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SUPPLEMENT TO
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
SUNRISE MEDICAL INC.
AT
$10.00 NET PER SHARE
BY
V.S.M. ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
V.S.M. HOLDINGS, INC.
A WHOLLY OWNED SUBSIDIARY OF
V.S.M. INVESTORS, LLC
A COMPANY FORMED BY
VESTAR CAPITAL PARTNERS IV, L.P.
AND
PARK AVENUE EQUITY PARTNERS, L.P.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME,
ON WEDNESDAY, DECEMBER 6, 2000, UNLESS THE OFFER IS EXTENDED.
SHARES TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION OF THE INITIAL PERIOD OF THE OFFER, BUT NOT DURING THE SUBSEQUENT
OFFERING PERIOD DESCRIBED BELOW.
To: The Stockholders
of Sunrise Medical Inc.
This Supplement (the "Supplement") to the Offer to Purchase dated
October 30, 2000 (the "Original Offer to Purchase") updates and/or supplements
certain information contained therein. Capitalized terms used but not otherwise
defined herein shall have the meanings set forth in the Original Offer to
Purchase. Sections referred to herein correspond to those sections set forth in
the Original Offer to Purchase.
The Summary Term Sheet is hereby amended and supplemented to include at the
end thereof the following questions and answers:
- HOW MANY SHARES MUST BE TENDERED TO SATISFY THE MINIMUM CONDITION?
We believe that the tender of 12,723,948 shares of common stock of Sunrise
Medical Inc. would satisfy the minimum condition.
- DID EXECUTIVES OF SUNRISE MEDICAL INC. HAVE INTERESTS IN THE TRANSACTION
DIFFERENT FROM THE INTERESTS OF STOCKHOLDERS IN GENERAL?
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Yes. Certain executives of Sunrise Medical Inc. have certain interests in
the transaction that are different from, or in addition to, the interests of
stockholders in general. Among other things, eleven executives who beneficially
owned, as of October 30, 2000, approximately 0.2% of the outstanding shares of
common stock of Sunrise Medical Inc. (approximately 6.6% after giving effect to
the exercise of their stock options that have exercise prices below $10.00 per
share and will not be cancelled without consideration) have agreed to invest in
Parent and to enter into new employment agreements with Sunrise Medical Inc. See
"SPECIAL FACTORS--Interests of Certain Persons in the Transactions" in the
Original Offer to Purchase.
- DO YOU THINK THE OFFER IS FAIR TO UNAFFILIATED STOCKHOLDERS OF SUNRISE MEDICAL
INC.?
Yes. Purchaser, Holdings, Parent, VCP IV, PAE and the executive officers of
Sunrise Medical Inc. who have agreed to invest in Parent believe that the price
per share offered and the merger consideration is fair to the unaffiliated and
affiliated stockholders of Sunrise Medical Inc. See "SPECIAL
FACTORS--Recommendation of the Board of Directors; Fairness of the
Transactions--Purchaser, Holdings, Parent, VCP IV and PAE."
- WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER AND MERGER?
The transaction will be a taxable transaction for all stockholders of
Sunrise Medical Inc. The cash you receive in the transaction in exchange for
your shares of common stock of Sunrise Medical Inc. will be subject to federal
income tax and also may be taxed under applicable state, local and other tax
laws. In general, you will recognize gain (or loss) equal to the difference
between (i) the cash you receive and (ii) the tax basis of your shares exchanged
in the transaction.
There will be no gain or loss to Sunrise Medical Inc. or Purchaser or its
affiliates as a result of the transaction.
You should consult your tax advisor regarding the specific tax consequences
of the transaction applicable to you. See "The Tender Offer--Certain United
States Federal Income Tax Consequences" in the Original Offer to Purchase.
The Summary Term Sheet is hereby further amended and supplemented by
amending and restating in its entirety the fourth sentence in the response to
the question "What does the Sunrise Medical Inc. Board of Directors think of the
offer?" as follows:
"The board of directors of Sunrise Medical Inc. has determined that the terms of
the offer and the merger are fair to, and in the best interests of, the
affiliated and unaffiliated stockholders of Sunrise Medical Inc. and recommends
that you tender your shares in the offer."
"SPECIAL FACTORS--Background of the Transactions" is hereby amended and
supplemented as follows:
The second sentence of the third paragraph is amended and restated in its
entirety as follows:
"Following the press release, the Company received inquiries from
approximately 16 third parties, primarily financial buyers, interested in a
potential transaction with the Company."
The sixth through fifteenth paragraphs are amended and restated in their
entirety as follows:
"In the spring of 2000, members of the Company's senior management continued
to formulate and revise a series of internal restructuring plans and examined
various secured and unsecured financing alternatives. On February 29 and
April 25, 2000, the Company Board met and received briefings on these matters
from members of the Company's senior management, including Mr. Hammes and
Steven Jaye (the Company's general counsel and senior vice president), Ted
Tarbet (the Company's chief financial officer), Raymond Huggenberger (the
Company's senior vice president and president of European operations), Geoff
Cooper (the Company's vice president and chief information officer), and
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John Radak (the Company's controller). Also, Mr. Hammes and Mr. Jaye reported to
the Company Board as to the inquiries they had received from potential financial
partners.
Following these Company Board meetings and through mid-June, at the request
of the Company Board, Mr. Hammes and Mr. Jaye met with representatives of four
prospective financial partner groups, answering questions regarding the Company
and its business and prospects. On May 11, 2000, Messrs. Hammes, Jaye and Radak
held a preliminary meeting with representatives of PAE and VCP IV. Also on that
same day, Mr. Hammes and Mr. Jaye held a preliminary meeting with
representatives of a consortium consisting of four prospective merchant banking
partners which indicated interest in exploring a possible leveraged buyout or
recapitalization involving the Company.
