with management of the Company and
representatives of SunTrust Equitable Securities to conduct additional
business and financial due diligence.
On June 19, 2000, representatives of Kohlberg, SunTrust Equitable
Securities and management of the Company met in New York to discuss the
various contemplated management and shareholder arrangements following the
completion of the transaction.
10
<PAGE>
On June 20, 2000, representatives of Kohlberg, Indosuez, SunTrust Equitable
Securities and management of the Company held a meeting in New York to provide
Indosuez with an opportunity to conduct additional business and financial due
diligence. Following that meeting, Mr. Hunter and Mr. Lacovara met in Mount
Kisco, New York to discuss management arrangements following the completion of
the transaction.
On June 26, 2000, management of the Company met with representatives of
Kohlberg in Menlo Park, California and via video teleconferencing with
Kohlberg's Mount Kisco, New York office to provide a presentation to all of
Kohlberg's principals and associates.
On June 27, 2000, representatives of Kohlberg, the Subordinated Agent and
management of the Company met at the Company's headquarters to provide the
Subordinated Agent with an opportunity to conduct additional business and
financial due diligence.
On June 28, 2000, the Special Committee met and was briefed by counsel and
a representative of SunTrust Equitable Securities on procedures and duties
concerning the current status of the Kohlberg transaction and to prepare for
the meeting of the Committee with Kohlberg representatives to be held the
following day. The Committee reviewed the current status of the Letter of
Intent ($8.75 per share price) as well as the proposed continuing position in
equity and options for management. The Committee also was apprised of a
possible shortfall in EBIDTA coverage for the fiscal year. There was concern
that Kohlberg would not be able to confirm the $8.75 price. Methods of
bridging the gap on EBIDTA, such as reducing the stock option pool or the
Kohlberg fee, was discussed. Mr. Hunter, the Company's Chief Executive
Officer, joined the meeting at its invitation and apprised the Committee of
his understanding as to the EBIDTA shortfall and answered questions of the
Committee.
On June 29, 2000, representatives of Kohlberg met with SunTrust Equitable
Securities and the Special Committee to request a reduction in the purchase
price to $8.25 per share, based on the results of the accounting due diligence
conducted by Arthur Andersen LLP on Kohlberg's behalf. The Special Committee
rejected this price, countering with a price of $8.50 per share.
On June 30, 2000, Kohlberg contacted SunTrust Equitable Securities to
discuss the results from their financial accountants regarding their
observations of the fiscal year end numbers for the Company. Based on this
information, Kohlberg stated that it would be necessary to reduce the $8.50
offer to $8.25 per share.
On July 3, 2000, a meeting of the Board of Directors was held to discuss
the latest Kohlberg position. At that meeting, options were discussed for
increasing the potential proceeds to the shareholders. It was determined that
the only course of action would be for the Special Committee to insist that
the senior management of the Company rollover all of their outstanding stock
options to reduce the amount of equity necessary for Kohlberg to invest. The
economic impact to the shareholders from this requirement would be an
additional ten cents to the shareholders. It was decided that Jeremy Kendall,
Chairman of the Board, would approach management with the Special Committee's
requirement for management rollover. Management ultimately agreed to the
rollover provision.
On July 5, 2000, Kohlberg and the Company signed an amendment to the letter
agreement dated June 6, 2000, revising the purchase price to $8.35 per share
and extending the term of exclusivity between Kohlberg and the Company.
During the two weeks following July 5, 2000, Kohlberg, Indosuez and the
Subordinated Agent conducted additional due diligence through information
requests and telephone conversations with management.
On July 14, 2000, the Special Committee met again by telephone. A
representative of SunTrust Equitable Securities was present at the meeting.
Various matters were discussed, including the status of the transaction with
Kohlberg and timing of various events related to the transaction. The
Committee was also briefed on the status of Kohlberg's financing and the
SunTrust Equitable Securities representative described various items to be
considered in determining the fairness of the transaction to the Company's
shareholders (other than the Management Shareholders).
11
<PAGE>
On July 21, 2000, the Special Committee met telephonically. A
representative of SunTrust Equitable Securities was present at the meeting.
The Committee was briefed concerning the status of the Kohlberg transaction,
especially about management issues and the status of lender meetings and a
likely change in financing entities. Other alternatives with respect to a
transaction were discussed at length by the Committee. The Committee was also
briefed on management stock and options provisions, including the likely tax
treatment of the transaction to the Management Shareholders.
On July 21, 2000, representatives of Kohlberg introduced two additional
potential financing sources to the Company, one of which met with management
at the Company's headquarters for a presentation by management and a tour of
its Boulder facility. The other potential new financing source participated in
the presentation by telephone.
On July 25, 2000, Kohlberg was notified by management of the Company about
a reduction in its likely fiscal year 2000 EBITDA result.
On July 26, 2000, representatives of Kohlberg and one of the proposed
financing sources met with the Company's Southeast Regional Director,
Tennessee State Director and Murfreesboro, Tennessee Program Manager in the
Company's Murfreesboro CCS office for additional business due diligence and a
facility tour.
On July 28, 2000, the Special Committee met telephonically. A
representative of SunTrust Equitable Securities was present at the meeting.
The Committee was briefed concerning the status of the Kohlberg transaction,
including timing, financing and management matters. The Committee also was
advised about the likely reduction in fiscal year end results that had been
reported to Kohlberg. Other alternatives with respect to a transaction were
discussed at length by the Committee.
On July 31, 2000, representatives of Kohlberg contacted representatives of
SunTrust Equitable Securities to request a reduction in the purchase price to
$8.25 per share based on the Company's likely fiscal year 2000 EBITDA results
as communicated on July 25, 2000. Kohlberg indicated that the senior financing
sources would not provide commitments at a price above $8.25 per share.
On July 31, 2000, the Special Committee met telephonically. A
representative of SunTrust Equitable Securities was present at the meeting.
The Committee discussed extensively the proposed change in the transaction
price proposed by Kohlberg as well as the status of the transaction from a
financing perspective. They also discussed possible alternatives to going
forward with the transaction. The Committee was apprised of the perceived
ability of Kohlberg to complete the transaction, the conditions being
requested by Kohlberg and the timing for completion. Following extensive
discussion and questioning of the SunTrust Equitable Securities
representative, the Special Committee unanimously approved the entry of an
amended Letter of Intent at the $8.25 per share price proposed by Kohlberg.
On July 31, 2000, Kohlberg and SunTrust Equitable Securities (per the
authorization of the Special Committee) signed an amendment to the Letter of
Intent revising the purchase price to $8.25 per share and extending the term
of exclusivity between Kohlberg and the Company.
The Company's stock closed on July 31, 2000 at $4.31.
On August 4, 2000, the Special Committee met telephonically. A
representative of SunTrust Equitable Securities was present at the meeting.
The Special Committee was briefed on the status of financing and other matters
concerning the Kohlberg transaction. Any possible alternatives were reviewed
and the Special Committee determined that unless the situation changed, it
still supported the transaction with Kohlberg.
Between July 31, 2000 and August 10, 2000, representatives of Kohlberg,
management of the Company and their respective legal advisors negotiated the
Merger Agreement and the Voting Agreement.
12
<PAGE>
On August 9 and 10, 2000, the Board of Directors of the Company met and
considered the final terms and conditions of the transaction with Kohlberg.
