<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-4
Issuer Tender Offer Statement
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
____________________
Transnational Industries, Inc.
(Name of Issuer)
Transnational Industries, Inc.
(Name of Person Filing Statement)
Series B Cumulative Convertible Preferred Stock,
$0.01 par value per share
(Title of Class of Securities)
(Cusip Number of Class of Securities:N/A)
___________________
Mr. Paul L. Dailey
Secretary, Treasurer and Chief Financial Officer
Transnational Industries, Inc.
Post Office Box 198
U.S. Route 1
Chadds Ford, Pennsylvania
(610) 459 - 5200
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person Filing Statement)
____________________
Copies to:
David I. Albin, Esq.
Finn Dixon & Herling LLP
One Landmark Square
Stamford, Connecticut 06901
(203) 325 - 5000
____________________
September 26, 1997
(Date Tender Offer First Published,
Sent or Given to Security Holders)
CALCULATION OF FILING FEE
================================================================================
Transaction Valuation* Amount of Filing Fee
- --------------------------------------------------------------------------------
$759,730 $151.95
================================================================================
*Estimated for purposes of calculating the amount of the filing fee only.
Pursuant to an exchange offer, Transnational Industries, Inc. (the
"Company") is offering to exchange 125 shares of its common stock, $0.20
par value per share (the "Common Stock"), for each outstanding share of the
Company's Series B Cumulative Convertible Preferred Stock, $.0.01 par value
per share (the "Preferred Stock"). Pursuant to Rule 0-11, the transaction
value equals the market value per share of Preferred Stock (equal to
$435.625, the book value of one share of the Preferred Stock as of the date
hereof) multiplied by 1,744, representing the number of outstanding shares
of Preferred Stock.
[ ] Check box if any part of the fee is offset by Rule 0-11 (a)(2) and identify
the filing with which the offsetting fee was previously paid. Identify the
previous filing by registration statement number, or the Form or Schedule
and the date of its filing.
Amount Previously Paid: N/A
Form or Registration No.: N/A
Filing Party: N/A
Date Filed: N/A
<PAGE>
EXPLANATORY NOTE
This Schedule 13E-4 relates to the Series B Cumulative Convertible
Preferred Stock, $0.01 par value per share (the "Preferred Stock"), of the
Company, which is the only series of the Company's preferred stock that is
currently outstanding. The Company is offering (the "Exchange Offer") the
holders of the Preferred Stock the opportunity to exchange each share of
Preferred Stock for 125 shares of the Company's Common Stock, $0.20 par value
per share (the "Common Stock"), upon the terms and subject to the conditions set
forth in the Exchange Offer and related Letter of Transmittal. Copies of the
Exchange Offer and the Letter of Transmittal, among other documents, have been
filed by the Company as Exhibits to this Issuer Tender Offer Statement on
Schedule 13E-4 (this "Statement").
ITEM 1. SECURITY AND ISSUER.
(a) The issuer is Transnational Industries, Inc., a Delaware corporation
(the "Company"), which has its principal executive offices at Post Office Box
198, U.S. Route 1, Chadds Ford, Pennsylvania 19317.
(b) The class of equity securities to which this Statement relates is the
Preferred Stock. As of the date hereof, 1,744 shares of Preferred Stock were
outstanding. The consideration offered to be exchanged for each share of
Preferred Stock consists of 125 shares of Common Stock. An aggregate of 1058
shares of the Preferred Stock are owned by affiliates of the Company, including
certain of its officers and directors. The Exchange Offer is applicable to such
affiliates on terms that are identical in all respects to the terms offered to
non-affiliates. The Company has not polled such affiliates on whether they
intend to accept the Exchange Offer.
(c) No established trading market currently exists for the Preferred
Stock.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The consideration to be paid by the Company to the holders of
Preferred Stock in the Exchange Offer (assuming the full subscription therefor)
consists of an aggregate of 218,000 newly issued shares of Common Stock. All of
such shares of Common Stock are currently authorized and unissued.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
The information set forth in "PURPOSE AND BACKGROUND OF THE EXCHANGE OFFER"
of the Exchange Offer is incorporated herein by reference.
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<PAGE>
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
None.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
None.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company is not employing or retaining to be compensated any persons to
make solicitations or recommendations in connection with the Exchange Offer.
However, certain of the Company's directors and officers may make solicitations
and/or recommendations in connection with the Exchange Offer as part of their
normal duties and without receiving additional consideration therefor.
ITEM 7. FINANCIAL INFORMATION.
(a) - (b)(i) The information set forth in Exhibits (g)(1) and (g)(2) are
incorporated herein by reference. (ii) The following tables set forth pro forma
consolidated statements of operations, earnings per share and ratio of earnings
to fixed charges of the Company for the six months ended July 31, 1997 and for
the year ended January 31, 1997, adjusted for the exchange of 218,000 shares of
the Company's authorized but unissued Common Stock for all 1,744 issued and
outstanding shares of Preferred Stock pursuant to the Exchange Offer.
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<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
PRO-FORMA (1) CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
For the For the Six
Year Ended Months Ended
January 31, 1997 July 31, 1997
---------------- -------------
<S> <C> <C>
REVENUES $ 6,842 $ 4,085
Cost of sales 4,737 2,917
-------- --------
GROSS MARGIN 2,105 1,168
Selling expenses 543 267
Research and development 415 219
General and administrative expenses 736 377
-------- --------
1,694 863
OPERATING INCOME 411 305
Interest expense 132 60
-------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 279 245
Provisions for income taxes 6 14
-------- --------
NET INCOME BEFORE EXTRAORDINARY
ITEM 273 231
EXTRAORDINARY GAIN ON ELIMINATION
OF DEBT - 345
-------- --------
NET INCOME $ 273 $ 576
-------- --------
INCOME PER COMMON SHARE:
Before extraordinary item .52 .44
Extraordinary gain on elimination of debt - .66
Net income applicable to common share $.52 $ 1.10
======== ========
Weighted average number of common shares
outstanding 524,220 524,220
======== ========
</TABLE>
(1) The pro-forma earnings per share calculation reflects an adjustment for two
items as of the first day of all periods presented. Those items are the
exchange of all of the Preferred Stock (1,744 shares) for 218,000 shares of
Common Stock as described in this Exchange Offer and the retirement of a
stock subscription warrant (representing 109,913 common shares) pursuant to
the June 12, 1997 debt refinancing.
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<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
For the Year For the Six Months
Ended January 31, Ended July 31,
----------------- ----------------
1997 1996 1997 1996
----- ------ ----- ----
<S> <C> <C> <C> <C>
EARNINGS:
Income before taxes and $ 279 $ 198 $ 245 $ 125
extraordinary item
ADJUSTMENTS:
Fixed charges, as below 230 243 117 125
----- ----- ----- -----
EARNINGS, AS ADJUSTED $ 509 $ 441 $ 362 $ 250
===== ===== ===== =====
FIXED CHARGES:
Interest on indebtedness,
expensed or capitalized 150 163 77 85
Portion of rent expense
representative of the
interest factor 80 80 40 40
----- ----- ----- -----
Total fixed charges $ 230 $ 243 $ 117 $ 125
===== ===== ===== =====
RATIO OF EARNINGS TO
FIXED CHARGES 2.21 1.81 3.09 2.00
===== ===== ===== =====
</TABLE>
-4-
<PAGE>
ITEM 8. ADDITIONAL INFORMATION.
(a) None.
(b) There are no applicable regulatory requirements which must be
complied with or approvals which must be obtained in connection with the
Exchange Offer, other than (i) compliance with the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder
(including, without limitation, Rule 13e-4), and (ii) the requirements of
applicable state securities or "Blue Sky" laws.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Exchange Offer, dated September 26, 1997.
(a)(2) Letter of Transmittal.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) The Company's Annual Report on Form 10-KSB for the fiscal year
ended January 31, 1997 (incorporated by reference to Securities and Exchange
Paul L. BaileyCommission File No. 0-14835).
(g)(2) The Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended July 31, 1997 (incorporated by reference to Securities and
Exchange Commission File No. 0-14835).
-5-
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
TRANSNATIONAL INDUSTRIES, INC.
By: /S/ Paul L. Bailey
---------------------------
Name: Paul L. Bailey
Title: Secretary, Treasurer and
Chief Financial Officer
Dated: September 24, 1997
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<PAGE>
EXHIBIT 99(a)(1)
EXCHANGE OFFER
TRANSNATIONAL INDUSTRIES, INC.
Offer to Exchange
125 shares of
the Common Stock, par value $0.20 per share,
of Transnational Industries, Inc.
for
each outstanding share of
Series B Convertible Preferred Stock,
par value $0.01 per share,
of Transnational Industries, Inc.