Mr. Hammes and Mr. Jaye again met with representatives of the merchant
banking consortium on June 1, 2000. On June 7, 2000, Mr. Hammes, Mr. Jaye and
Mr. Radak, together with representatives of Deutsche Banc Alex. Brown, again met
with the consortium. At this meeting, management made a presentation regarding
the Company and its business and prospects and answered questions regarding the
challenges facing the Company's restructuring plans.
On June 14, 2000, Mr. Hammes and Mr. Jaye, together with representatives of
Deutsche Banc Alex. Brown, met with VCP IV and PAE. At this meeting, members of
the Company's senior management made a presentation to representatives of VCP IV
and PAE. Also at this meeting, representatives of VCP IV and PAE discussed their
preliminary interest in pursuing with the Company a leveraged recapitalization
transaction that potentially would value the Common Stock at a price per Share
of $10.00.
In mid-June 2000, Mr. Hammes and Mr. Jaye, together with representatives of
Deutsche Banc Alex. Brown, also met again with representatives of the consortium
of four merchant banking firms to discuss further the consortium's interest in a
possible leveraged buyout or recapitalization transaction. The consortium
suggested a price per Share significantly lower than $10.00, and expressed
concern regarding the likelihood of successful implementation of the Company's
restructuring plans. In the week that followed, a member of the consortium
contacted the Company and orally suggested another form of transaction, which
also would have resulted in a price per Share significantly lower than $10.00.
During this time, again at the request of the Company Board, Mr. Hammes and
Mr. Jaye, together with representatives of Deutsche Banc Alex. Brown, also met
with another merchant banking firm to discuss a potential transaction. At that
meeting, representatives of management and the prospective financial buyer
discussed the Company's business and restructuring plans. The parties also
discussed potential financing of any transaction.
On June 21, 2000, the Company Board met to discuss, among other matters, the
progress made with respect to the Company's internal restructuring plans and
financing efforts. The Company Board was also updated as to the interest of, and
discussions held with, VCP IV, PAE and the other merchant banking firms
referenced above. In light of the high level of interest that was expressed by
potential financial partners at the previous meetings, the Company Board
directed Mr. Hammes and Mr. Jaye and Deutsche Banc Alex. Brown to continue to
pursue discussions with VCP IV, PAE and one other financial partner that had
proposed the highest transaction values. At this Company Board meeting, Deutsche
Banc Alex. Brown reviewed with the Company Board a list of potential strategic
partners, and the Company Board authorized Deutsche Banc Alex. Brown to contact
two strategic partners that the Company Board believed would be likely to
consider and consummate a possible business combination or other strategic
transaction with the Company.
In late June and July of 2000, discussions with VCP IV, PAE and the other
prospective financial partner continued. The parties continued to discuss the
Company's business and restructuring plans and the difficulties the Company had
encountered, including its loss of market share during the last few years.
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In late July 2000, Messrs. Hammes, Jaye, Tarbet, Huggenberger, Cooper and
Radak, Sam Sinasohn, the Company's vice president of taxes and special projects,
and Ben Anderson-Ray, the Company's senior vice president and president of its
Global Business Group, and representatives of Deutsche Banc Alex. Brown met with
another prospective financial partner. The members of management made a more
detailed presentation of the Company's business and restructuring plans,
specifically discussing the challenges to the Company in its restructuring
plans. Shortly thereafter, that entity declined any further interest in pursuing
a transaction.
On August 1, 2000, the other prospective financial partner returned the
information regarding the Company with which it had been provided, expressing
its unwillingness to proceed in a transaction that valued the Common Stock at or
above $10.00 per Share. After some discussion, the two strategic partners that
had been contacted also expressed no interest in pursuing such a transaction.
On August 3, 2000, Mr. Hammes and Mr. Jaye and representatives of Deutsche
Banc Alex. Brown met with representatives of VCP IV and PAE. At that meeting,
the parties discussed the historical performance of the Company and its proposed
restructuring plans. Around that time, the Company provided to VCP IV and PAE
certain confidential information and access to the Company's employees in
connection with VCP IV's and PAE's business diligence."
The third sentence of the eighteenth paragraph is amended and restated in
its entirety as follows:
"The proposal provided for a break-up fee of $10 million if a superior
proposal was accepted by the Company or if any acquisition proposal was accepted
by the Company within 12 months of the termination of the agreement with Parent.
It also provided for expense reimbursement arrangements whereby the Company
would be responsible for up to $4 million of expenses incurred by Parent."
"SPECIAL FACTORS -- Recommendation of the Board of Directors; Fairness of
the Transactions" is hereby amended and supplemented as follows:
Paragraphs 2 through 4 thereunder are hereby amended and restated in their
entirety as follows:
"2. The Company Board considered the relationship of the Offer price to the
historical market prices of the Shares, with particular focus on the market
prices of the Shares during the period from January 1, 1999 to October 13, 2000,
during which period the trading volume of the Shares equaled approximately 96.9%
of the Shares in the public float. The Company Board noted that approximately
92% of such Shares were traded at a price below $8.00 per Share. The Company
Board also noted the low and high market prices of the Shares of $3.75 and $7.13
per Share, respectively, during the 52-week period (a period often used as a
reference point for the short-term trends in the market prices of publicly
traded securities) preceding public announcement of the Offer and the Merger.