The Board was briefed extensively as to all aspects of the transaction,
including the proposed terms of the tender offer and follow-on merger, the
expense provisions of the agreement, the break-up fee provisions of the
agreement and management's interests in the transaction. Also discussed were
possible alternatives to the transaction. A representative of SunTrust
Equitable Securities presented its fairness opinion to the Board of Directors
and the Special Committee presented its report to the Board of Directors.
SunTrust Equitable Securities confirmed orally with the Board that its
analysis was done for the shareholders other than the Management Shareholders.
The Directors then determined that the transaction was in the best interest of
the Company's unaffiliated shareholders and approved the execution of the
Merger Agreement and related documents.
On August 10, 2000, Kohlberg formed Offeror and Parent. Also on August 10,
2000, the Board of Directors of Parent approved the Merger Agreement and the
Voting Agreement. On August 10, 2000, Offeror, Parent and the Company executed
the Merger Agreement and Offeror, Parent and the Management Shareholders
executed the Voting Agreement.
On August 11, 2000, Parent issued a press release announcing the proposed
acquisition of the Company.
On August 18, 2000, Offeror commenced the Offer.
On September 18, 2000, the initial Offer period was extended through
October 3, 2000. Approximately 93% of the outstanding common stock of the
Company had been tendered as of 12:00 Midnight on September 15, 2000.
Reasons for Recommendation.
The Board of Directors, in approving the Merger Agreement, the Offer, the
Merger, and the other transactions contemplated by the Merger Agreement, is
recommending that the Company's shareholders tender their shares pursuant to
the Offer. The Special Committee, in its recommendation to the Board of
Directors, and the Board of Directors in its recommendation to the Company's
shareholders considered a variety of factors including, but not limited to,
the following:
1. The opinion of the Company's financial advisor, SunTrust Equitable
Securities, that based upon and subject to the assumptions and qualifications
stated in its opinion, the $8.25 per share to be paid to the shareholders of
the Company in the Offer and the Merger is fair, from a financial point of
view, to the shareholders of the Company other than the Management
Shareholders, and the report and analysis presented to the Board of Directors
in connection with the SunTrust Equitable Securities' opinion. The full text
of SunTrust Equitable Securities' written opinion, dated August 9, 2000, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken by SunTrust Equitable Securities attached to the Schedule
14D-9 as Annex A and is incorporated herein by reference. Shareholders are
urged to read the opinion of SunTrust Equitable Securities in its entirety.
2. The presentation of SunTrust Equitable Securities that included various
valuation analyses of the Company, described below under "Opinion of Financial
Advisor."
3. The fact that the $8.25 per share price represents a premium of 91% over
the closing sale price of $4.313 on July 31, 2000, the day Offeror, Parent and
the Company agreed to the $8.25 Offer price, and a multiple of 1.37X the
Company's net book value per share as of June 30, 2000, and a multiple of
1.79X the Company's net tangible book value per share as of June 30, 2000.
4. The Board of Directors' and Special Committee's familiarity with the
Company's business, financial condition, results of operations, current
business strategy and prospects.
5. The fact that since initiation of the efforts by the Company to seek a
transaction in January 2000, no party other than Kohlberg has made a bona fide
offer for a business combination with the Company.
6. The Company's prospects if it were to remain independent, and the risks
and benefits inherent in remaining independent.
13
<PAGE>
7. The possible alternatives to the Offer and the Merger (including the
possibility of continuing to operate the Company as an independent entity),
the range of possible benefits to the Company's shareholders other than the
Management Shareholders, of such alternatives and the timing and likelihood of
accomplishing the goal of any of such alternatives.
8. The fact that the consideration and other terms of the Merger Agreement
resulted from arms-length negotiations among Offeror, Parent and the Company,
and the Special Committee's and the Board of Directors' belief that $8.25 per
share represented the highest per share consideration that could be negotiated
with Offeror and Parent.
9. The possibility that if a transaction with the Management Shareholders,
Parent and the Offeror were not negotiated and the Company remained a publicly
owned corporation, a decline in the market price of the shares or the stock
market in general could occur and the price ultimately received by the holders
of the shares in the open market or in the future transaction might be less
than the $8.25 per share included in the Offer and the Merger.
10. The fact that the Offer is for 100% of the Company's Common Stock and
is conditioned upon there being validly tendered and not withdrawn prior to
the expiration date of the Offer, at least 90% of the outstanding shares.
11. The fact that the Offer and the Merger provide for a prompt tender
offer for all shares to be followed by a second-step merger at the same
consideration, thereby enabling the Company's shareholders to obtain the
benefits of the transaction at the earliest possible time.
12. The financial ability of Offeror and Parent to consummate the Offer
and the Merger. In this regard, the Board of Directors noted that Offeror and
Parent had received executed commitment letters from financial institutions
providing for all financing necessary to purchase the shares and to pay all
transaction fees in connection with the Offer and the Merger.
13. The fact that the Merger Agreement permits the Company to furnish
information to and participate in negotiations with third parties in response
to an unsolicited acquisition proposal if a majority of the Board of Directors
(a) reasonably determines in good faith, after consultation with an
independent, nationally recognized investment bank, that taking such action
would be reasonably likely to lead to the delivery to the Company of a
superior proposal and (b) determines in good faith, after receiving the advice
of outside legal counsel, that it is necessary to take such actions in order
to comply with its fiduciary duties under applicable law.
14. The fact that the Board of Directors is permitted to terminate the
Merger Agreement if prior to the purchase of shares pursuant to the Offer, a
superior proposal is received by the Company and the Board of Directors
reasonably determines in good faith, after receiving the advice of outside
legal counsel, that it is necessary to terminate the Merger Agreement and
enter into a new agreement to effect the superior proposal in order to comply
with its fiduciary duties under applicable law.
15. The terms of the Merger Agreement, including the parties'
representations, warranties and covenants and the conditions to their
respective obligations.
The foregoing discussion of the information and factors considered by the
Special Committee and the Board of Directors is not intended to be exhaustive,
but includes the material factors considered by the Special Committee and the
Board of Directors.
As part of its analysis the Special Committee also considered the
alternative of causing the Company to remain as a public company. The Special
Committee considered the Company's limitations as a public company as
discussed above, including its limited financial resources. The Special
Committee believed that an improvement in these factors affecting the
Company's prospects was not likely in the immediate future. Although the
Merger will allow only the Management Shareholders to participate in the
Company's future growth, if any, the Special Committee concluded that this
potential benefit of remaining public was outweighed
14
<PAGE>
by the risks and uncertainties associated with the Company's future prospects.
The Special Committee also concluded that obtaining a substantial cash premium
for the Shares now was preferable to preserving for the shareholders (other
than the Management Shareholders) of such shares an opportunity to have a
speculative future return.
The Special Committee and the Board of Directors also considered the actual
and potential conflicts of interest described above in Item 3. In view of the
wide variety of factors considered in connection with their review of the
Offer, the Special Committee and the Board found it impractical to, and
therefore did not, quantify or otherwise assign relative weights to the
specific factors it considered in reaching its conclusion and recommendation.
Rather, the Special Committee and the Board of Directors viewed their
positions and recommendations as being based on the totality of the
information presented to and considered by it. In addition, it is possible
that different members of the Special Committee and the Board of Directors
assigned different weights to the various factors described above.