The Exchange Offer: Transnational Industries, Inc. (the "Company") hereby
offers (the "Exchange Offer"), subject to the terms and conditions set forth
herein and in the Letter of Transmittal (which accompanies this Exchange Offer),
to exchange (the "Exchange") 125 authorized but unissued shares of its Common
Stock, par value $0.20 per share ("Common Stock"), for each outstanding share of
the Company's Series B Convertible Preferred Stock, par value $0.01 per share
("Preferred Stock"). If less than all 1,744 outstanding shares of Preferred
Stock are so tendered and not withdrawn as of the Expiration Time (as
hereinafter defined), the Company will accept all such Preferred Stock so
tendered and not withdrawn as of the Expiration Time for Exchange. See "The
Exchange Offer --- Terms of the Exchange Offer."
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN DAYLIGHT SAVING TIME,
ON FRIDAY, NOVEMBER 28, 1997, UNLESS EXTENDED (THE LATEST TIME AND DATE AT WHICH
THE EXCHANGE OFFER, AS SO EXTENDED BY THE COMPANY, SHALL EXPIRE IS REFERRED TO
HEREIN AS THE "EXPIRATION TIME"). SUBJECT TO THE TERMS OF THIS EXCHANGE OFFER,
PREFERRED STOCK TENDERED MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION
TIME.
Conditions of the Offer: The Exchange Offer is subject to certain
customary conditions, although the Exchange Offer is not subject to the
acceptance thereof by the holders of any minimum number of shares of Preferred
Stock. See "The Exchange -- Conditions of the Exchange Offer."
Payment for Tendered Preferred Stock: Subject to the conditions specified
herein, all shares of Preferred Stock that are validly tendered on or prior to
the Expiration Time will be accepted for Exchange as promptly as practicable
after the Expiration Time. The Company will arrange for the Common Stock to be
delivered to the Holder (as hereinafter defined) of the Preferred Stock upon the
Exchange therefor to be mailed to said Holder at his address of record (unless
otherwise instructed in the Letter of Transmittal) as promptly as practicable
following the acceptance of such Preferred Stock for exchange. See "The
Exchange Offer -- Acceptance for Exchange and Delivery of Common Stock."
Holder: Only a Holder of Preferred Stock may tender such Preferred Stock
in the Exchange Offer. The term "Holder" with respect to the Exchange Offer
means any person in whose name
<PAGE>
Preferred Stock is registered on the books of the Company or any person who has
obtained a properly completed stock power from the registered Holder. See "The
Exchange Offer -- Procedure for Tendering Securities."
The Company reserves the right to, among other things, waive any and all
conditions to the Exchange Offer, extend the Exchange Offer, decrease the number
of shares of Preferred Stock being tendered for, increase or decrease the number
of shares of Common Stock being offered in exchange for each share of Preferred
Stock and otherwise amend the Exchange Offer in any respect. Any such waiver,
extension, increase, decrease or amendment shall be made by written notice to
all Holders and shall be equally applicable to all Holders. See "The Exchange
Offer --Expiration Time; Amendments; Waivers; Delays."
No person has been authorized to give any information or to make any
representation on behalf of the Company in connection with the Exchange Offer
which is not contained in this Exchange Offer (including the materials annexed
hereto) or in the related Letter of Transmittal and, if given or made, such
information or representation should not be relied upon as having been
authorized by the Company or any other person. Neither the delivery of this
Exchange Offer nor any exchange of Common Stock for Preferred Stock hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date or dates as of which
information is given herein.
_______________________________
September 26, 1997
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE COMPANY................................................................... 4
PRO FORMA FINANCIAL INFORMATION AND CAPITALIZATION............................ 4
ADDITIONAL INFORMATION........................................................ 4
PURPOSE AND BACKGROUND OF THE EXCHANGE OFFER.................................. 5
Purpose of the Exchange Offer............................................ 5
Historical Background of the Exchange Offer.............................. 5
Deliberations of the Board of Directors; Fairness of the Exchange Ratio.. 5
Perceived Benefits of the Exchange Offer................................. 7
IMPACT OF EXCHANGE OFFER ON HOLDERS OF PREFERRED STOCK........................ 8
TERMS OF THE PREFERRED STOCK.................................................. 9
POSITION OF THE COMPANY WITH RESPECT TO THE EXCHANGE OFFER.................... 10
POTENTIAL CONFLICTS OF INTEREST............................................... 10
MARKET AND TRADING INFORMATION................................................ 10
THE EXCHANGE OFFER............................................................ 11
Terms of the Exchange Offer.............................................. 11
Conditions of the Exchange Offer......................................... 11
Expiration Time; Amendments; Waivers; Delays............................. 13
Acceptance for Exchange and Delivery of Common Stock..................... 14
Procedure for Tendering Securities....................................... 14
Withdrawal Rights 16
CERTAIN SECURITIES LAW CONSIDERATIONS......................................... 17
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS..................................... 18
In General 19
Basis and Holding Period for Common Stock................................ 19
Example 20
Treatment of the Company................................................. 20
NO AGENTS..................................................................... 20
MISCELLANEOUS................................................................. 21
</TABLE>
3
<PAGE>
THE COMPANY
The Company is a holding company. The Company specializes through its
Spitz, Inc. ("Spitz") subsidiary in the design and manufacture of computer-
controlled astronomical simulation equipment and domed projection screens.
The Company's principal executive offices are located at P.O. Box 198,
U.S. Route 1, Chadds Ford, Pennsylvania 19317, and its telephone number is (610)
459-5200. The Company is incorporated under the laws of the State of Delaware.
PRO FORMA FINANCIAL INFORMATION AND CAPITALIZATION
Pro forma consolidated statements of income, earnings per share and
ratio of earnings to fixed charges of the Company for the six months ended July
31, 1997 and for the year ended January 31, 1997, adjusted for the exchange of
218,000 shares of the Company's authorized but unissued Common Stock for all
1,744 issued and outstanding shares of Preferred Stock pursuant to this Exchange
Offer, can be found in Item 7 of the Company's Schedule 13E-4 (the "Schedule
13E-4") relating to this Exchange Offer filed with the Securities and Exchange
(the "Commission"), a copy of which is being delivered to the holders of
Preferred Stock together with this Exchange Offer. See "Schedule 13E-4 -- Item
7-- Financial Information."
The Company's unaudited financial statements as at July 31, 1997, and
for the periods ended July 31, 1996 and 1997, and the Company's audited
financial statements as at January 31, 1997 and 1996, and for the periods ended
January 31, 1996 and 1997, have been filed with the Commission as part of the
Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended July 31,
1997 and the Company's Annual Report on Form 10-KSB for the fiscal year ended
January 31, 1997 (collectively the "Periodic Reports"). The Periodic Reports
also include Management's Discussion and Analysis of Financial Condition and
Results of Operations, which discusses the aforesaid historical information.
See "Additional Information."
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
(including without limitation the Periodic Reports) with the Commission.
Reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices in
New York (Seven World Trade Center, New York, New York 10048) and Chicago (50
West Madison Street, Suite 1400, Chicago, Illinois 60661), and copies of such
materials can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at http://www.sec.gov.
4
<PAGE>
PURPOSE AND BACKGROUND OF THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer has two principal purposes. First, to offer the
Holders of the Preferred Stock the ability to obtain some liquidity on their
investment in the Company by obtaining publicly-traded Common Stock (subject to
certain restrictions on resale set forth below (see "Certain Federal Securities
Law Considerations") in exchange for their Preferred Stock; and second, to
benefit the holders of the Common Stock by simplifying the Company's capital
structure, taking a step towards retiring the Preferred Stock as a class so that
dividends on the Common Stock can eventually be paid, and increasing the number
of shares of Common Stock that are publicly traded, thereby increasing the
"public float" and the liquidity of the Common Stock in the market.
HISTORICAL BACKGROUND OF THE EXCHANGE OFFER
In late 1989, the Company negotiated a deal with a small number of
accredited investors (both affiliates of the Company and associates of such
affiliates) and key employees of each of the Company's then three principal
subsidiaries for the purchase and sale of $536,000 of convertible subordinated
debentures (the "Debentures"). In 1990, pursuant to the terms thereof, the
Debentures were automatically converted into Preferred Stock following a
stockholders' meeting at which the Company's stockholders approved the issuance
of preferred stock in one or more series.
A portion of the Preferred Stock was redeemed by the Company and
retired in 1994 as part of the Company's 1994 recapitalization in which, inter.
alia, a large portion of bank debt was forgiven, the remainder of the Company's
bank debt was restructured, the Company consummated a $300,000 private placement
of its Common Stock and the Company (indirectly) redeemed the debt and equity
positions in the Company of one material stockholder (including such
stockholder's Preferred Stock). To the Company's knowledge, except for the
aforesaid redemption, no Preferred Stock has ever been sold, assigned or
otherwise conveyed (excepting only the transfer from Alan Drew, a former
director of the Company, to his estate upon his death). No dividends have been
declared and/or paid on the Preferred Stock for over five years.