The Company Board also considered the fact that the cash consideration that the
Company's stockholders would receive for each Share under the Revised Proposal
was at a significant premium to the Company's then-current market price.
3. The fact that the Company Board had explored the possibility of pursuing
various other possible transactions that would enhance stockholder value,
including the Company's alternative to remain an independent public company and
the possibility of curtailing operations in an attempt to increase
profitability, and other extraordinary corporate transactions, as well as the
risks and uncertainties associated with such alternatives. The Company Board
considered the current and historical financial condition and results of
operations of the Company, as well as the prospects and strategic objectives of
the Company, including the risks involved in achieving those prospects and
objectives, and the current and expected conditions in the industry in which the
Company's business operates. The Company Board considered the Company's failure
starting in 1996 to successfully implement a series of restructuring plans and
achieve the desired results. The Company Board also considered that during this
period the Company had lost market share and earned significantly lower profits
than a number of its competitors, and had failed to demonstrate convincingly any
transformation to a significantly higher
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growth or higher profitability business. In addition, the Company Board also
considered the possibility of achieving the results sought by its current
restructuring plans (including attainment of significantly higher growth and
profit than the Company has historically achieved) may not in fact be realized.
4. The Company's business, prospects, financial condition, current business
strategy and competitive position in the health care industry. In addition to
considering the loss of market share, the failed past restructuring efforts and
the possibility that the current restructuring plan would not achieve the
results sought, the Company Board also considered the possibility that the
Company's future growth and achievement of its business plan may be constrained
by the Company's limited access to debt and equity financing."
The paragraph following paragraph 10 is replaced in its entirety with the
following:
"11. The Company Board considered the ability of the stockholders who may
not support the Merger to obtain "fair value" for their shares if they perfect
and exercise their appraisal rights under the General Corporation Law of the
State of Delaware.
The Company Board and the members of the Special Committee also considered
that the Offer and the Merger would result in the unaffiliated stockholders of
the Company no longer continuing to have an equity interest in the Company and
being able to continue to participate in the future earnings and potential
growth of the Company. The Company Board and the members of the Special
Committee believe that this factor is outweighed by the other factors set forth
above.
The Company Board and the members of the Special Committee found reasonable
and expressly adopt the opinions and the related financial analyses of the
Special Committee's financial advisors, which opinions and analyses are
summarized below. The Company Board and the members of the Special Committee
believe that the price per Share and the Merger Consideration is fair to the
unaffiliated stockholders of the Company.
The Company Board and the Special Committee did not consider the Company's
net book value or liquidation value to be material in evaluating the value of
the Company. The Company Board and the Special Committee noted that the
Company's net book value was higher than the Company's equity value implied by
the $10.00 per Share cash consideration payable in the Offer and the Merger
based on the Company's balance sheet as of June 30, 2000, but also noted that
the investment community, including research analysts, generally did not use net
book value as a measure for valuing companies in the medical device and
equipment sector of the health care industry. The Company Board and the Special
Committee also noted that the Special Committee's financial advisors did not
consider the net book value or liquidation value to be material in evaluating
the value of the Company. Accordingly, the Company Board and the Special
Committee believed that the net book value did not adequately reflect the market
value of the Company and the valuation that a third party buyer would likely
place on the Company. The Company Board and the Special Committee also believed
that the Company's liquidation value would be substantially below the $10.00 per
Share cash consideration payable in the Offer and the Merger.
PROCEDURAL FAIRNESS. The Company Board and the members of the Special
Committee also determined that the Offer and the Merger are procedurally fair
because, among other things:
- the Special Committee consisted of non-employee, independent directors
appointed to represent the interests of the Company's unaffiliated
stockholders in connection with the negotiation and approval of the terms
of the Offer and the Merger;
- none of the members of the Special Committee will be investors in Parent;
- the Special Committee received advice from independent legal counsel and
two separate financial advisors;
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- the Special Committee received separate written opinions from Deutsche
Banc Alex. Brown and Batchelder & Partners, Inc. as to the fairness, from
a financial point of view and as of the date of such opinions, of the
$10.00 per Share cash consideration to be received in the Offer and the
Merger by the holders of Shares (other than Parent, the Executives and
their respective affiliates); and
- the $10.00 per Share cash consideration and the other terms and conditions
of the Merger Agreement resulted from bargaining between the Special
Committee and its representatives, on the one hand, and VCP IV and PAE and
their representatives, on the other hand.
In light of the foregoing factors, the Special Committee and the Company
Board determined that the Offer and the Merger are procedurally fair despite the
fact that the terms of the Merger Agreement do not require the approval of at
least a majority of the unaffiliated stockholders of the Company and that the
Special Committee and the Company Board did not retain an unaffiliated
representative to act solely on behalf of the unaffiliated stockholders for
purposes of negotiating the terms of the Merger Agreement.
The members of the Company Board and the members of the Special Committee
evaluated the Merger Agreement in light of their knowledge of the business,
financial condition and prospects of the Company, and considered the advice of
financial and legal advisors. The Company Board also considered and relied upon
the conclusions and unanimous recommendation of the Special Committee that the
Company Board approve the Merger Agreement and the transactions contemplated
thereby. In light of the number and variety of factors that the Company Board
and the Special Committee considered in connection with their evaluation of the
Offer and the Merger, neither the Company Board nor the Special Committee
quantified or otherwise assigned relative weights to the foregoing factors. In
addition, individual members of the Special Committee and the Company Board may
have given different weights to different factors."