Opinion of Financial Advisor.
In connection with the Offer, the Company engaged SunTrust Equitable
Securities to provide an opinion as to the fairness, from a financial point of
view, of the Offer Price to the Board of Directors. SunTrust Equitable
Securities is a nationally recognized firm and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
their securities in connection with merger transactions and other types of
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. The Company selected SunTrust Equitable Securities to render a
fairness opinion on the basis of its experience and expertise in transactions
similar to the Merger and its reputation and experience in the corrections
industry.
Pursuant to the Company's engagement with SunTrust Equitable Securities,
SunTrust Equitable Securities assisted in locating a buyer for the Company's
Correctional Information Systems business, which was sold in April 1999.
SunTrust Equitable Securities received a fee of $250,000 plus expenses of
$39,000 for this transaction.
SunTrust Equitable Securities has no material relationships with the
Company, Parent, Offeror, Kohlberg or their respective affiliates, except as
described herein. SunTrust Banks, Inc., SunTrust Equitable Securities' parent
company, may have lending relationships with companies in which Parent and
Offeror have investments. In the ordinary course of business, SunTrust
Equitable Securities or SunTrust Banks, Inc., may solicit companies in which
Parent, Offeror or Kohlberg have investments and may provide advisory or other
services to those companies.
At the August 9, 2000 meeting of the Board of Directors, SunTrust Equitable
Securities delivered its oral opinion (as subsequently confirmed in writing as
of that date) that, as of that date, and based upon and subject to the
limitations, assumptions and qualifications stated in the opinion, the Offer
Price to be paid in the Offer and the Merger to the holders of the Company
Common Stock is fair, from a financial point of view, to such holders of the
Company Common Stock. SunTrust Equitable Securities has orally confirmed to
the Company that its opinion applies to, and it performed its analysis with
respect to, the shareholders of the Company other than the Management
Shareholders. No limitations were imposed by the Board of Directors upon
SunTrust Equitable Securities related to the investigations made or the
procedures followed by it in rendering its opinion (the "SunTrust Equitable
Securities Opinion").
The full text of the SunTrust Equitable Securities Opinion, which states
the assumptions made, matters considered and limitations of review by SunTrust
Equitable Securities, is attached to the Schedule 14D-9 as Annex A and is
incorporated herein by reference. The opinion should be read carefully and in
its entirety in connection with this Schedule 14D-9. A copy of the materials
presented to the Board at its meeting on August 9 and 10, 2000 is filed as
Exhibit (c)(2) to the Schedule 13E-3 filed by the Company and the Management
Shareholders on September 19, 2000. The following summary of the SunTrust
Equitable Securities Opinion is qualified by the full text of the SunTrust
Equitable Securities Opinion. The SunTrust Equitable Securities Opinion is not
a recommendation to any shareholder of the Company as to whether any
shareholder should tender his or her shares.
15
<PAGE>
In connection with its opinion, SunTrust Equitable Securities, among other
things:
. reviewed publicly available financial and other financial information,
reports, forecasts and other internal information that were provided to
SunTrust Equitable Securities by or on behalf of the Company;
. reviewed the Merger Agreement;
. compared financial positions and operating results of the Company to
other companies in the corrections industry;
. considered, to the extent available, the financial terms of other
similar transactions recently effected which it believed to be
comparable to the Offer;
. reviewed and discussed the historical and current operations of the
Company, its financial condition and prospects with management and
representatives of the Company; and
. conducted other financial studies, analyses and investigations and
reviewed other information and factors as it found appropriate for
purposes of the SunTrust Equitable Securities Opinion.
In connection with its review, SunTrust Equitable Securities did not
independently verify and relied on the accuracy and completeness in all
material respects of all of the financial and other information and data
publicly available or furnished to or otherwise reviewed by it. SunTrust
Equitable Securities assumed for purposes of the SunTrust Equitable Securities
Opinion that the Company's financial forecasts were reasonably prepared on
bases reflecting the best available estimates at the time of preparation as to
the future financial performance of the Company and good faith judgments of
the management of the Company. SunTrust Equitable Securities did not express
an opinion related to the forecasts or the assumptions on which they were
based. SunTrust Equitable Securities also assumed that there were no material
changes in the Company's assets, financial condition, results of operations,
business or prospects since the date of the last financial statements made
available to SunTrust Equitable Securities. SunTrust Equitable Securities
relied on advice of counsel to the Company as to all legal matters related to
the Company, the Offer, the Merger and the Merger Agreement. SunTrust
Equitable Securities has assumed that the Offer and the Merger will be
completed in a manner that complies in all respects with the applicable
provisions of the Securities Exchange Act of 1934 and all other applicable
federal and state statutes, rules and regulations. In addition, SunTrust
Equitable Securities did not assume responsibility for making an independent
evaluation, appraisal or physical inspection of the assets or liabilities
(contingent or otherwise) of the Company and was not furnished with any
appraisals. Finally the SunTrust Equitable Securities Opinion was based on
economic, monetary, market and other conditions as they existed and could be
evaluated on the date of the SunTrust Equitable Securities Opinion and did not
address the fairness of the Offer Price as of any other date. Where the
following analyses present information regarding the multiples implied by the
Offer Price, the Offer Price has been valued for purposes of analysis at $8.25
per Share.
The following is a summary of material financial analyses performed by
SunTrust Equitable Securities in connection with the SunTrust Equitable
Securities Opinion.
ANALYSIS OF PREMIUMS PAID
SunTrust Equitable Securities performed an analysis comparing the revised
Offer Price with the closing stock price the day before the original
transaction announcement. SunTrust Equitable Securities viewed this analysis
as supporting fairness since the implied premium was above the range of
premiums in similar transactions.
SunTrust Equitable Securities reviewed the acquisition premiums paid for
selected public companies over the market price of a certain number of days
prior to the announcement of a transaction. For the group, consisting of 43
completed transactions having a transaction value of between $25 million and
$250 million, the average
16
<PAGE>
jpremium paid in the transaction over the acquired company's stock price one
day, one week, four weeks and one year prior to the announcement of the
transaction is presented in the table below.
<TABLE>
<CAPTION>
Premium Prior to
Announcement
------------------------------
<S> <C> <C> <C> <C>
1 Day 1 Week 4 Weeks 1 Year
----- ------ ------- ------
Average Premium.............................. 28.0% 30.2% 38.8% 44.3%
BI Inc. Premium.............................. 78.4% 103.1% 63.0% 3.9%
</TABLE>
COMPARABLE COMPANIES ANALYSIS
SunTrust Equitable Securities analyzed publicly-traded
corrections/treatment companies. The group consisted of America Service Group,
Avalon Correctional Services, Children's Comprehensive Services, Cornell
Companies, Correctional Services Corporation, Ramsay Youth Services, Res-Care
and Wackenhut Corrections Corporation. The table below presents, for the
companies, the average and median multiples of total market capitalization to
the latest twelve months' ("LTM") revenue, LTM EBITDA and LTM earnings before
interest and taxes ("EBIT"). The multiples are compared to the multiples for
the Company implied by the Offer Price.