DELIBERATIONS OF THE BOARD OF DIRECTORS; FAIRNESS OF THE EXCHANGE RATIO
At a Board of Directors meeting held on July 8, 1997, the Company's
Board of Directors (the "Board of Directors") determined, by a vote of 5-0 (the
sixth member of the Board of Directors, Michaels S. Gostomski, was absent), to
offer the Holders the right to convert their Preferred Stock into Common Stock,
subject to a future determination as to the number of shares of Common Stock
that should be offered in exchange for each outstanding share of Preferred
Stock. The Board of Directors made this determination after discussing the
legal and tax consequences of offering Common Stock in exchange for Preferred
Stock, the Company's obligations to treat the Holders, who had held their
Preferred Stock for a prolonged period of time without receiving any return
thereon or having any liquidity with respect thereto, fairly, and the possible
benefits to the holders of the Company's Common Stock to be achieved by the
successful consummation of the Exchange Offer
5
<PAGE>
if the exchange rate was fair. The Board of Directors discussed at this meeting
setting an exchange ratio of 125 shares of Common Stock for each share of
Preferred Stock being tendered, which exchange ratio had previously been
discussed informally among certain directors, but deferred on a decision as to
the exchange ratio at this time. Each of the directors, other than Mason Carter,
disclosed his conflict of interest based upon his holdings (or the holdings of
any actual or potential affiliates) of the Preferred Stock. See "Potential
Conflicts of Interest."
At a subsequent meeting of the Board of Directors held on July 23,
1997, the Board of Directors, again by a vote of 5-0 (with Mr. Gostomski again
absent), voted to set the rate of exchange at 125 shares of Common Stock for
each share of Preferred Stock being exchanged. In making that determination,
the Board of Directors considered, among other things, the following factors:
(i) that each share of Preferred Stock had a liquidation value of $250 per
share, plus accumulated and unpaid dividends; (ii) that, as of August 1, 1997,
each share of Preferred Stock would have accumulated dividends of $185.625, thus
making the actual liquidation value $435.625 per share of Preferred Stock; (iii)
that, unless redeemed (or voluntarily converted by the Holder thereof), each
share of Preferred Stock would continue to accumulate dividends, quarterly, at a
rate of $27.50 per annum, until so redeemed (or so voluntarily converted); (iv)
that the Common Stock had, to the Directors' knowledge, most recently traded in
the range of $4.50 per share; (v) that the aforesaid trading price for the
Common Stock was significantly higher than the range in which the Common Stock
had been bid and asked during the Company's 1997 fiscal year, which range had
never exceeded $2.00 for a significant amount of time, as well as the trading
price of approximately $3.00 in effect at the time individual directors
commenced informal discussions of the rate of exchange; and (vi) that the market
for the Company's Common Stock is extremely thin, and from time to time one or
more months go by without trades. Based on the foregoing factors, the Board of
Directors was aware that, if the Common Stock were to be valued at $4.50 per
share, the offer to the Holders of 125 shares of Common Stock, thus valued at
$562.50, for each share of Preferred Stock being exchanged would exceed the
liquidation value of the Preferred Stock (and there was no reason to believe
that the Preferred Stock had a value in excess of its liquidation value).
However, due to (i) the Board's belief that the longer term trading range of the
Common Stock represented a better measure of the Common Stock's "fair" value
than the most recent trading price, (ii) the fact that the Board had initially
discussed the 125 to 1 exchange ratio at a time when the product of 125 and the
most recent trading price of the Common Stock was less than the liquidation
value of one share of Preferred Stock, and (iii) the Board's belief that, even
if the Company was arguably overpaying for the Preferred Stock, it was in the
best interests of the Company and the holders of Common Stock to eliminate the
Preferred Stock as a class (see "--Perceived Benefits of the Exchange Offer"),
the Board approved the 125:1 exchange ratio. For the same reason (the lack of a
trading market of sufficient volume to use the last trade price as determinative
of "fair" value), the Board of Directors determined not to adjust the exchange
ratio in the future if the trading price of the Common Stock fluctuated.
However, notwithstanding the Board of Director's determination that the exchange
ratio was fair to the Company, the Board of Directors is not recommending to the
Holders that the Exchange Offer is fair to them or that they tender their
Preferred Stock for Exchange. See "Position of the Company with Respect to the
Exchange Offer."
PERCEIVED BENEFITS OF THE EXCHANGE OFFER
6
<PAGE>
In determining to proceed with the Exchange Offer, the Board of
Directors did not determine whether the Exchange Offer was fair to the Holders.
Rather, the Board of Directors decided to give the Holders the opportunity to
exchange their Preferred Stock for the more liquid Common Stock, believing that
each Holder would take whatever actions he determined to be in his own best
interests. The Company does not believe that the Exchange Offer is in any way
coercive, as each Holder electing not to participate will retain all rights with
respect to his Preferred Stock as if the Exchange Offer was never made.
While there can be no guarantees that any of the following perceived
benefits will in fact be achieved, or that the public securities market will
perceive them as benefits, or that the successful consummation of the Exchange
Offer will not reduce the value of the Common Stock by virtue of reducing the
percentage of the Company's common equity represented by one share of Common
Stock, the Board of Directors does believe that the Exchange Offer, if
successfully consummated, will benefit the Company and the holders of the Common
Stock for three principal reasons. First, the Company believes that the
elimination of the Preferred Stock as a class (either upon the full subscription
to the Exchange Offer or upon a subsequent redemption of the Preferred Stock by
the Company made possible by the partial subscription to the Exchange Offer)
would benefit the Company by simplifying the Company's capital structure. This
implication could make it easier for analysts to follow the Company by, for
example, eliminating the need to have to attribute some portion of earnings to
the accumulation of dividends on the Preferred Stock before being able to
determine earnings per share for the Common Stock. The Company hopes that this
simplification would also make it easier for securities dealers to make a market
in the Common Stock.
Second, if the Exchange Offer is fully subscribed to, the Company
would issue an additional 218,000 shares of Common Stock. As only 324,220
shares of Common Stock are currently outstanding, the Company expects that the
issuance of Common Stock upon the successful consummation of the Exchange Offer
would substantially increase the number of shares of Common Stock in the market,
and thus the liquidity of the Company's Common Stock. This would benefit the
Company by decreasing the fluctuations that presently occur in bid and asked
quotations caused by individual transactions.
Third, and most importantly, the Certificate of Designations prohibits
the Company from paying any dividends upon its Common Stock while even one share
of Preferred Stock remains outstanding. Until recently, this restriction was
not relevant to the holders of the Common Stock because the Company's loan
agreements with its primary lender prohibited any dividends from being paid
while the loans were outstanding. Recently, however, the Company paid off its
loan facility with the proceeds of a new term and revolving loan from a new
lender. The loan agreements with the new lender only prohibit dividends to the
extent that the payment thereof would cause the Company to fall below specified
levels of stockholders equity. At the present time, the Company can pay
dividends so long as, after such payments, the Company maintains stockholders'
equity of at least $2,500,000. The minimum required amount of stockholders'
equity under this agreement increases on January 31 of each year hereafter. As
of July 31, 1997, the Company reported approximately $2,787,000 of stockholders'
equity. If the Exchange Offer is fully successful, and all outstanding Preferred
Stock is exchanged for Common Stock (or if the Exchange Offer is largely
successful and thereafter the Company should elect to redeem the remaining
Preferred Stock), the
7
<PAGE>
Company could then, subject to the limitations of its cash position and loan
documents in effect at such time, and the desire of management and the Board to
reinvest earnings in the Company's operations, commence the payment of dividends
on the Common Stock.
IMPACT OF EXCHANGE OFFER ON HOLDERS OF PREFERRED STOCK
Holders of Preferred Stock who exchange all of their Preferred Stock
for Common Stock pursuant to the Exchange Offer will, subsequent to the
consummation thereof, thereafter posses the rights and privileges appurtenant to
the holders of Common Stock pursuant to the Company's Certificate of
Incorporation, as amended, and By-Laws, as amended, as well as the Delaware
General Corporation Law (the "DGCL").
Holders of Preferred Stock who retain some or all of their Preferred
Stock subsequent to the consummation of the Exchange Offer will retain their
rights as holders thereof pursuant to the Certificate of Designation, (as
hereinafter defined) the Company's Certificate of Incorporation, as amended, and
By-Laws, as amended, and the DGCL, unless and until their retained Preferred
Stock is either (i) voluntarily redeemed by the Company for a redemption price
of $250 per share plus all accrued and unpaid dividends thereon (which, as of
August 1, 1997, amounted to an additional $185.625 per share), or (ii) the
Holder, at its sole option, elects to convert the Preferred Stock into Common
Stock at the rate of approximately 5.88 shares of Common Stock for each share of
Preferred Stock being converted. Given both (i) that the Company is currently
offering each Holder the right to receive 125 shares of Common Stock, rather
than approximately 5.88 shares of Common Stock, in exchange for each share of
Preferred Stock, and (ii) the fact that the conversion rate of 5.88:1 represents
a conversion price of $42.50 per share after the foregoing of accrued and unpaid
dividends (and the last reported average of the bid quotation for the Common
Stock as of September 22, 1997 was $6.13 per share), there is no reason to think
that any Preferred Stock will be converted into Common Stock other than in the
Exchange Offer in the foreseeable future. See "Terms of the Preferred Stock."