"SPECIAL FACTORS--Recommendation of the Board of Directors; Fairness of the
Transactions--Purchaser, Holdings and Parent" is hereby amended and restated in
its entirety as follows:
"PURCHASER, HOLDINGS, PARENT, VCP IV AND PAE. Purchaser, Holdings, Parent,
VCP IV, PAE and the executive officers of the Company who have agreed to invest
in Parent regard the acquisition of the Company as an attractive opportunity
because they believe that the Company's future business prospects are favorable.
Although the investment will involve a substantial risk, each of them believes
that the long-term value of the equity investment could appreciate
significantly.
Purchaser, Holdings, Parent, VCP IV, PAE and the executive officers of the
Company who have agreed to invest in Parent believe that the price per Share
offered hereby and the Merger Consideration is fair to the Company's affiliated
and unaffiliated stockholders. Their conclusion is based upon and supported by
(a) the recent and historical prices of the Shares, see "The Tender
Offer--Section 6" ("Price Range of Shares; Dividends"), and the fact that the
cash consideration which the Company's stockholders will receive for each Share
pursuant to the Offer and the Merger is at a significant premium to the market
price of a Share immediately prior to the execution of the Merger Agreement, (b)
their due diligence review of the Company and their assessment of the Company's
business, prospects, financial condition, current business strategy and
competitive position in the health care industry, (c) the fact that
representatives of the Company had solicited proposals to purchase the Company
from other third parties and were not able to obtain an offer more attractive to
the Company's unaffiliated stockholders than the Offer and the Merger and
(d) the opinions of the Special Committee's financial advisors and the related
financial analyses performed by those financial advisors, which were directed to
and for the benefit of the Special Committee and are summarized below, and which
Purchaser, Holdings, Parent, VCP IV, PAE and the executive officers of the
Company who have agreed to invest in Parent expressly adopt. Purchaser,
Holdings, Parent, VCP IV, PAE and the
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executive officers of the Company who have agreed to invest in Parent also
considered that the Offer and the Merger would result in the unaffiliated
stockholders of the Company no longer continuing to have an equity interest in
the Company and being able to continue to participate in the future earnings and
potential growth of the Company. They believe that this negative factor is
outweighed by the other factors described above. Purchaser, Holdings, Parent,
VCP IV, PAE and the executive officers of the Company who have agreed to invest
in Parent did not quantify or otherwise assign relative weights to the foregoing
factors. Purchaser, Holdings, Parent, VCP IV, PAE and the executive officers of
the Company who have agreed to invest in Parent did not consider the net book
value or liquidation value of the Company in evaluating the Company, and they
expressly adopt the conclusion of the Company Board and the Special Committee
that such valuations are not material and their reasons for such conclusion.
Although the Merger Agreement does not require the approval of at least a
majority of the unaffiliated stockholders of the Company and the Special
Committee and the Company Board did not retain an unaffiliated representative to
act solely on behalf of unaffiliated stockholders for purposes of negotiating
the terms of the Merger Agreement, Purchaser, Holdings, Parent, VCP IV, PAE and
the executive officers of the Company who have agreed to invest in Parent
believe that the Offer and the Merger are procedurally fair to the unaffiliated
stockholders of the Company. Their conclusion as to the procedural fairness of
the Offer and the Merger are based upon and supported by the fact that (a) the
terms of the transactions were negotiated by representatives of the offerors
with the Special Committee (which consists solely of directors of the Company
who are neither employees of the Company nor affiliates of the offerors, who
will not be investors in Parent and who constitute a majority of the Company
Board) and representatives of the Special Committee, (b) such negotiations were
conducted at a time when Purchaser, Holdings, Parent, VCP IV and PAE did not
beneficially own any Shares and after representatives of the Company had
solicited proposals to purchase the Company from other third parties and
(c) the transaction has been unanimously approved by the members of the Special
Committee who are neither employees of the Company nor affiliates of the
offerors. Purchaser, Holdings, Parent, VCP IV, PAE and the executive officers of
the Company who have agreed to invest in Parent did not quantify or otherwise
assign relative weights to the foregoing factors."
"SPECIAL FACTORS--Opinions of the Special Committee's Financial
Advisors--OPINION OF DEUTSCHE BANC ALEX. BROWN" is hereby amended as follows:
The second sentence of the sixth paragraph thereof is hereby deleted.
The first sentence of the first paragraph of the subsection entitled
"DISCOUNTED CASH FLOW ANALYSIS" is hereby amended and restated in its entirety
as follows:
"Deutsche Banc Alex. Brown performed a discounted cash flow analysis to
estimate the present value of the unleveraged, after-tax free cash flows that
the Company could generate during estimated fiscal years 2001 through 2005. In
light of the Company's historical financial performance more fully described
below, this analysis was based on two scenarios reflecting the potential for
different revenue growth rates and EBITDA margins for the Company."
The first sentence of the second paragraph of the subsection entitled "OTHER
FACTORS" is hereby amended and restated in its entirety to read as follows:
"The above discussion is a summary description of the material financial
analyses performed and factors considered by Deutsche Banc Alex. Brown in
connection with its opinion to the Special Committee."
Such paragraph is further amended by inserting after the second sentence
thereof the following:
"Deutsche Banc Alex. Brown's opinion was not based on any single factor or
analysis, nor did Deutsche Banc Alex. Brown attribute particular weight to
individual factors or analyses. Rather, Deutsche Banc
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Alex. Brown believed that the totality of the factors considered and analyses
performed by Deutsche Banc Alex. Brown in connection with its opinion operated
collectively to support its determination as to the fairness of the $10.00 per
Share cash consideration from a financial point of view."