CORRECTIONS / TREATMENT COMPANIES
<TABLE>
<CAPTION>
BI Incorporated
Average Median Offer Multiples
------- ------ ---------------
<S> <C> <C> <C>
MULTIPLE OF:
------------
<CAPTION>
LTM Revenues..................................... 0.7x 0.4x 1.1x
<S> <C> <C> <C>
LTM EBITDA....................................... 5.4x 5.6x 6.8x
LTM EBIT......................................... 7.5x 7.8x 20.6x
</TABLE>
SunTrust Equitable Securities judged this analysis as supporting fairness
since the valuation multiples implied by the Offer Price were greater than the
range of the valuation multiples of comparable companies. No company or
transaction used in the above analysis is identical to the Company or the
Offer. Accordingly, an analysis of the results of the above involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the
public trading value of the companies to which the Company and the Offer are
being compared. Mathematical analysis (such as determining the average or
median) is not, in itself, a meaningful method of using comparable company
data.
COMPARABLE TRANSACTIONS ANALYSIS
SunTrust Equitable Securities developed a list of 41 merger and acquisition
transactions involving selected corrections/treatment companies and compared
transaction value as a multiple of revenue, gross profit and EBITDA for these
transactions to the transaction value multiples for the Company. SunTrust
Equitable Securities examined this group of completed transactions in the
corrections/treatment industry from February 1993 to the present. The average
(excluding high and low) and median multiples paid for these transactions are
presented in the table below.
<TABLE>
<CAPTION>
Average BI Incorporated
(excluding high and low) Median Offer Multiples
------------------------ ------ ---------------
<S> <C> <C> <C>
Revenues........................ 1.1x 0.8x 1.1x
EBITDA.......................... 9.1x 6.0x 6.8x
</TABLE>
No company or transaction used in the above analysis is identical to the
Company or the Offer. Accordingly, an analysis of the results of the above
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which the
Company and the Offer are being compared. Mathematical analysis (such as
determining the average or median) is not, in itself, a meaningful method of
using comparable transaction data. SunTrust Equitable Securities judged this
analysis as supporting fairness since the valuation multiples implied by the
transaction value were within the range of the valuation multiples of
comparable transactions.
17
<PAGE>
The companies in the comparable companies analysis and comparable
transaction analysis were selected because their products, customers or
strategy were similar to that of the Company. However, none of the companies
operate solely in the segments that the Company does and none serve the same
customer base.
DISCOUNTED CASH FLOW ANALYSIS
Using certain projected financial information supplied by the Company for
both a Management Case and a Sensitivity Case for calendar years 2001 to 2005,
SunTrust Equitable Securities calculated the net present value of free cash
flows of the Company through 2005 using discount rates ranging from 9.3% to
11.3%. SunTrust Equitable Securities' estimate of the appropriate discount
rate was based on the estimated weighted average cost of capital for
comparable corrections/treatment companies. SunTrust Equitable Securities also
calculated the terminal value of the Company in the year 2005 based on
multiples of 2005 EBITDA ranging from 3.0x to 7.0x and discounted these
terminal values using the assumed range of discount rates. This analysis
indicated a range of per share values under both scenarios indicated in the
table below.
<TABLE>
<CAPTION>
Low High
----- ------
<S> <C> <C>
Management Case Implied Equity Value Per Share.................... $6.76 $17.42
Sensitivity Case Implied Equity Value Per Share................... $4.07 $12.21
</TABLE>
Inherent in any discounted cash flow valuation are the use of a number of
assumptions, including the accuracy of projections, and the subjective
determination of an appropriate terminal value and discount rate to apply to
the projected cash flows of the entity under examination. Variations in any of
these assumptions or judgments could significantly alter the results of a
discounted cash flow analysis. SunTrust Equitable Securities judged this
analysis as supporting fairness since the transaction value was within the
range of values generated by this analysis.
LEVERAGED BUYOUT ANALYSIS
SunTrust Equitable Securities applied a leveraged buyout analysis to the
projected financial information supplied by the Company for calendar years
2001 to 2005 to calculate the rate of return the Investor Group would receive
in a leveraged transaction. SunTrust Equitable Securities utilized the capital
structure assumed by the Investor Group. The analysis assumes that the
business is sold at the end of a five-year time period at a value, the "exit
valuation," equal to 6.0x to 7.0x EBITDA. The range of exit valuation
multiples approximates the valuation implied by the Offer Price in this
transaction. This analysis suggested that the equity provided by the Investor
Group would receive an internal rate of return shown in the table below.
<TABLE>
<CAPTION>
Assumed Exit
Valuation Multiple
--------------------
6.0X 7.0X
--------- ----
<S> <C> <C>
Implied Internal Rate of Return........................... 32.1% 36.8%
</TABLE>
Inherent in any leveraged buyout analysis are the use of a number of
assumptions, including the accuracy of projections, the appropriate capital
structure and the exit multiple used in the analysis. Variations in any of
these assumptions or judgments could significantly alter the results of a
leveraged buyout analysis. SunTrust Equitable Securities judged this analysis
as supporting fairness because the returns implied by the transaction value
are consistent with the returns that in SunTrust Equitable Securities'
experience are expected by equity investors in leveraged transactions of this
type.
The above summary does not purport to be a complete description of the
presentation by SunTrust Equitable Securities to the Board of Directors or the
analyses performed by SunTrust Equitable Securities. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. SunTrust Equitable Securities
believes that the analyses and the above summary must be considered as a whole
and that selecting portions of its analyses and of the factors considered,
without considering all of the analyses and factors, would create an
incomplete or misleading view of the evaluation process underlying its
18
<PAGE>
opinion. In addition, SunTrust Equitable Securities may have given various
analyses more or less emphasis than other analyses, so that the ranges of
valuations resulting from any particular analysis described above should not
be taken to be SunTrust Equitable Securities' view of the actual value of the
Company.
In performing its analyses, SunTrust Equitable Securities made numerous
assumptions related to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Company. The analyses performed by SunTrust Equitable Securities are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by the analyses. The
analyses were prepared solely as part of SunTrust Equitable Securities'
analysis of the fairness of the Offer Price in connection with the delivery of
the SunTrust Equitable Securities Opinion. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold
or the prices at which any securities may trade at the present time or at any
time in the future. SunTrust Equitable Securities used in its analyses various
projections of future performance prepared by the management of the Company (a
summary of such projections is set forth in "Certain Information Concerning
the Company--Certain Company Projections" in the Offer to Purchase, which is
incorporated herein by reference). The projections are based on numerous
variables and assumptions, which are inherently unpredictable and must be
considered not certain of occurrence as projected. Accordingly, actual results
could vary significantly from those in the projections.
SunTrust Equitable Securities was engaged by the Company to render its
fairness opinion as provided by an engagement letter dated November 25, 1998.
Under the terms of the engagement letter, the Company agreed to pay
. a valuation fee of $50,000;
. a retainer fee of $50,000;
. an additional fee of $150,000 following the delivery of its oral opinion
to the Board of Directors; and
. a financial advisory fee of one and one-quarter percent (1.25%) of the
aggregate consideration on a sale transaction (approximately $1.0 million).