While the Company has no present plans to redeem any Preferred Stock not
tendered for exchange pursuant to this Exchange Offer, and, depending upon the
amount of Preferred Stock that remains outstanding following the consummation of
the Exchange Offer, may in fact be prohibited by its loan agreements from doing
the same, it might, at some undetermined future time, elect to voluntarily
redeem such remaining Preferred Stock in order to remove the Preferred Stock
from the Company's balance sheet and to allow the Company (subject to its
ability to do so and contractual restrictions then in place) to commence the
payment of dividends on its Common Stock. See "Purpose and Background of the
Exchange Offer Perceived Benefits of the Exchange Offer."
TERMS OF THE PREFERRED STOCK
The following is a summary of the principal terms and conditions of
the Company's Series B Convertible Preferred Stock, as provided in the Company's
Certificate of Designations, Rights and Preferences of Series B Convertible
Preferred Stock (the "Certificate of Designation"), which Certificate of
Designation constitutes part of the Company's Certificate of Incorporation, as
amended. In addition, holders of Preferred Stock have certain rights pursuant
to the DGCL.
Amount Outstanding 1,744 Shares
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Par Value $0.01 per share
Dividends Cumulative dividends of $27.50 per share, per
annum, accruing on February 1, May 1,
August 1 and November 1 of each year and
payable when and as declared by the
Company's Board of Directors.
Restriction on No dividends may be paid on Common Stock
Common Dividends while any Preferred Stock remains
outstanding.
Liquidation Preference $250 per share, plus accrued and unpaid
dividends, prior to any payment in respect of
Common Stock.
Mandatory Redemption There is no mandatory redemption date, nor
do holders of Preferred Stock have any rights
to force a redemption.
Voluntary Redemption The Company may redeem the Preferred
Stock at any time upon the payment of $250
per share of Preferred Stock , plus all accrued
and unpaid dividends thereon.
Voting Rights None, except as provided by the DGCL.
Conversion Rights Holders may convert each share of Preferred
Stock at any time into approximately 5.88
shares of Common Stock (a price of $42.50
per share without giving effect to accumulated
dividends).
As of August 1, 1997, each share of Preferred Stock had accumulated
$185.625 of unpaid dividends. No dividends have been declared or paid on the
Preferred Stock for over five years.
POSITION OF THE COMPANY WITH RESPECT TO THE EXCHANGE OFFER
Neither the Company nor its Board of Directors is making any
recommendation to any Holder of Preferred Stock as to whether the Exchange Offer
is fair to the Holders or whether any Holder should tender Preferred Stock
pursuant to the Exchange Offer. Rather, the Company is merely attempting to
provide the holders of Preferred Stock with the ability the increase the
liquidity of their investment in a manner that is not detrimental to the holders
of the Company's Common Stock. Members of the Board of Directors have a
potential conflict of interest with respect to the Exchange Offer. See
"Potential Conflicts of Interests." The Company has not polled its officers and
directors, and their affiliates, as to whether they intend to participate in the
Exchange, nor have any such parties informed the Company whether they do in fact
intend to so participate.
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Each Holder of Preferred Stock must make his own decision as to
whether to tender his Preferred Stock for exchange, and, if so, the amount of
Preferred Stock to tender. Holders of Preferred Stock are urged to review
carefully all of the information contained or referred to in this Exchange
Offer, the related Letter of Transmittal and the Schedule 13E-4. Without
limiting the foregoing, see "Certain Federal Securities Law Considerations" and
"Certain Federal Income Tax Considerations."
POTENTIAL CONFLICTS OF INTEREST
All but one of the Company's directors, and all of the Company's
principal executive officers, have an interest in the contemplated Exchange
Offer by virtue of (i) their ownership, direct and/or indirect, of Preferred
Stock subject to the Exchange Offer, and/or (ii) their ownership, direct and/or
indirect, of Common Stock, which Common Stock would have its percentage
ownership of the Company's common equity diluted by virtue of the successful
consummation of the Exchange (but would at the same time presumably be benefited
by virtue of a reduction of the outstanding amount of Preferred Stock having
priority to it, an increase in the amount of outstanding Common Stock (and
thereby the public "float" of the Common Stock) and the ability to pay dividends
on the Common Stock (subject to applicable law and the Company's agreements with
its lender in effect from time to time) once the Preferred Stock has been
completely redeemed). None of the Company's officers or directors, however, has
any interests in the proposed Exchange Offer beyond the interest shared by other
holders of the Common Stock and/or the Preferred Stock, as the case may be. For
further information on the exact holdings of both Common Stock and Preferred
Stock of such directors and officers (and their affiliates), see Item 11 of the
Company's Form 10-KSB for the fiscal year ended January 31, 1997 (copies of
which will be provided to any Holder upon his request).
MARKET AND TRADING INFORMATION
The principal market on which the Company's Common Stock is traded is
the Over the Counter market. Various market dealers make the market of the
Company's Common Stock and trades are made through the OTC Bulletin Board or
what is commonly known as the "pink sheets." The table below presents the high
and low bid over-the-counter market quotations by quarter for fiscal 1997 and
the first two quarters of fiscal 1998. The quotations, obtained from OTC
Bulletin Board statistics, reflect inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not necessarily represent actual transactions.
Fiscal 1997 Fiscal 1998
-------------- --------------
High Low High Low
----- ------- ----- -------
First Quarter 2.00 $2.00 2.13 $1.50
Second Quarter 2.00 2.00 4.00 2.13
Third Quarter 2.00 1.50 - -
---- -----
Fourth Quarter 1.63 1.25 - -
---- -----
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--------------------
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth herein and in the
Letter of Transmittal, the Company hereby offers to purchase up to 1,744 shares
of Preferred Stock validly tendered and not withdrawn as of the Expiration Time
in exchange for 125 shares of Common Stock for each share of Preferred Stock.
The Company is not offering to pay any amount, or issue any additional shares of
Common Stock, in respect of accumulated but unpaid dividends on the Preferred
Stock which is tendered and exchanged pursuant to the Exchange Offer. Upon the
terms and subject to the conditions of the Exchange Offer, if less than all
1,744 shares of outstanding Preferred Stock are so tendered and not withdrawn as
of the Expiration Time, the Company will accept all such shares for exchange,
without regard to how many shares of Preferred Stock are so tendered and not
withdrawn on or prior to the Expiration Time. Holders may tender only whole
shares of Preferred Stock, and fractional shares will not be accepted for
Tender.
The Company expressly reserves the right, at any time or from time to time,
to extend the period during which the Exchange Offer is open by giving written
notice of such extension to the Holders. The Company expressly reserves the
right to amend or terminate the Exchange Offer and not to accept for exchange
any Preferred Stock upon the occurrence of any of the conditions specified
below. See " -- Conditions of the Exchange Offer."
CONDITIONS OF THE EXCHANGE OFFER
The Company's obligation to consummate the Exchange Offer is subject to the
condition that the Company, at its option, may cancel, modify or terminate the
Exchange Offer or delay or refrain from accepting the Preferred Stock for
exchange if:
(a) there shall be threatened, instituted, or pending any action,
proceeding, application, claim or counterclaim before any court or
governmental regulatory or administrative agency, authority or tribunal,
domestic or foreign, which in the sole judgment of the Company (i) makes or
seeks to make the acceptance for exchange of, or exchange for, some or all
of the Preferred Stock pursuant to the Exchange Offer illegal; (ii) could
result in a delay in the ability of the Company to accept for payment or
pay for some or all of the Preferred Stock; (iii) imposes or seeks to
impose limitations on the ability of the Company to acquire the Preferred
Stock or issue Common Stock in exchange therefor; or (iv) may otherwise
have a material adverse effect on the contemplated benefits of the Exchange
Offer;
(b) any change (or any condition, event or development involving a
prospective change) shall have occurred or be threatened in the general
economic, financial, currency exchange or market conditions in the United
States or abroad that, in the sole judgment of the Company, has or may have
a material adverse effect upon the market prices of the Preferred Stock or
the Common Stock or upon trading in the Preferred Stock or the Common Stock
or upon the value of the
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<PAGE>
Preferred Stock or the Common Stock to the Company;
(c) a general deterioration in the prices of equity or preferred
equity securities in the United States from levels prevailing at the date
hereof shall have occurred which, in the sole judgment of the Company, may
have a material adverse effect on the contemplated benefits to the Company
of, or otherwise may make it inadvisable to proceed with, the Exchange
Offer;
(d) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities listed on the New York
Stock Exchange or the American Stock Exchange, (ii) a commencement or
escalation of war, armed hostilities or other international or national
emergency directly or indirectly involving the United States, (iii) a
material change in United States or any other currency exchange rates or a
suspension of, or limitation on, the markets therefor, or (iv) in the case
of any of the foregoing existing at the date hereof, a material
acceleration or worsening thereof;
(e) there shall have occurred any change or development, including a
prospective change or development, in or affecting the business or
financial affairs of the Company which, in the sole judgment of the Board
of Directors of the Company, would or might prohibit, restrict or delay
consummation of the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company or might be material to
Holders of Preferred Stock in deciding whether to tender their Preferred
Stock;
(f) there exists, in the sole judgment of the Board of Directors of
the Company, any other actual or threatened legal impediment (including a
default under an agreement, indenture or other instrument or obligation to
which the Company is a party or by which it is bound) to the acceptance for
exchange of the affected Preferred Stock; or
(g) a preliminary or permanent injunction or other order by any
federal or state court or any governmental agency shall have been issued
and remain in effect which restrains or prohibits the making or
consummation of the Exchange Offer or, in the sole judgment of the Company,
has any of the effects set forth in clauses (i)-(iv) of paragraph (a)
above.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time or
from time to time in its sole discretion. If any of the foregoing events shall
have occurred, the Company may (i) terminate the Exchange Offer and return the
Preferred Stock to the Holders who tendered it; (ii) extend the Exchange Offer,
and retain all tendered Preferred Stock until the expiration of the Exchange
Offer, subject, however, to the rights of Holders thereof to withdraw such
Preferred Stock in the manner provided herein (see " -- Withdrawal Rights"); or
(iii) waive the unsatisfied conditions with respect to the Exchange Offer and
accept all Preferred Stock tendered therein.