The subsection entitled "Other Factors" is further amended by inserting
after the seventh paragraph thereof the following:
"During the past two years, Deutsche Banc Alex. Brown and its affiliates
have received fees totaling approximately $10.8 million in the aggregate for its
financial services to the Company and VCP IV and its affiliates."
"SPECIAL FACTORS--Opinions of the Special Committee's Financial
Advisors--OPINION OF BATCHELDER & PARTNERS, INC." is hereby amended as follows:
The first sentence of the fourth paragraph is hereby amended by deleting the
word "solely".
The subsection entitled "COMPARABLE PUBLIC COMPANY ANALYSIS" is amended by
inserting after the fifth sentence thereof the following:
"This analysis indicated an implied equity value of between $2.41 and $13.87 per
Share."
Such subsection is further amended by inserting after the penultimate
sentence thereof the following:
"This analysis indicated an implied equity value of between $0.84 and $8.60 per
Share."
The subsection entitled "COMPARABLE TRANSACTION ANALYSIS" is amended by
inserting after the penultimate sentence thereof the following:
"This analysis indicated an implied equity value of between $2.81 and $16.56 per
Share."
The subsection entitled "PREMIUMS PAID ANALYSIS" is amended by inserting at
the end thereof the following:
"This analysis indicated an implied equity value of between $7.85 and $8.75 per
Share."
The fourth sentence of the second paragraph of the subsection entitled
"DISCOUNTED CASH FLOW ANALYSIS" is hereby amended and restated in its entirety
to read as follows:
"The above discussion is a summary description of the material analyses and
examinations actually conducted by Batchelder in the preparation of its
opinion."
The third sentence of the third paragraph of such subsection is hereby
amended by deleting the word "solely" in each of the two places it appears.
"SPECIAL FACTORS--Purpose and Structure of the Transactions" is hereby
amended and supplemented as follows:
The first paragraph thereof is hereby amended and restated in its entirety
as follows:
"The purpose of the Offer is to enable Purchaser and its affiliates to
acquire a controlling equity interest in the Company, and to enable tendering
stockholders of the Company to acquire $10.00 per Share in cash, in the shortest
period of time practicable. As discussed under "The Merger Agreement--Company
Board Representation" in the Original Offer to Purchase, following the purchase
of Shares by Purchaser pursuant to the Offer, Purchaser will be entitled to
designate a majority of the members of the Company's Board of Directors. As
discussed in the next paragraph, following the purchase of Shares by Purchaser
pursuant to the Offer, Purchaser will be able to cause the Merger to be
consummated. The purpose of the Merger is to enable Holdings to become the sole
stockholder of the Company. Purchaser and its affiliates are acquiring the
Company at this time because they (a) are long-term investors which are willing
to increase the Company's financial leverage
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by causing it to incur a significantly increased amount of indebtedness in
connection with the Merger and (b) believe that, although there is a risk that
the Company's current restructuring plan will not achieve the results sought and
the Company's performance in the short term may not be favorable, the Company's
current restructuring plan will be implemented successfully and over the long
term their investment in the Company will appreciate significantly
notwithstanding the Company's increased interest expense and debt repayment
obligations."
The following is hereby inserted at the end thereof:
"The Offer and the Merger will be taxable transactions for all stockholders
of the Company. The cash you receive in the Offer or the Merger in exchange for
your Shares will be subject to federal income tax and also may be taxed under
applicable state, local and other tax laws. In general, you will recognize gain
(or loss) equal to the difference between (i) the cash you receive and (ii) the
tax basis of your Shares exchanged in the transaction.
There will be no gain or loss to the Company or Purchaser or its affiliates
as a result of the Offer or the Merger.
You should consult your tax advisor regarding the specific tax consequences
of the transaction applicable to you. See "The Tender Offer--Certain United
States Federal Income Tax Consequences" in the Original Offer to Purchase."
"SPECIAL FACTORS--Interests of Certain Persons in the Transactions" is
hereby amended and supplemented as follows:
The last sentence of the second paragraph of the subsection entitled
"EMPLOYMENT AGREEMENTS" is hereby amended and restated in its entirety as
follows:
"Under the Employment Agreements the Executives will have substantially similar
rights to those they previously enjoyed under the terminated agreements and
arrangements, except that (a) under his Employment Agreement, Robert Logemann
will be entitled to receive a severance benefit equal to his annual base salary
following a covered termination of his employment; previously he would not have
been contractually entitled to a severance benefit and (b) under their
respective Employment Agreements, each of Peter Riley, John Radak and Sam
Sinasohn will be entitled to receive a severance benefit equal to 1.5 times the
aggregate of his annual base salary and bonus following a covered termination of
employment instead of 1.0 times to 2.0 times the aggregate of his annual base
salary and bonus depending upon the timing of the covered termination."
"SPECIAL FACTORS--Interests of Certain Persons in the Transactions" is
hereby amended and supplemented as follows:
The subsection entitled "OTHER MANAGEMENT INVESTORS" is hereby amended and
supplemented by adding the following at the end thereof:
"Such members of management will include Thomas H. O'Donnell, Daniel Easley,
Jerome Aarestad, Richard Kocinski, Terry Mulkey, Ulrich Muller, Richard Ward,
Klaus Appel, Goetz Bayer, Armando Diaz, Christopher Fullerton, John Gerhold,
Bernd Humpert, Leah Kalin, Mark Ludwig, Brian Moore, Kim Welch-Hagel, Perry
Payne, Jon Jaurequi, Kees Regeling, Marilyn Hamilton, Rita Hostak, Richard
Runkles, Dave Greene, Alan Cooke, Michel Papillon, Jim Clement, Robert Culhane,
Mark Hostak, Dave Johnston, Sandy Litwin, John Kirkpatrick, Mike Monk, Len
Dangelo, Ron Grossheim, Oliver Niemann, Alan Deacon, Tilden Bennett, Robert
Cunningham, William Forde and Blake Wotring."