The Company has also agreed to reimburse SunTrust Equitable Securities for
its reasonable out-of-pocket expenses. The Company has paid $100,000 to date
in fees to SunTrust Equitable Securities. SunTrust Equitable Securities
expects to receive $1,250,000 for services rendered and an additional $85,000
in expenses. Under a separate letter agreement, the Company has agreed to
indemnify SunTrust Equitable Securities, its affiliates, and their respective
partners, directors, officers, agents, consultants, employees and controlling
persons against certain liabilities, including liabilities under the federal
securities laws. In the ordinary course of its business, SunTrust Equitable
Securities actively trades securities of the Company for its own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in the securities.
A copy of the fairness opinion from SunTrust Equitable Securities will be
made available at the principal executive offices of the Company during its
regular business hours by any interested equity security holder of the Company
or representative thereof who has been so designated in writing.
Reasons for Rejection of Alternatives.
The Board rejected the alternatives to sale of the Company described in the
foregoing discussion for the following reasons:
Acquisitions were rejected because the Company's cash position was not
strong enough to finance significant transactions. Additionally, the Company's
common stock was trading at levels where such acquisitions in stock
transactions would be dilutive (not accretive) to the Company's shareholders.
The Company did close in July 2000, an acquisition of a CCS company in a
transaction that began in 1999, financed entirely by debt (the "Intervention
Transaction").
19
<PAGE>
Raising additional financing was rejected because the market valuations for
the Company and other public companies in the corrections industry
deteriorated so significantly that such equity financing, even if able to be
accomplished, would be highly dilutive to the Company's existing shareholders.
The Company did complete the Intervention Transaction raising debt financing
to the maximum level the Board felt advisable for the Company's balance sheet,
taking into consideration the interests of the Company's public shareholders
(other than the Management Shareholders).
The Company did seek the interest of potential industry partners but
received no bona fide offers.
Benefits and Detriments of the Offer and Merger to the Company and the
Company's Shareholders.
Benefits and Detriments to the Company
The Company believes that the Offer and Merger will have the following
benefits to the Company:
. By becoming a private company (which will be a result of the Merger),
the Company's management will be able to react with greater speed and
flexibility to changing conditions and opportunities, increasing the
operating flexibility of the Company.
. By becoming a private company, the Company's management will be able to
make decisions based on long-term business interests without the
necessary consideration of the possible adverse short-term effect of
such decisions upon the market price of the Company's common stock and
without the constraint of the public market's emphasis on quarterly
earnings.
. By becoming a private company, the operational and administrative costs
associated with the Company's status as a public reporting company will
be eliminated.
. Following the Offer and Merger, the Company will have access to the
financial and other resources of Parent, which may facilitate the
Company's further growth.
The detriments to the Company, as a surviving company at the completion of
the merger, are:
. The Company will be required to make a significant cash outlay to
complete the Offer and the Merger and incur a significant level of
indebtedness in connection with the transaction, which will require the
Company to dedicate a substantial portion of its cash flow from
operations to make payments on the debt, thereby reducing cash flow
available for general corporate purposes, including capital expenditures
and acquisitions.
. The Company will be unable to use publicly traded securities as
acquisition capital.
. The Company will be unable to grant options to its employees exercisable
for publicly traded securities.
Benefits and Detriments to the Company's Shareholders
The Company believes the transaction will result in the following benefits
to its shareholders (other than the Management Shareholders):
. The shareholders will realize the value of their investment in the
Company in cash at a price which represents a substantial premium to the
market price for the Company's common stock before the announcement of
the Merger Agreement. The Merger consideration of $8.25 per share
represents an approximately 78% premium over the $4.63 per share closing
price on August 10, 2000, the last full day of trading before the Merger
agreement was announced.
. The risk of any possible decline in the value of the shareholders
investment in the Company will be eliminated.
. The shareholders will not pay the commissions on brokerage fees they
would have incurred in connection with the sale of their Company common
stock.
20
<PAGE>
The Company believes that the detriments to the shareholders of the Company
(other than the Management Shareholders) of the transaction are:
. The shareholders will cease to have any ownership in the Company and
will cease to participate in the Company's future earnings or growth, if
any, or benefit from increases, if any, in the Company's value.
The shareholders will recognize capital gain as a result of the merger.
Reference is made to the Offer to Purchase under the caption "Certain Income
Tax Consequences."
Benefits and Detriments to Parent and the Management Shareholders
The Company believes that the Merger will result in the following benefits
to Parent and the Management Shareholders:
. They will have the opportunity to participate in the Company's future
earnings and growth through their equity stakes in the Parent.
. All shares of Common Stock that Management Shareholders own will be
converted into the Merger consideration on the same basis as the other
shareholders.
Each of the Management Shareholders will have the benefits of the severance
rights adopted for the surviving company. (See Offer to Purchase, "The
Transaction Documents--Separation Policy.")
As part of the Merger, the vesting of options to acquire shares of the
Company's Common Stock under the Company's stock option plans will be
accelerated for the Management Shareholders, along with certain other options
of other optionholders, and they will be entitled to receive, for certain of
their option shares, the difference between $8.25 and the per-share exercise
price of the option, regardless of whether the option was fully vested.
Two of the Management Shareholders will be entitled post-Merger to purchase
an aggregate of 79,190 shares (0.31% of the fully diluted equity of Parent) of
Parent's stock for $1.50 per share, the transaction investment cost for
Company equity for Parent. All of the Management Shareholders in the aggregate
will hold fully vested options to purchase common stock in the Parent for
374,868 shares (1.44% of the fully diluted equity of Parent), with an exercise
price of $.01 per share. Those grants were determined based on the transaction
value inherent in existing Company options ($8.25 less the exercise prices of
certain existing Company options of Management Shareholders which become fully
vested at the Merger and under an agreement between Management Shareholders
and Parent, do not have to be exercised or cashed out), divided by $1.50 per
share, which is the per share price that the other shareholders of Parent will
be paying for shares in Parent. In effect, each Management Shareholder has
agreed to commit the transaction value of the options held by them to purchase
shares of Parent at such time as they choose to exercise such options.
Additionally, Management Shareholders will receive in the aggregate options to
purchase 2,122,000 shares (8.19% of the fully diluted equity of Parent) of
common stock of Parent at an exercise price of $1.50 per share, with certain
performance-based vesting over three years (out of a total option pool
available for all employees of 2,765,000 shares).
The Company believes that the detriments to Parent and the Management
Shareholders upon completion of the Merger will be that they will bear the
risk of any decrease in the future value of the equity of the Company after
the Merger, which risk is enhanced by the increased debt assumed by the
Company pursuant to the financing of the Offer and Merger.
Intent to Tender.
To the Company's knowledge after reasonable inquiry, all of the Company's
executive officers, directors and affiliates intend to tender all shares held
of record or beneficially by them pursuant to the Offer (other than shares
issuable on the exercise of options and shares, if any, which if tendered
could cause such persons to incur liability under the provisions of Section
16(b) of the Exchange Act), subject to and consistent with any fiduciary
obligations of such persons.
21
<PAGE>
Item 8. Additional Information.
Item 8 is hereby amended and supplemented by adding the following section:
Available Information
The Company is subject to the information and reporting requirements of the
Exchange Act and, in accordance therewith, is obligated to file reports and
other information with the Commission relating to its business, financial
condition, and other matters. Information as of particular dates concerning
the Company's directors and officers, their remuneration, stock options
granted to them, the principal holders of the Company's securities, any
material interests of such persons in transactions with the Company, and other
matters is required to be disclosed in proxy statements distributed to the
Company's shareholders and filed with the Commission. Such reports, proxy
statements, and other information should be available for inspection at the
Commission's Public Reference Room, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies should be obtainable upon payment of the
Commission's customary charges by writing to the Commission's principal office
at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material should also
be available for inspection and copying at the regional offices of the
Commission located at Seven World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Commission also maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission.