EXPIRATION TIME; AMENDMENTS; WAIVERS; DELAYS
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<PAGE>
The term "Expiration Time" means 5:00 P.M., Eastern Daylight Savings time,
on November 28, 1997, unless the Company, in its sole discretion, extends the
period during which the Exchange Offer is open, in which event the term
"Expiration Time" shall mean the latest time and date on which the Exchange
Offer, as so extended by the Company, shall expire. The Company expressly
reserves the right to extend the period of time during which the Exchange Offer
is open at any time and from time to time by written notice of such extensions
to the Holders.
The Company reserves the right to waive any and all conditions to the
Exchange Offer. The Company expressly reserves the right, in its sole
discretion at any time or from time to time, and regardless whether or not any
of the events set forth under " -- Conditions of the Offer" shall have occurred
or shall have been determined by the Company to have occurred, to decrease the
number of shares of Preferred Stock that the Company is willing to accept for
exchange pursuant hereto, to increase or decrease the number of shares of Common
Stock being offered in exchange for each share of Preferred Stock and to make
any other changes in the terms and conditions of the Exchange Offer. Any such
waiver, extension, increase, decrease or amendment (i) may be made only by
written notice to the Holders, and (ii) shall be equally applicable to all
Holders, whether or not such Holders have previously tendered.
Subject to the applicable rules and regulations of the Commission and
except as set forth above, the Company also reserves the right, in its sole
discretion, at any time or from time to time, (1) to delay acceptance for
exchange of or, regardless of whether such shares of Preferred Stock were
theretofore accepted for exchange, exchange shares of Common Stock for any
shares of Preferred Stock or to terminate the Exchange Offer and not accept for
exchange any shares of Preferred Stock not theretofore accepted for exchange in
the event that any of the conditions set forth under "Conditions of the Offer"
shall not have been satisfied, and (2) at any time or from time to time, to
waive any condition or otherwise amend the Exchange Offer in any respect by
giving written notice of such delay, termination or amendment to the Holders.
If the Company accepts any shares of Preferred Stock for exchange pursuant to
the terms of the Exchange Offer, it will promptly exchange shares of Common
Stock for all shares of Preferred Stock so accepted for exchange.
ACCEPTANCE FOR EXCHANGE AND DELIVERY OF COMMON STOCK
For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange and purchased tendered shares of Preferred Stock if, as
and when the Company gives written notice to the Holders of its acceptance for
exchange of the tender of such shares of Preferred Stock. Shares of Preferred
Stock will not be accepted for exchange after the Expiration Time.
The Company will arrange for the appropriate number of shares of Common
Stock deliverable upon the Exchange to be mailed to Holders of shares of
Preferred Stock that are accepted for exchange (unless otherwise instructed in
the Letter of Transmittal) as promptly as practicable following the acceptance
of such shares of Preferred Stock for exchange.
If certain events occur, the Company may not be obligated to accept the
Preferred Stock for exchange pursuant to the Exchange Offer. See "Conditions of
the Exchange Offer."
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<PAGE>
Tendering Holders of Preferred Stock will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the tendering of the Preferred Stock
pursuant to the Exchange Offer.
If any tendered Preferred Stock is not accepted for exchange pursuant to
the Exchange Offer for any reason set forth herein, such unaccepted Preferred
Stock will be returned, without expense to the tendering Holder as promptly as
practicable following the termination of the Exchange Offer.
The Company does not expect to change the exchange ratio of Common Stock
for Preferred Stock being offered hereunder, but if the consideration offered in
the Exchange Offer is changed, the Company will give notice thereof to all
Holders of Preferred Stock and will keep the Exchange Offer open for at least
ten business days from the date that notice of such change is first sent or
given to such Holders. In any event, all tendering Holders of the Preferred
Stock will be given the same consideration for their Preferred Stock regardless
of when they tender.
PROCEDURE FOR TENDERING SECURITIES
The acceptance by a Holder of Preferred Stock of the Exchange Offer
pursuant to the procedures set forth below will constitute an agreement between
such Holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
To be effectively tendered pursuant to the Exchange Offer, the Preferred
Stock, together with a properly completed Letter of Transmittal (or a manually
signed facsimile thereof), duly executed by the Holder thereof, and any other
documents required by the Letter of Transmittal, must be received by the Company
at its address set forth on the last page of this Exchange Offer and
certificates for tendered Preferred Stock must be received by the Company at
such address on or prior to the Expiration Time.
Only a Holder of Preferred Stock may tender such Preferred Stock in the
Exchange Offer. The term "Holder" with respect to the Exchange Offer means any
person in whose name Preferred Stock is registered on the books of the Company
or any person who has obtained a properly completed stock power from the
registered Holder.
Any beneficial owner whose Preferred Stock is registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered Holder promptly and instruct such
registered Holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Preferred Stock, either
make appropriate arrangements to register ownership of the Preferred Stock in
such owner's name or obtain a properly completed stock power from the registered
Holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal of tender
of Preferred Stock, as the case may be, must be guaranteed by an Eligible
Institution (as defined herein) unless the
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<PAGE>
Preferred Stock tendered pursuant thereto is tendered (i) by a registered Holder
who has not completed any of the boxes entitled "Special Tender Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that any such signature is
required to be guaranteed, such guarantee must be by a firm that is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office in the United States (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any certificate(s) listed therein, such certificate(s) must
be endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered Holder or Holders appear on the
certificate(s).
If the Letter of Transmittal or any certificates or stock powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Although it does not expect to do so, in the event that the Company should
change the exchange ratio of Common Stock offered for Preferred Stock, such
changed consideration will be paid to all Holders whose Preferred Stock is
accepted in the Exchange Offer, including those shares tendered before the
announcement of the change. If such exchange ratio is changed, the Exchange
Offer will remain open at least ten (10) business days from the date the Company
first gives notice of such change.
The method of delivery of Preferred Stock and other documents to the
Company is at the election and risk of the Holder, but if such delivery is by
mail it is suggested that the Holder use properly insured, registered mail with
return receipt requested, and that the mailing be made sufficiently in advance
of the Expiration Time to permit delivery to the Company before the Expiration
Time. The time of tender shall be upon delivery of such documents to the
Company.
Except as provided below, unless the shares of Preferred Stock being
tendered are deposited with the Company at or prior to the Expiration Time
(accompanied by a properly completed and duly executed Letter of Transmittal),
the Company may, at its option, reject such tender.
All questions as to the form of documents and the validity, eligibility
(including time of receipt), acceptance for payment and withdrawal of tendered
shares of Preferred Stock and revocations will be determined by the Company, in
its sole discretion, which determination shall be final and binding. The
Company reserves the absolute right to reject any and all tenders of shares of
Preferred Stock determined by it not to be in proper form or the acceptance for
exchange or exchange for which, in the opinion of the Company's counsel, may be
unlawful. The Company also reserves the right to waive any conditions of the
Exchange Offer or any defects or irregularities in the tender of particular
Preferred Stock. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and
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<PAGE>
binding. Unless waived, any irregularities in connection with the tenders must
be cured within such time as the Company shall determine. Neither the Company
nor any other person shall be under any duty to give notification of any defects
or irregularities in such tenders or shall incur any liabilities for failure to
give such notification. Tenders of such Preferred Stock will not be deemed to
have been made until such irregularities have been cured or waived. Any
Preferred Stock received by the Company that is not properly tendered as to
which the irregularities have not been cured or waived will be returned by the
Company to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Time.