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"THE TENDER OFFER--1. Terms of the Offer; Expiration Date" is hereby amended
and supplemented as follows:
The first paragraph thereof is amended and restated in its entirety as
follows:
"1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), Purchaser will accept for
payment, purchase and pay for all Shares validly tendered on or prior to the
Expiration Date (as hereinafter defined) and not properly withdrawn as permitted
by Section 4 ("Withdrawal Rights"). The term Expiration Date means 5:00 P.M.,
New York City time, on December 6, 2000, unless and until Purchaser (but subject
to the terms and conditions of the Merger Agreement) shall have extended the
initial period during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the initial
offering period, as so extended by Purchaser, shall expire."
The following is hereby inserted after the second paragraph thereof:
"In accordance with Rule 14d-11 under the Exchange Act, the Purchaser will
provide, on the terms of the Merger Agreement described in the preceding
paragraph, a subsequent offering period immediately following the Expiration
Date if (x) the conditions to the Offer theretofore shall have been satisfied or
waived and (y) the number of Shares that theretofore have been validly tendered
and not withdrawn and accepted for payment represent more than 50% but less than
90% of the issued and outstanding Shares. The subsequent offering period will
expire at 12:00 Midnight, New York City time, on the third business day
following the Expiration Date, unless and until the Purchaser (but subject to
the terms of the Merger Agreement) shall have extended the subsequent offering
period. During the subsequent offering period, stockholders may tender but may
not withdraw their Shares and will receive the price per Share payable in the
Offer. Shares tendered during the initial offering period and accepted for
payment may not be withdrawn during the subsequent offering period. The
subsequent offering period will not be an extension of the Offer, but will be an
additional period of time, following the expiration of the initial offering
period and the acceptance for payment of Shares tendered and not withdrawn
during the initial offering period, in which stockholders may tender Shares not
tendered during the initial offering period.
"THE TENDER OFFER--7. Certain Information Concerning the Company" is hereby
amended and supplemented as follows:
The last sentence of the first paragraph is hereby amended and restated in
its entirety as follows:
"Purchaser, Holdings and Parent and their affiliates do not have any knowledge
that would indicate that any statements contained herein based upon such
information are untrue, but they would not necessarily be aware that any such
information is untrue or that the Company has failed to disclose events that may
have occurred and may affect the significance or accuracy of any such
information."
"THE TENDER OFFER--8. Certain Information Concerning Purchaser, Holdings and
Parent" is hereby amended and supplemented as follows:
The fourth paragraph is hereby amended by adding to the end thereof the
sentence "VCP IV manages a committed equity capital pool of approximately
$2.5 billion."
The following paragraphs are inserted after the sixth paragraph thereof:
"PAE is a Delaware limited partnership formed in 1999 principally for the
purpose of investing in securities. PAE manages a committed equity capital pool
of approximately $100 million.
The sole general partner of PAE is Park Avenue Equity GP, LLC ("PAEP GP"), a
Delaware limited liability company. PAEP GP is principally engaged in the
business of investing in securities.
10
<PAGE>
The sole managing member of PAEP GP is PAE GP, LLC ("PAE GP"), a Delaware
limited liability company. PAE GP is principally engaged in the business of
investing in securities."
The following paragraph is inserted after the eighth paragraph thereof:
"Each of PAE, PAEP GP and PAE GP has its principal executive offices at
500 Park Avenue, Suite 510, New York, NY 10022. The telephone number for each of
PAE, PAEP GP and PAE GP is (212) 758-4446."
The penultimate paragraph thereof is hereby amended and supplemented by
adding "PAE, PAEP GP, PAE GP" after "VA IV" each time a reference to "VA IV"
appears in that paragraph.
The last paragraph thereof is hereby amended and restated in its entirety as
follows:
"For certain other information concerning Purchaser, Holdings, Parent,
VAC IV and PAE GP, see Schedule III."
"THE TENDER OFFER--10. Certain Conditions of the Offer" is hereby amended
and supplemented as follows:
The first sentence of the last paragraph is hereby amended by deleting the
words "at any time and from time to time" and replacing such words with "at any
time and from time to time prior to, in the case of conditions relating to
receipt of approvals from governmental authorities, the acceptance for payment
of any Shares tendered pursuant to the Offer and, in the case of all other
conditions, the Expiration Date."
"THE TENDER OFFER--11. Certain Legal Matters and Regulatory Approvals" is
hereby amended and supplemented as follows:
The second paragraph of the subsection entitled "ANTITRUST" is hereby
amended and supplemented by adding the following sentence after the first
sentence thereof:
"On November 2, 2000, Purchaser, Holdings and Parent received notice of
termination of the waiting period under the HSR Act for the consummation of the
Offer and the Merger."
The last paragraph of the subsection entitled "PENDING LITIGATION" is hereby
amended and supplemented by adding the following sentence after the first
sentence thereof:
"The actions KRIM V. SUNRISE MEDICAL INC., ET AL. and HARBOR FINANCE PARTNERS V.