Item 8 is hereby amended and supplemented by replacing the section entitled
"Certain Legal Proceedings" in its entirety with the following:
Certain Legal Proceedings
On August 14, 2000, the next business day after the Offer was announced, M.
Dean Briggs, a purported shareholder of the Company, instituted an action in
the District Court, County of Boulder, Colorado (the "Complaint"), against the
Company and David J. Hunter, William E. Coleman, Mckinley C. Edwards, Jr.,
Beverly J. Haddon, Jeremy N. Kendall, Perry M. Johnson, Barry J. Nidorf and
Byam K. Stevens, Jr., all of whom are directors of the Company. Messrs. Hunter
and Edwards are also officers of the Company. The Company was served, through
its registered agent, with a copy of the Summons and Complaint on August 21,
2000. The Complaint states that the action is brought as a class action on
behalf of the holders of the Company's common stock (the "Class") against the
Company, its directors and certain officers, claiming that the defendants
"individually and as part of a common plan and scheme or in breach of their
fiduciary duties to plaintiff and the other members of the Class, are
attempting unfairly to deprive plaintiff and other members of the Class of the
true value of their investment in the Company by having the Company enter into
the Merger Agreement. Plaintiff Briggs claims that the "merger consideration
to be paid to Class members is unconscionable, unfair and grossly inadequate."
The suit seeks, among other things, an injunction against the defendants from
consummating the Merger, rescission of the Merger Agreement, damages, and
attorneys' fees.
The Company intends to defend the lawsuit vigorously and believes it is
without merit. The above description of the lawsuit is qualified in its
entirety by the Complaint, a copy of which is filed as Exhibit (e)(10), and
incorporated herein by reference. The Company filed a motion for extension of
time in which to answer or otherwise respond to the Complaint until October 2,
2000, which was granted by the Court on September 13, 2000. Copies of the
motion and order are filed as Exhibits (e)(12) and (e)(13) to this Schedule
14D-9.
22
<PAGE>
Item 9. Material to be Filed as Exhibits.
The following exhibit list restates all exhibits to the Schedule 14D-9 and
amends the exhibit list by adding Exhibits (a)(6), (a)(7), (a)(8), (c)(2),
(e)(12) and (e)(13) and renumbering Exhibit (e)(6) to Exhibit (c)(1):
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
(a)(1) Offer to Purchase dated August 18, 2000 (incorporated by reference to
Exhibit (a)(1)(A) to the Schedule TO filed by Parent and Offeror on
August 18, 2000).
(a)(2) Form of Letter of Transmittal (incorporated by reference to Exhibit
(a)(1)(B) to the Schedule TO filed by Parent and Offeror on August 18,
2000).
(a)(3) Letter from the Chairman of the Company to the Company's shareholders
dated August 18, 2000.*
(a)(4) Press Release issued by the Company on August 11, 2000 (incorporated
by reference to Exhibit 99.1 to the Schedule 14D-9-C filed August 11,
2000).
(a)(5) Form of Letter to Clients from Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees (incorporated by reference to
Exhibit (a)(1)(E) to the Schedule TO filed by Parent and Offeror on
August 18, 2000).
(a)(6) Letter from the Chairman of the Company to the Company's shareholders
dated September 19, 2000 (filed herewith).
(a)(7) Press Release issued by Offeror and Parent on September 18, 2000,
announcing the extension of the tender offer to October 3, 2000
(incorporated by reference to Exhibit (a)(1)(I) to the Schedule TO/A
filed by Parent and Offeror on September 19, 2000).
(a)(8) Supplement to Offer to Purchase (incorporated by reference to Exhibit
(a)(1)(J) to the Schedule TO/A filed by Parent and Offeror on
September 19, 2000).
(c)(1) Opinion of SunTrust Equitable Securities dated August 9, 2000
(incorporated by reference to Annex A of the Schedule 14D-9 filed by
the Company on August 18, 2000).
(c)(2) Presentation of SunTrust Equitable Securities to the Board of
Directors of BI Incorporated as of August 9, 2000 (incorporated by
reference to Exhibit (c)(2) filed with the Company's Schedule 13E-3 on
September 19, 2000).
(e)(1) Agreement and Plan of Merger dated as of August 10, 2000 among Parent,
Offeror and the Company (incorporated by reference to Exhibit (d)(1)
to the Schedule TO filed by Parent and Offeror on August 18, 2000).
(e)(2) Pages 1-16 of the Company's Annual Meeting Proxy Statement filed on
September 27, 1999 (incorporated by reference from the filing made as
of such date; SEC File No. 000-12410).
(e)(3) Pages 7-8 of the Company's Annual Report on Form 10-K filed on
September 27, 1999 (incorporated by reference from the filing made as
of such date; SEC File No. 000-12410).
(e)(4) Form of side letter, to be entered into in substantially same form at
or prior to the consummation of the Merger among Offeror, Parent and
certain shareholders of the Company (incorporated by reference to
Exhibit (d)(2) to the Schedule TO filed by Parent and Offeror on
August 18, 2000).
(e)(5) Stock Voting and Tender Agreement dated as of August 10, 2000, among
Offeror, Parent and certain shareholders of the Company (incorporated
by reference to Exhibit (d)(3) to the Schedule TO filed by Parent and
Offeror on August 18, 2000).
(e)(6) Form of Separation Policy, to be entered into in substantially same
form at or prior to the consummation of the Merger (incorporated by
reference to Exhibit (d)(4) to the Schedule TO filed by Parent and
Offeror on August 18, 2000).
(e)(7) Confidentiality Agreement between Kohlberg & Co., L.L.C. and the
Company, dated as of January 21, 2000 (incorporated by reference to
Exhibit (d)(5) to the Schedule TO filed by Parent and Offeror on
August 18, 2000).
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
(e)(8) Amended and Restated Rights Plan dated December 1, 1999, as amended
August 9, 2000.*
(e)(9) Form of Stockholders' Agreement for KBII Holdings, Inc., to be entered
into in substantially same form at or prior to the consummation of the
Merger (incorporated by reference to Exhibit (d)(6) to the Schedule TO
filed by Parent and Offeror on August 18, 2000).
(e)(10) Summons and Complaint of M. Dean Briggs, dated August 14, 2000,
against BI Incorporated, et. al. **
(e)(11) Memorandum to BI Employees dated August 24, 2000. ***
(e)(12) Motion for Extension of Time in Which to Answer or Otherwise Move of
BI Incorporated, dated September 1, 2000, in response to Complaint
(incorporated by reference to Exhibit (a)(5)(B) to the Schedule TO/A
filed by Parent and Offeror on September 11, 2000).
(e)(13) Order dated September 13, 2000, granting Motion for Extension of Time
in Which to Answer or Otherwise Move of BI Incorporated (filed
herewith).
</TABLE>
--------
* filed as the like-numbered exhibit to the Schedule 14D-9 filed by the
Company on August 18, 2000.