WITHDRAWAL RIGHTS
Preferred Stock tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Time. To be effective, a written or facsimile
transmission notice of withdrawal must (i) be timely received by the Company at
its address specified on the last page of this Exchange Offer on or prior to the
Expiration Time, (ii) specify the name of the Holder who tendered the Preferred
Stock, (iii) contain a description of the Preferred Stock to be withdrawn, the
certificate number(s) shown on the particular certificate(s) evidencing such
Preferred Stock originally tendered and the aggregate number of shares of
Preferred Stock originally tendered, and (iv) be signed by the Holder of such
Preferred Stock in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees) or be accompanied by
evidence satisfactory to the Company that the person withdrawing the tender has
succeeded to the beneficial ownership of the Preferred Stock. The signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution unless
such Preferred Stock has been tendered for the account of an Eligible
Institution. If the Preferred Stock to be withdrawn has been delivered or
otherwise identified to the Company, a signed notice of withdrawal is effective
immediately upon written or facsimile transmission even if physical delivery
thereof is not yet effected. In addition, such notice must specify, in the case
of Preferred Stock tendered by delivery of certificates for such Preferred
Stock, the name of the registered Holder (if different from that of the
tendering Holder) to be credited with the withdrawn Preferred Stock.
Withdrawals may not be rescinded, and any Preferred Stock withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange Offer.
However, properly withdrawn Preferred Stock may be retendered by following one
of the procedures described in "Procedures for Tendering Securities" above at
any time at or prior to the Expiration Time.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Company, in its sole
discretion, which determination shall be final and binding. Neither the Company
nor any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liabilities for
failure to give any such notification.
CERTAIN SECURITIES LAW CONSIDERATIONS
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All 1,744 outstanding shares of Preferred Stock were issued by the Company
in 1990 upon the automatic conversion of a series of the Company's convertible
subordinated debentures. These debentures, in turn, were issued by the Company
in 1989 in a transaction exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), by virtue of the
exemption provided therefrom by Section 4(2) of the Securities Act for
transactions constituting a private placement. By virtue of this historical
origin, the certificates representing the Preferred Stock have "restrictive"
legends thereupon providing that the Preferred Stock may only be resold by its
holder pursuant to an effective registration under the Securities Act or
pursuant to any exemption from registration thereunder. A sale of Preferred
Stock to the Company pursuant to this Exchange Offer would also be an exempt
transaction.
The Common Stock that would be issued upon the exchange of Preferred Stock
pursuant to this Exchange Offer would be offered and sold pursuant to the
exemption from registration provided by Section 3(a)(9) of the Securities Act
for "any security exchanged by the issuer with its existing security holders
exclusively where no commission or other remuneration is paid or given directly
or indirectly for soliciting such exchange." Therefore, the offer and sale of
Common Stock by the Company made by virtue of the Exchange Offer does not need
to be, and has not been, registered under the Securities Act.
Because the offer and sale of Common Stock to Holders hereunder is not
registered under the Securities Act, Common Stock acquired by a Holder upon the
Exchange would be "restricted" under the Securities Act, and would be issued
with the following restrictive legend (which is similar to the legend currently
set forth on the certificates representing the Preferred Stock):
The securities represented hereby have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged,
hypothecated or otherwise disposed of unless there is in effect a
registration statement or the Company shall have been furnished with an
opinion of counsel satisfactory to the Company, in form and substance
satisfactory to the Company, that such sale, offer for sale, pledge,
hypothecation or other disposition does not violate the provisions of such
Act.
However, for purposes of Rule 144 promulgated under the Securities Act
("Rule 144"), Holders acquiring Common Stock pursuant to the Exchange will be
allowed to "tack" the number of years that they held the Preferred Stock (and
the debentures converted thereinto) to the number of years they hold the Common
Stock for purposes of satisfying Rule 144's holding requirements. Therefore,
all Holders who received their Preferred Stock prior to October of 1995 (which,
to the Company's knowledge, is all of the Holders) would, upon the issuance of
Common Stock in the Exchange, be deemed to have held the Common Stock received
by them for Rule 144 purposes for more than two years. This, in turn, means
that non-affiliates of the Company (everyone other than officers, directors and
10% stockholders) would, pursuant to Rule 144(k), be entitled to sell the Common
Stock received in the Exchange without restriction, and affiliates of the
Company would, pursuant to the other requirements of Rule 144 (including without
limitation the requirement to timely file a Form 144), be entitled to sell in
any three month period at least that number of shares of Common Stock equal to
1% of the number of outstanding shares of Common Stock.
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In order for the offer and sale of Common Stock to be exempt from
registration under the blue sky laws of the State of California, each Holder
resident and/or situate in California who elects to exchange some or all of such
Holder's shares of Preferred Stock for shares of Common Stock must represent to
the Company that such Holder is purchasing the Common Stock acquired upon the
Exchange for the Holder's own account (or a trust account if the Holder is a
trustee) and not with a view to or for sale in connection with any distribution
of the security. By signing the Letter of Transmittal, each Holder
participating in the Exchange resident and/or situate in California is making
such a representation.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING IS A GENERAL DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS APPLICABLE TO HOLDERS WHO EXCHANGE PREFERRED STOCK FOR COMMON
STOCK IN THE EXCHANGE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF
FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF
HIS OR HER PERSONAL INVESTMENT CIRCUMSTANCES OR TO CERTAIN TYPES OF HOLDERS
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS (FOR EXAMPLE,
LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, FOREIGN CORPORATIONS AND
INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES) AND DOES NOT
DISCUSS ANY ASPECT OF STATE, LOCAL OR FOREIGN TAXATION. THE DISCUSSION IS
LIMITED TO HOLDERS WHO HAVE HELD THE PREFERRED STOCK AS "CAPITAL ASSETS" AND WHO
WILL HOLD THE COMMON STOCK AS "CAPITAL ASSETS" WITHIN THE MEANING OF SECTION
1221 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). THIS
DESCRIPTION IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS BASED UPON THE
CURRENT PROVISIONS OF THE CODE, THE TREASURY REGULATIONS PROMULGATED THEREUNDER,
AND JUDICIAL AND ADMINISTRATIVE INTERPRETATIONS THEREOF, ALL AS IN EFFECT ON THE
DATE HEREOF AND ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY ON A RETROACTIVE
BASIS. EACH HOLDER OF PREFERRED STOCK SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR
AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OFFER,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS.
IN GENERAL
The Exchange of the Company's Preferred Stock for Common Stock will qualify
as a recapitalization under Section 368(a)(1)(E) of the Code (a
"Recapitalization"). Generally, a stockholder does not recognize gain or loss
pursuant to an exchange of preferred stock solely for common stock pursuant to a
Recapitalization. If, however, (i) dividends are in arrears on the preferred
stock surrendered and (ii) the fair market value of the common stock received in
the exchange exceeds the issue price of the preferred stock, then the receipt by
a stockholder of common stock will be treated as a distribution with respect to
the preferred stock to the extent of the lesser of such excess over the issue
price and the amount of dividends in arrears (a "Distribution"). Because there
are dividends in arrears on the Preferred Stock and the Company expects the fair
18
<PAGE>
market value of the Common Stock to exceed the issue price of the Preferred
Stock, a portion of the Common Stock received by Holders in the Exchange will be
treated as a Distribution. Each Holder participating in the Exchange will be
required to treat such Distribution as a return of capital to the extent of the
Holder's basis in the Preferred Stock and as capital gain to the extent the
Distribution exceeds the Holder's basis in the Preferred Stock.
BASIS AND HOLDING PERIOD FOR COMMON STOCK
Each Holder exchanging Preferred Stock for Common Stock will have a
bifurcated tax basis in the Common Stock received in the Exchange. The tax
basis of the Common Stock treated as a Distribution will be equal to its fair
market value on the date that the Holder's tender is accepted. The holding
period for such stock for tax purposes (although not for purposes of Rule 144
under the Securities Act (see "Certain Federal Securities Law Considerations")
shall begin on the date of the Exchange. The tax basis of the remaining Common
Stock will be the same as the adjusted basis of the Preferred Stock exchanged
therefor, which will have been decreased (but not below zero) by the fair market
value of the Common Stock treated as a Distribution. The holding period for the
remaining Common Stock treated as received in exchange for Preferred Stock for
tax purposes will include the holding period for such Preferred Stock.
EXAMPLE
The following example provides an illustration of the potential tax
consequences to a Holder exchanging Preferred Stock for Common Stock in the
Exchange. This illustration is for informational purposes only and does not
reflect the specific situation or consequences of each or any Holder.
Assume the following facts: (i) Stockholder A tenders one share of
Preferred Stock with an issue price and basis equal to $250 in exchange for 125
shares of Common Stock. The Common Stock has a fair market value of $6 per
share as of the date of the exchange. (The original issue price of the
Preferred Stock was $250 and, as of the date of this exchange offer, the most
recent quote for the Common Stock was approximately $6 per share.) (ii) The
Preferred Stock has dividends in arrears in the amount of $185.625. (The
dividends in arrears on each share of Preferred Stock is $185.625 as of the date
of this Exchange Offer.) (iii) The Company has negative retained earnings at
the time of the Exchange. (As of July 31, 1997, the Company had an Accumulated
Earnings Deficit in excess of $5.8 million).