SUNRISE MEDICAL INC., ET AL. have been consolidated and, as of the date hereof,
discovery has not been commenced. In connection with ROGERS V. SUNRISE MEDICAL
INC., ET AL., discovery requests have been made of the Company and its
directors, the Special Committee's financial advisors, VCP IV, Parent, Holdings
and Purchaser. Each of these parties is in the process of responding to such
discovery requests. On November 21, 2000, the Court in ROGERS denied plaintiffs'
motion for a temporary restraining order against the Offer and the Merger,
granted some limited expedited discovery in the case and scheduled a hearing on
plaintiffs' motion for a preliminary injunction in connection with the Offer and
the Merger for December 1, 2000. The defendants believe that plaintiffs' motion
is wholly without merit and intend to defend against it vigorously."
Annex B to the Original Offer to Purchase is hereby deleted in its entirety
and replaced with Annex B to this Supplement.
Schedule III to the Original Offer to Purchase is hereby amended and
supplemented by adding thereto the information set forth in Schedule III to this
Supplement.
11
<PAGE>
ANNEX B
BATCHELDER & PARTNERS, INC.
11975 EL CAMINO REAL, SUITE 300
SAN DIEGO, CALIFORNIA 92130
TELEPHONE: (858) 704-3300
TELECOPIER: (858) 704-3340
October 16, 2000
Special Committee of the Board of Directors
Sunrise Medical Inc.
2382 Faraday Avenue
Suite 200
Carlsbad, CA 92008
Gentlemen:
You have asked us to advise you with respect to the fairness from a
financial point of view of the Consideration (as herein defined) to be paid by
V.S.M. Investors, LLC, V.S.M. Holdings, Inc. and V.S.M. Acquisition Corp.
(individually and collectively, the "Acquiror") to the common shareholders
(other than the Parent, the Management Group, any other members of management
who have agreed to invest in the Parent and their affiliates) of Sunrise
Medical Inc., (the "Company"), pursuant to the terms of the Agreement and Plan
of Merger dated as of October 16, 2000 (the "Merger Agreement") as of the date
hereof. The Merger Agreement provides for, among other things, the acquisition
by the Acquiror of all of the outstanding shares of common stock, $1.00 par
value per share (the "Shares") of Sunrise Medical Inc. in exchange for $10.00
per Share in cash (the "Consideration"), subject to certain terms and conditions
more fully described in the Merger Agreement (the "Merger"). We are acting as
non-exclusive financial advisor to the Company's Special Committee in connection
with the Merger (although in so acting, we are not entering into an agency or
other fiduciary relationship with the Special Committee, the Company, its Board
or stockholders or any other person) and will receive a fee from the Company for
our services. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. Except as otherwise defined herein,
capitalized terms have the meanings ascribed to such terms in the Merger
Agreement.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available and internal financial and other data with respect to
the Company, including the financial statements for recent years (the last
audited Company financial statements provided to Batchelder & Partners, Inc.
were as of June 30, 2000) and certain other relevant financial and operating
data relating to the Company made available to us from published sources and
from the internal records of the Company; (ii) reviewed the financial terms and
conditions of the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for the Common
Stock; (iv) reviewed and discussed with Deutsche Banc Alex. Brown, the Company's
financial advisor, the background, history and terms of the transaction;
(v) compared the Company from a financial point of view with certain other
companies that we deemed to be relevant; (vi) considered the financial terms, as
they relate to the Company and to the extent publicly available, of selected
recent business combinations of companies that we deemed to be comparable, in
whole or in part, to the Merger; (vii) discussed with the Company's management
the prospects for, and business challenges facing, the Company absent the
Merger; (viii) reviewed and discussed with representatives of the Company's
management certain information of a
B-1
<PAGE>
business and financial nature regarding the Company, furnished to us by them,
including management's financial forecasts and related assumptions of the
Company and the benefits expected to result from the Merger; (ix) made inquires
regarding, and discussed, the Merger and the Merger Agreement and other matters
related thereto with Company's counsel; and (x) performed such other analyses
and examinations as we deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its
accuracy and completeness in all material respects. With respect to the
financial forecasts provided to us by representatives of the Company's
management, (i) management has advised us that the forecasts provided to us
accurately reflect the judgment of management; (ii) upon their advice and with
your consent we have assumed for purposes of our opinion that the forecasts,
including projections of restructuring charges, have been reasonably prepared on
bases reflecting the best available estimates and judgments of the Company's
management at the time and through the date hereof as to the future financial
performance of the Company; and (iii) that such projections provide a reasonable
basis upon which we can form our opinion. In rendering our opinion, we express
no view as to the reasonableness of the forecasts provided to us by the
Company's management or the assumptions on which such forecasts are based. You
have advised us and we have assumed, that there have been no material changes in
the Company's assets, financial condition, results of operations, business or
prospects since the respective dates of their last financial statements made
available to us. The management of the Company has advised us and we have
assumed that they are not aware of any facts or circumstances that would make
the information reviewed by us inaccurate or misleading. We have relied on
advice of your counsel and the independent accountants to the Company as to all
legal and financial reporting matters with respect to the Company, the Merger
and the Merger Agreement. We have assumed that the Merger will be consummated in
a manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934 and all other applicable federal and state statutes, rules
and regulations including any applicable foreign laws. In addition, we have not
assumed responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of the Company, nor have we been furnished with any such appraisals.
We were not retained or requested to consider any strategic alternatives to the
Merger or to seek indications of interest from potential buyers in connection
with rendering an opinion nor have we done so. We have assumed that the final
form of the Merger Agreement will be substantially similar to the last draft
reviewed by us. Finally, our opinion is based on economic, monetary, currency
exchange, financial markets and other conditions as in effect on, and the
information made available to us as of, the date hereof. Accordingly, although
subsequent developments may affect this opinion, and except as specifically
provided below, we do not assume any obligation to update, revise or reaffirm
this opinion.