** filed as the like-numbered exhibit to Amendment No. 1 to the Schedule 14D-9
filed by the Company on August 23, 2000.
*** filed as the like-numbered exhibit to Amendment No. 2 to the Schedule 14D-9
filed by the Company on August 25, 2000.
Materials not being delivered by the Offeror or the Company, but which are
listed as "filed" with this Schedule 14D-9, may be obtained at various
Commission reference facilities and by accessing the Commission's website on
the Internet at http://www.sec.gov.
24
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: September 19, 2000
BI INCORPORATED
By: /s/ David J. Hunter
David J. Hunter, President
25
<PAGE>
ANNEX B
BI INCORPORATED
----------------
Supplement to Information Statement Pursuant to Section 14(f)
of the Securities Exchange Act of 1934 and
Rule 14F-1 Thereunder
----------------
This Supplement to the Information Statement Pursuant to Section 14(f)
amends and supplements the Information Statement Pursuant to Section 14(f) of
the Securities and Exchange Act of 1934 and Rule 14F-1 Thereunder originally
filed as Annex B to the Solicitation/Recommendation Statement on Schedule 14D-
9 filed on August 18, 2000, by BI Incorporated, a Colorado corporation
relating to a proposed tender offer for all of the outstanding shares of
common stock of BI Incorporated and a proposed merger of BI Incorporated with
and into KBII Acquisition Company, Inc.
The Date of this Supplement to Information Statement is September 19, 2000.
<PAGE>
The section entitled "INFORMATION CONCERNING CURRENT DIRECTORS, OFFICERS
AND DIRECTOR DESIGNEES" is hereby amended and supplemented by replacing it in
its entirety with the following:
INFORMATION CONCERNING CURRENT DIRECTORS, OFFICERS AND DIRECTOR DESIGNEES
The following sets forth the name, age as of August 10, 2000, the year each
became a director, current principal occupation or employment, five-year
employment history and addresses of such occupations or employment for the
eight members currently serving on the Board.
<TABLE>
<CAPTION>
Director
Age Since
--- --------
<S> <C> <C>
William E. Coleman is Chairman of Colorado Venture Management,
a venture capital firm, and Chairman of Colorado Energy
Management, developers of cogeneration projects. Both Colorado
Venture Management and Colorado Energy Management are located
at 4845 Pearl East Circle, Boulder, Colorado 80301. Dr.
Coleman has been Vice Chairman of the Board of the Company
since November 1992........................................... 66 1984
Mckinley C. Edwards, Jr. has been Executive Vice President and
Chief Operating Officer since November 1996. He joined the
Company in November 1983 as Manufacturing Manager, was elected
Vice President of Manufacturing in November 1984, promoted to
Executive Vice President of Operations in April 1985 and was
elected as Treasurer and Secretary in June 1986............... 58 1990
Beverly J. Haddon is currently President of The Haddon Firm,
which is engaged in business consulting and government
lobbying. Prior to forming The Haddon Firm, Ms. Haddon was a
Partner at CRL Associates, a business consulting and
government lobbying firm, since April 1993. The Haddon Firm
and CRL Associates are located at 1625 Broadway, Suite 2450,
Denver, Colorado 80202. Prior to this date, she held various
positions over 28 years with Norwest Bank, her latest being
Executive Vice President from June 1991 through May 1992...... 58 1994
David J. Hunter joined the Company in June 1981 and served as
Operations Manager and Vice President of Operations from
January 1982 to July 1982, Vice President and Chief Operating
Officer from July 1982 to April 1985, and as President and
Chief Executive Officer from April 1985 to the present........ 55 1982
Jeremy N. Kendall has been Chairman and Chief Executive Officer
of Stake Technology, Ltd., a company which has developed a
process for converting biomass into chemicals and pulp, since
June 1983. Mr. Kendall is also Chairman of JEMTEC, Inc., an
independent distributor of certain of the Company's products.
He is Director of Environmental Reclamation Inc., a company
which specializes in environmental cleanups of old mining
sites, Chairman of Easton Minerals, a mineral exploration
company and Chairman of Logicsys, Inc., a service provider and
wireless internet business. Stake Technology, Ltd., JEMTEC,
Inc. and Eastern Minerals have their principal offices at 2838
Highway 7, Norval, Ontario, LOP1KO Canada. Logicsys, Inc. has
its principal office at 977 Pantera Drive, Mississauga,
Ontario L4W2T4 and Environmental Reclamation Inc. is located
at Toronto, Canada. Mr. Kendall has been Chairman of the Board
since November 1992........................................... 60 1981
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
Director
Age Since
--- --------
<S> <C> <C>
Perry M. Johnson has served as a corrections consultant since
April 1988 with Johnson, Kime & Associates, located at 3680
Bayou Place, Holt, MI 48842. He consults in the areas of
prison overcrowding, implementation of house arrest and
halfway house programs and development of offender
classification systems. Since January 1982 he has been
Adjunct Professor for the School of Criminal Justice at
Michigan State University. Prior to April 1988, Mr. Johnson
was Deputy Director, Bureau of Field Services; Director,
Michigan Department of Corrections; Warden, State Prison of
Southern Michigan and Deputy Director, Bureau of Correctional
Facilities................................................... 69 1994
Barry J. Nidorf has served as a Corrections Consultant since
March 1997. Mr. Nidorf's consultancy business is located at
17250 Braxton Street, Granada Hills, California 91344. Prior
to this date, he held various positions, over 32 years with
the Los Angeles County Probation Department in Los Angeles,
California, his latest being Chief Probation Officer from
June 1984 to March 1997...................................... 59 1996
Byam K. Stevens, Jr. has served as a security analyst and
portfolio manager for the stock brokerage firm of H.G.
Wellington & Co., Inc. since March 1986. H.G. Wellington &
Co., Inc. is located at 14 Wall Street, New York, New York
10005. From January 1973 to that time, he served in the same
capacities for Stillman, Maynard & Co. until the two firms
merged....................................................... 69 1989
</TABLE>
Information Concerning Director Designees
The following sets forth the name, age as of August 10, 2000, current
principal occupation or employment and five year employment history for the
two persons who have been designated by KBII to assume directorships upon the
purchase of at least 90% of the outstanding shares of BI Common Stock in the
tender offer and the consummation of a merger between BI and KBII. This
information was provided by KBII.
James A. Kohlberg is President of KBII Acquisition Company, Inc. and KBII
Holdings, Inc., Managing Member of KBII Management, LLC (General Partner of
KBII Acquisition Company, L.P., the controlling shareholder of KBII Holdings,
Inc.). Mr. Kohlberg has been a principal of Kohlberg & Co., L.L.C. for more
than the past five years.
Christopher Lacovara is Secretary of KBII Acquisition Company, Inc. and
KBII Holdings, Inc., and Secretary of KBII Management, LLC. Mr. Lacovara has
been an associate with and/or principal of Kohlberg & Co., L.L.C. for more
than the past five years.
Current Director Compensation
Each non-employee director was granted, on July 1, 2000, an option pursuant
to the 1999 Stock Option Plan to purchase 4,500 shares of the Company's common
stock at the closing price on the date prior to the grant date for service in
fiscal 2000. Non-employee directors received $2,500 for each Board of
Directors meeting attended during the fiscal year. Non-employee directors who
are members of the Audit, Nomination and Compensation Committees received $250
for each meeting attended during the fiscal year as stated below. On November
16, 1999, each re-elected non-employee director received $7,500.