Based on the foregoing, A will be treated as receiving 30.9 shares of
Common Stock (which have a fair market value of $185.625 (which value is equal
to the lesser of (i) the excess of the fair market value of the Common Stock
over the issue price of the Preferred Stock and (ii) the dividends in arrears))
as a distribution with respect to his Preferred Stock. This distribution will
be treated as a return of capital to the extent of A's basis in the Preferred
Stock ($250) and as capital gain thereafter. Because the basis of the Preferred
Stock exceeds the dividends in arrears, A will not recognize any gain on this
transaction. A's original basis in the Preferred Stock ($250) will be reduced
by the fair market value of the distribution to $64.375. A will have a basis in
each of the
19
<PAGE>
30.9 distributed shares of Common Stock equal to its fair market value of $6.00
and a holding period beginning on the date of the distribution.
The remaining 94.1 shares received by A will be treated as received in
exchange for the Preferred Stock pursuant to a tax-free recapitalization. These
shares will have an aggregate basis equal to the remaining basis in the
Preferred Stock ($64.375, or approximately $0.684 per share) and a holding
period that will include the holding period of the Preferred Stock.
TREATMENT OF THE COMPANY
A corporation is not subject to taxation upon the issuance or reacquisition
of its own stock. Therefore, the Company will not recognize gain or loss as a
result of the Exchange.
NO AGENTS
The Company has not retained any dealer manager, depository, information or
other agent of any type (other than the Company's legal counsel) with respect to
this Exchange Offer. All deliveries, correspondence and questions relating to
this Exchange Offer should be directed to the address or telephone number for
the Company set forth on the last page of this Exchange Offer.
MISCELLANEOUS
The Exchange Offer is not being made to (nor will tenders be accepted from
or on behalf of) Holders of Preferred Stock in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, in its
sole discretion, take such action as it may deem necessary to make the Exchange
Offer in any such jurisdiction and extend the Exchange Offer to Holders of
Preferred Stock in such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Company not contained in this Exchange Offer or
in the Letter of Transmittal and, if given or made, such information or
representation must not be relied upon as having been authorized.
Directors, officers and regular employees of the Company (who will not be
specifically compensated for such services) may contact Holders of Preferred
Stock by mail, telephone, telex, telegraph and personal interviews regarding the
Exchange Offer.
Facsimile copies of the Letter of Transmittal will be accepted if manually
signed. The Letter of Transmittal and Preferred Stock and any other required
documents should be sent by each holder of Preferred Stock or his broker,
dealer, bank or other nominee to the Company at the address set forth below.
20
<PAGE>
Any questions or requests for assistance or additional copies of this
Exchange Offer, the Letter of Transmittal and the Schedule 13E-4 may be directed
to the Company at the address and telephone number set forth below.
TRANSNATIONAL INDUSTRIES, INC.
P.O. BOX 198
U.S. ROUTE 1
CHADDS FORD, PENNSYLVANIA 19317
(610) 459-5200
ATTENTION: PAUL L. DAILEY
September 26, 1997
21
<PAGE>
EXHIBIT 99(a)(2)
LETTER OF TRANSMITTAL
To Tender Series B
Convertible Preferred Stock
of
TRANSNATIONAL INDUSTRIES, INC.
Pursuant to the Exchange Offer dated September 26, 1997
===============================================================
THE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN DAYLIGHT SAVINGS
TIME, ON NOVEMBER 28, 1997, UNLESS EXTENDED (THE "EXPIRATION
TIME"). SECURITIES TENDERED MAY BE WITHDRAWN AT ANY TIME
PRIOR TO THE EXPIRATION TIME.
===============================================================
To: Paul L. Dailey, Corporate Secretary
Transnational Industries, Inc.
<TABLE>
<CAPTION>
=====================================================================================
<S> <C> <C>
By Hand: By Facsimile: By Mail:
Transnational Industries, Inc. (610) 459-3830 Transnational Industries, Inc.
c/o Spitz, Inc. Attn: Mr. Paul L. c/o Spitz, Inc.
U.S. Route 1 Dailey P.O. Box 198
Chadds Ford, PA 19317 Corporate Secretary Chadds Ford, PA 19317
Attn: Mr. Paul L. Dailey Attn: Mr. Paul L. Dailey
Corporate Secretary Corporate Secretary
=====================================================================================
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA
FACSIMILE,
OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
The instructions accompanying this Letter of Transmittal should be read
carefully before it is completed. Defined terms used herein and not defined
herein will have the meanings given such terms in the Exchange Offer.
This Letter of Transmittal is to be used if Securities (as defined below)
are to be physically delivered herewith pursuant to the procedures set forth in
"The Exchange Offer -- Procedures for Tendering Securities" in the Exchange
Offer.
Holders who desire to tender their Securities but whose certificates
representing their Securities are lost should notify Paul L. Dailey, the
Company's Secretary, at (610) 459-5200 immediately so that arrangements can be
made for the issuance of a replacement stock certificate which the Holder then
may tender.
Holders who wish to tender their Securities must complete columns (1)
through (3) (and, if applicable, column (4)) in the table below and sign in the
Tender Signature Box below. If only columns (1) through (3) are completed, the
Holder will be deemed to have tendered all Securities listed in the box.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES
- ---------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
NAME(S) AND ADDRESS(ES) CERTIFICATE NUMBER OF SHARES NUMBER OF
OF REGISTERED HOLDER(S) NUMBER(S) OF PREFERRED SHARES OF
(ATTACH SEPARATE LIST IF STOCK PREFERRED STOCK
NECESSARY) TENDERED*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Names(s)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Address(es)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Total
- ---------------------------------------------------------------------------------------------------------
* Column (4) need not be completed by Holders who wish to tender with respect to
the entire number of shares of Preferred Stock represented by the corresponding
certificates.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED IN THE
TENDER SIGNATURE BOX BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Transnational Industries, Inc., a
Delaware corporation (the "Company"), the above-described shares of the
Company's Series B Convertible Preferred Stock (the "Securities" or the
"Preferred Stock"), pursuant to the Company's offer (the "Exchange Offer") to
exchange 125 shares of its Common Stock for each outstanding share of Preferred
Stock upon the terms and subject to the conditions set forth in the Exchange
Offer, dated September 26, 1997, receipt of which is hereby acknowledged by the
undersigned, and this Letter of Transmittal.
Subject to and effective upon acceptance for Exchange of the Securities
tendered herewith, the undersigned hereby sells, assigns and transfers to or
upon the order of the Company all right, title and interest in and to all the
Securities that are being tendered hereby, and appoints the Company the true and
lawful agent and attorney-in-fact of the undersigned with respect to such
Securities, with full power of substitution (such power of attorney being deemed
to be an irrevocable power coupled with an interest), to (a) transfer such
Securities on the books of the Company and (b) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Securities, all in
accordance with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned owns
the Securities tendered hereby and has full power and authority to tender, sell,
assign and transfer the same, and that when the same are accepted for Exchange
by the Company, the Company will acquire good and unencumbered title
2
<PAGE>
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claims. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Company to be necessary or
desirable to complete the exchange, sale, assignment and transfer of the
Securities tendered hereby.
Except as stated in the Exchange Offer and as set forth below, all
authority herein conferred or agreed to be conferred shall survive the death or
incapacity of the undersigned, and any obligation of the undersigned hereunder
shall be binding upon the heirs, personal representatives, successors and
assigns of the undersigned.
The undersigned understands that tenders of Securities pursuant to the
procedures described under the caption "The Exchange Offer -- Procedure for
Tendering Securities" in the Exchange Offer and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions set forth in the Exchange Offer and subject
to the withdrawal rights described therein.
The undersigned recognizes that under certain circumstances set forth in
the Exchange Offer, the Company may not be required to exchange Common Stock
for any Securities tendered hereby.
Unless otherwise indicated under "Special Tender Instructions," please
issue the certificate representing the Common Stock to be exchanged for all of
the Preferred Stock tendered hereby in the name(s) of the undersigned.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail said stock certificate, and any certificates for Securities not
tendered or not purchased (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s). In the
event that both "Special Tender Instructions" and "Special Delivery
Instructions" are completed, please issue the stock certificate for the Common
Stock being exchanged for the Preferred Stock tendered hereby and return any
securities not tendered or not purchased in the name(s) of, and mail said
certificates to, the person(s) so indicated. The undersigned recognizes that
the Company has no obligation pursuant to the "Special Tender Instructions" and
"Special Delivery Instructions" to transfer any Securities from the name of the
registered Holder(s) thereof if the Company does not accept for exchange any of
the Securities so tendered.