We have further assumed with your consent that the representations and
warranties of each party in the Merger Agreement are true and correct, that each
party to the Merger Agreement will perform all of the covenants and agreements
required to be performed by such party under the Merger Agreement, and that the
Merger will be consummated in accordance with the terms described in the Merger
Agreement, without any further amendments thereto, and without waiver by the
Company of any of the conditions to its obligations thereunder. We have also
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the Merger, no
restrictions, amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be received by the holders of Shares (other
than the Parent, the Management Group, any other members of management who have
agreed to invest in the Parent and their affiliates) pursuant to the Merger
Agreement is fair to such holders from a financial point of view.
B-2
<PAGE>
This opinion is directed to the Special Committee for use in connection with
its consideration of the Merger and is not a recommendation to any stockholder
as to how such stockholder should vote with respect to the Merger or otherwise.
This opinion is not a recommendation to any stockholder as to whether any
stockholder should tender Shares into the Tender Offer pursuant to the Merger
Agreement. Further, this opinion addresses only the financial fairness of the
Consideration to be received by the stockholders of the Company (other than the
Parent, the Management Group, any other members of management who have agreed to
invest in the Parent and their affiliates) as of the date hereof, and it does
not address any other aspect of the Merger including, without limitation, the
relative merits of the Merger, any alternatives to the Merger or the Company's
underlying business decision to proceed with or effect the Merger including the
benefits to be obtained from ongoing independent operations. This opinion may
not be used or referred to by the Company, or quoted or disclosed to any person
in any manner, without our prior written consent except that, if required by
law, this opinion may be quoted in its entirety without deletion or modification
in any materials to be presented to the shareholders of the Company in
connection with the Merger. In furnishing this opinion, we do not admit that we
are experts within the meaning of the term "experts" as used in the Securities
Act and the rules and regulations promulgated thereunder, nor do we admit that
this opinion constitutes a report or valuation within the meaning of Section 11
of the Securities Act.
Respectfully,
/s/ BATCHELDER & PARTNERS, INC.
BATCHELDER & PARTNERS, INC.
B-3
<PAGE>
SCHEDULE III
MANAGING MEMBERS OF PAE GP, LLC
1. MANAGING MEMBERS OF PAE GP, LLC. The following table sets forth the
name, the business address, present principal occupation or employment and five
year employment history of each of the managing members of PAE GP. Each
individual listed below is a citizen of the United States.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------------
<S> <C>
William E. Mayer ............................ Since August 1999, Managing Member of Park
c/o Park Avenue Equity Management, LLC Avenue Equity Management, LLC, a Delaware
500 Park Avenue limited liability company that is an
Suite 510 affiliate of PAE. From 1996 to July 1999, he
New York, New York 10022 was Managing Member of Development Capital
LLC. From 1992 to 1996 he was Dean of the
College of Business and Management at The
University of Maryland.
Theodore A. Greenberg ....................... Since August 1999, Managing Member of Park
c/o Park Avenue Equity Management, LLC Avenue Equity Management, LLC, a Delaware
500 Park Avenue limited liability company that is an
Suite 510 affiliate of PAE. From May 1998 to July 1999,
New York, New York 10022 he was Chief Financial Officer of Development
Capital LLC. From 1995 to April 1998, he was
Senior Manager of Marcum & Kliegman LLP, a
regional accounting and consulting firm.
Anthony R. Bienstock ........................ Since August 1999, Managing Member of Park
c/o Park Avenue Equity Management, LLC Avenue Equity Management, LLC, a Delaware
500 Park Avenue limited liability company that is an
Suite 510 affiliate of PAE. From March 1997 to June
New York, New York 10022 1999, he was Vice President of MG Capital
LLC. From January 1997 to February 1997, he
was employed by Fletcher Asset Management,
LLC. From 1994 to January 1997, he was an
associate at Goldman, Sachs & Co.
The Thornton Group, LLC ..................... The Thornton Group, LLC is a New Jersey
Two Worlds Fair Drive limited liability company that is principally
Somerset, New Jersey 08875 engaged in the business of investing in
securities.
</TABLE>
MANAGING MEMBER OF THE THORNTON GROUP, LLC
1. MANAGING MEMBER OF THE THORNTON GROUP, LLC. The following table sets
forth the name, the business address, present principal occupation or employment
and five year employment history of the managing member of The Thornton Group,
LLC. The individual listed below is a citizen of the United States.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------------
<S> <C>
J. Douglas Holladay ......................... Since January 1996, Managing Member of The
c/o The Thornton Group, LLC Thornton Group, LLC. Prior to January 1996,
Two Worlds Fair Drive he was an independent consultant.
Somerset, New Jersey 08875
</TABLE>
<PAGE>
THE DEPOSITARY FOR THE OFFER IS:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
FOR INFORMATION TELEPHONE: BY FACSIMILE TRANSMISSION: BY MAIL OR HAND OR OVERNIGHT DELIVERY:
(212) 815-3750 (for Eligible Institutions only) Tender & Exchange Department
(212) 815-6339 101 Barclay Street, 7E
New York, New York 10286
Attn: Kin Lau
</TABLE>
THE INFORMATION AGENT FOR THE OFFER IS:
[LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
E-mail: [email protected]
or
CALL TOLL-FREE (800) 322-2885
November 29, 2000