In the event of retirement, directors, other than those who have been found
in a legal proceeding to have violated their duties to the Company, are
entitled to a one-time payment of $1,000 per year for service on the Board
upon their retirement. Service of more than one fiscal quarter of a year is
deemed service for that year. Any compensation shall be paid with the final
check delivered to the retiring Director for accrued Director's fees.
B-3
<PAGE>
Committees, Attendance, Nominations for Fiscal 2000
The Company has standing Audit, Nomination and Compensation Committees. The
Company's Audit Committee during fiscal 2000 was comprised of Messrs. Coleman,
Hunter, Johnson, Nidorf and Stevens. This Committee recommends engagement of
the Company's independent accountants, approves services performed by such
accountants, and reviews and evaluates the Company's accounting system of
internal controls. The Audit Committee met 3 times during fiscal year 2000.
During fiscal 2000, the Compensation Committee consisted of Messrs. Edwards
and Hunter (non-voting members), Kendall, Stevens and Ms. Haddon. This
Committee approves salaries and other compensation arrangements for the
executive officers of the Company. This Committee also approves option grants
to eligible employees under the Company's stock option plans. The Compensation
Committee met seven times during fiscal 2000. The Nomination Committee
consisting of Messrs. Hunter, Coleman, Kendall and Johnson did not meet in
fiscal 2000. This committee was formed to develop the composition and
participation guidelines of the Board of Directors. The Company's Board of
Directors met eight times during fiscal 2000. Each Director participated by
personally attending during fiscal 2000 over 75% of both the Board of
Directors meetings and meetings of committees of which he or she was a member.
Information Concerning Current Officers
The following table sets forth certain information with respect to the
current executive officers of the Company.
At August 15, 2000 the executive officers of the Company were as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David J. Hunter 55 President and Chief Executive Officer
Mckinley C. Edwards, Jr. 58 Executive Vice President and Chief Operating Officer, Secretary and Treasurer
Jacqueline A. Chamberlin 45 Vice President of Finance and Chief Financial Officer
Steven P. Merrefield 51 Executive Vice President
Jonathan M. Hinebauch 59 Vice President, Business Development
</TABLE>
All executive officers serve at the discretion of the Board of Directors.
David J. Hunter's biography is set forth above.
Mckinley C. Edwards' biography is set forth above.
Jacqueline A. Chamberlin has been Vice President of Finance and Chief
Financial Officer since November 1993. She joined the Company in January 1983
and served as Accounting Manager through November 1985, Controller until May
1992 and Vice President of Accounting up to November 1993.
Steven P. Merrefield has been with the Company since April 1990. He has
served as Vice President of Monitoring, Vice President of Major Accounts, Vice
President of Customer Services, Vice President and General Manager of the
Electronic Monitoring Division and Vice President and General Manager of the
Community Correctional Services Division. Currently, he is Executive Vice
President overseeing Marketing and Sales. In February 1999 he was appointed a
Corporate Officer. He has been in the corrections industry for over twenty-
five years. Before joining the Company, he held numerous positions in public
and private corrections. He has worked for the Florida Department of
Corrections, Georgia Department of Corrections and Harris County, TX.
Jonathan M. Hinebauch has been Vice President of Business Development since
1996 and elected a corporate officer in February 1999. He joined the Company
in 1986 and has held numerous positions ranging from Vice President Sales and
Marketing from 1986 to 1988 and Major Account Management from 1988 to 1993.
Prior to joining the Company Mr. Hinebauch was President of Alpine Designs
from 1971 to 1973, VP of Camp 7 from 1973 to 1975 and Founder of Altra Inc. in
1975.
B-4
<PAGE>
ANNEX D
Prior Stock Purchases
Purchases of the Company's common stock by David J. Hunter, Mckinley C.
Edwards, Jr., Jacqueline A. Chamberlin, Steven P. Merrefield and Jonathan M.
Hinebauch during the two years prior to the date of this Schedule 13E-3 filing
are as follows:
DAVID J. HUNTER
<TABLE>
<CAPTION>
Number of Average
Calendar Shares Purchase Range of Price
Quarter Purchased Prices Paid Paid
-------- --------- -------------------------------------- -------
High Low
----- -----
<S> <C> <C> <C> <C>
3Q98 0 -- -- --
4Q98 21,000 $7.25 $5.13 $6.19
1Q99 0 -- -- --
2Q99 0 -- -- --
3Q99 80,735 $5.13 $5.13 $5.13
4Q99 0 -- -- --
1Q00 0 -- -- --
2Q00 0 -- -- --
</TABLE>
MCKINLEY C. EDWARDS, JR.
<TABLE>
<CAPTION>
Number of Average
Calendar Shares Purchase Range of Price
Quarter Purchased Prices Paid Paid
-------- --------- -------------------------------------- -------
High Low
----- -----
<S> <C> <C> <C> <C>
3Q98 0 -- -- --
4Q98 15,000 $5.13 $5.13 $5.13
1Q99 0 -- -- --
2Q99 0 -- -- --
3Q99 0 -- -- --
4Q99 7,424 $5.13 $5.13 $5.13
1Q00 0 -- -- --
2Q00 0 -- -- --
</TABLE>
JACQUELINE A. CHAMBERLIN
<TABLE>
<CAPTION>
Number of Average
Calendar Shares Purchase Range of Price
Quarter Purchased Prices Paid Paid
-------- --------- -------------------------------------- -------
High Low
----- -----
<S> <C> <C> <C> <C>
3Q98 0 -- -- --
4Q98 7,000 $5.13 $5.13 $5.13
1Q99 22,255 $5.13 $4.50 $4.82
2Q99 0 -- -- --
3Q99 0 -- -- --
4Q99 0 -- -- --
1Q00 0 -- -- --
2Q00 0 -- -- --
</TABLE>
D-1
<PAGE>
STEVEN P. MERREFIELD
<TABLE>
<CAPTION>
Number of Average
Calendar Shares Purchase Range of Price
Quarter Purchased Prices Paid Paid
-------- --------- -------------------------------------- -------
High Low
----- -----
<S> <C> <C> <C> <C>
3Q98 0 -- -- --
4Q98 0 -- -- --
1Q99 15,143 $5.13 $5.13 $5.13
2Q99 50 $6.03 $6.03 $6.03
3Q99 0 -- -- --
4Q99 47 $6.38 $6.38 $6.38
1Q00 0 -- -- --
2Q00 64 $4.73 $4.73 $4.73
</TABLE>
JONATHAN M. HINEBAUCH
<TABLE>
<CAPTION>
Number of Average
Calendar Shares Purchase Range of Price
Quarter Purchased Prices Paid Paid
-------- --------- -------------------------------------- -------
High Low
----- -----
<S> <C> <C> <C> <C>
3Q98 0 -- -- --
4Q98 0 -- -- --
1Q99 0 -- -- --
2Q99 829 $6.03 $6.03 $6.03
3Q99 0 -- -- --
4Q99 784 $6.38 $6.38 $6.38
1Q00 0 -- -- --
2Q00 1,058 $4.73 $4.73 $4.73
</TABLE>
D-2