3
<PAGE>
<TABLE>
<S> <C>
SPECIAL TENDER INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4 and 6) (See Instructions 4 and 6)
To be completed ONLY if the certificates for To be completed ONLY if certificates for
the Common Stock to be issued in exchange for the Common Stock to be issued in exchange
Securities accepted for Exchange or Securities (if for Securities, or Securities (if any) not
any) not tendered or not accepted for Exchange, tendered or not accepted for Exchange, are to
are to be issued in the name of someone other than be mailed to someone other than the
the undersigned (in the "Tender Signature Box"). undersigned (in the "Tender Signature Box")
or to the undersigned (in the "Tender
Signature Box") at an address other than that
shown in the Tender Signature Box below.
Issue Securities to: Mail Securities to:
Name:____________________________________ Name:
(Please Print) ______________________________________
(Please Print)
Address: Address:
__________________________________________ ______________________________________
__________________________________________ ______________________________________
(Include Zip Code) (Include Zip Code)
</TABLE>
4
<PAGE>
TENDER SIGNATURE BOX
SIGN HERE
or
- ------------------------------ -------------------------------------------
SIGNATURE OF REGISTERED HOLDER SIGNATURE OF OWNER PURSUANT TO STOCK POWERS
DATED: , 1997
----------
Must be signed by registered Holder(s) exactly as name(s) appear(s) on
Securities or by person(s) authorized to become registered Holder(s) by
Securities and documents transmitted herewith (including appropriate stock
powers). If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, agent or other person acting in a
fiduciary or representative capacity, please provide the following information
and see Instruction 4.
If the Holder signing above is a resident of and or situate in the State
of California, such person or entity, by such signature, is representing to the
Company that the Common Stock to be issued to such Holder is being acquired for
such Holder's own account (or a trust account if the Holder is a trustee) and
not with a view to or for sale in connection with any distribution of the Common
Stock to be acquired in the Exchange.
Name(s) Address
--------------------------- ---------------------------
- ----------------------------------- ---------------------------
(PLEASE PRINT) (INCLUDE ZIP CODE)
Capacity (full title) Area Code and Telephone No.
--------------------- -------
Tax Identification or Social Security No(s)
------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED - SEE INSTRUCTIONS 1 AND 4)
Name of Firm Authorized Signature
-------------------- --------------
Date , 1997.
-------------------
5
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
-----------------------
signatures on this Letter of Transmittal must be guaranteed by a firm which is a
member of a registered national securities exchange or the NASD, or a commercial
bank or trust company having an office in the United States (an "Eligible
Institution"). SIGNATURES ON THIS LETTER OF TRANSMITTAL NEED NOT BE GUARANTEED
(A) IF THIS LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER(S) OF THE
SECURITIES TENDERED HEREWITH AND SUCH HOLDER(S) HAVE NOT COMPLETED THE
INSTRUCTION ENTITLED "SPECIAL TENDER INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" ON THIS LETTER OF TRANSMITTAL OR (B) IF SUCH SECURITIES ARE
TENDERED FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION. SEE INSTRUCTION 4.
2. Delivery of Letter of Transmittal and Securities. This Letter of
------------------------------------------------
Transmittal is to be used if Securities are to be forwarded to the Company
herewith pursuant to the procedures set forth in "The Exchange Offer --
Procedure for Tendering Securities" in the Exchange Offer. All physically
delivered Securities, as well as a properly completed and duly executed Letter
of Transmittal (or a manually signed facsimile thereof) and any other documents
required by this Letter of Transmittal must be received by the Company at its
address set forth on the front page of this Letter of Transmittal by the
Expiration Time.
The method of delivery of Securities and all other required documents is at
---------------------------------------------------------------------------
the option and risk of the tendering Holder. If Securities are sent by mail,
- -----------------------------------------------------------------------------
registered mail with return receipt requested, properly insured, is recommended
- -------------------------------------------------------------------------------
and enough time should be allowed to ensure timely delivery.
- -----------------------------------------------------------
No alternative, conditional or contingent tenders will be accepted. By
executing this Letter of Transmittal (or a facsimile thereof), the tendering
Holder waives any right to receive any notice of the acceptance for Exchange of
the Securities.
3. Inadequate Space. If the space provided herein is inadequate, the number
----------------
of shares of Preferred Stock being tendered and the stock certificate numbers
(if available) should be listed on a separate schedule.
4. Signatures on Letter of Transmittal: Stock Powers and Endorsements. IF
-------------------------------------------------------------------
THIS LETTER OF TRANSMITTAL IS SIGNED BY A PERSON OTHER THAN THE REGISTERED
HOLDER, APPROPRIATE STOCK POWERS MUST BE OBTAINED FROM SUCH REGISTERED HOLDER,
WITH THE SIGNATURE OF SUCH REGISTERED HOLDER GUARANTEED BY AN ELIGIBLE
INSTITUTION. If this Letter of Transmittal is signed by the registered
Holder(s) of the Securities, the signature(s) must correspond with the name(s)
as written on the face of the Securities without alteration, enlargement or any
change, whatsoever.
(a) If any of the Securities are held of record by two or more persons, all
such persons must sign this Letter of Transmittal.
(b) If any of the Securities are registered in different names, it will be
necessary to complete, sign and submit as many separate Letters of Transmittal
as there are different registrations.
6
<PAGE>
(c) If this Letter of Transmittal is signed by the registered Holder(s) of
the Securities, no endorsements of Securities or separate stock powers are
required unless Common Stock is to be issued, or Securities not tendered and
accepted for Exchange are to be issued and/or returned, in the name of any
person other than the registered Holder(s). Signatures on any such Securities
or stock powers must be guaranteed by an Eligible Institution.
(d) If this Letter of Transmittal is signed by a person other than the
registered Holder(s) of the Securities, such Securities must be endorsed or
accompanied by appropriate stock powers, signed exactly as the name(s) of the
registered Holder(s) appear(s) on such Securities. Signature(s) on any such
Securities or stock powers must be guaranteed by an Eligible Institution.
(e) If this Letter of Transmittal or any Securities or bond powers or
proxies are signed by a trustee, executor, administrator, guardian, attorney-in-
fact, officer of a corporation, agent or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing and, unless
waived by the Company, evidence satisfactory to the Company of the authority of
such person so to act must be submitted with this Letter of Transmittal.
5. Transfer Taxes. The Company will pay or cause to be paid any security
--------------
transfer taxes, if any, with respect to the Exchange of all Securities accepted
for Exchange pursuant to the Exchange Offer. If, however, Common Stock is to be
issued to, or Securities not tendered and accepted for Exchange are to be issued
or returned, in the name of any person other than the registered Holder(s), the
amount of any security transfer taxes (whether imposed on the registered
Holder(s), such other person or otherwise) payable on account of the transfer to
such person will be the responsibility of the Holder (and the Company reserves
the right to retain possession of the certificate represented the Common Stock
issued in the Exchange until satisfactory evidence of the payment of such taxes,
or exception therefrom, is submitted).
6. Special Tender and Delivery Instructions. If the certificate for the
----------------------------------------
Common Stock to be issued in the Exchange is to be issued, or any Securities not
tendered and accepted for Exchange are to be issued or returned, in the name of
a person other than the person(s) signing this Letter of Transmittal or are to
be mailed to someone other than the person(s) signing this Letter of Transmittal
at an address other than that shown above, the appropriate boxes on this Letter
of Transmittal should be completed.
7. Irregularities. All questions as to the validity, form, eligibility
--------------
(including time of receipt) and acceptance for Exchange and withdrawal of
tendered Securities will be determined by the Company, in its sole discretion,
and its determination shall be final and binding. The Company reserves the
absolute right to reject any or all tenders of Securities (i) determined by it
to be not in appropriate form or (ii) the acceptance for Exchange of which, or
issuance of Common Stock for which, may, in the opinion of the Company's
counsel, be unlawful. The Company reserves the absolute right to waive any
defects or irregularities in the tender of any particular Securities. Unless
waived, any defects or irregularities in connection with the tenders must be
cured within such time as the Company shall determine. Neither the Company nor
any other person shall be under any duty to give notice of any defects or
irregularities in such tenders, nor shall any of them incur any liability for
failure to give any such notice. Tenders will not be deemed to have been
delivered until all defects and irregularities have been cured or waived.
8. Waiver of Conditions. The Company reserves the absolute right to amend,
--------------------
waive or modify specified conditions of the Exchange Offer in the case of any
tendered Security.
7
<PAGE>
9. Requests for Assistance or Additional Copies. Questions relating to the
--------------------------------------------
Exchange Offer or the procedure for tendering, as well as requests for
assistance or for additional copies of the Exchange Offer and this Letter of
Transmittal may be directed to the Company at the address and telephone number
set forth below.
Requests for assistance or additional copies of the Exchange Offer or
the Letter of Transmittal may be obtained from the Company
at the address or telephone number set forth below.
Transnational Industries, Inc.
c/o Spitz, Inc.
P.O. Box 198
U.S. Route 1
Chadds Ford, PA 19317
Tel: (610) 459-5200
Attention: Mr. Paul L. Dailey
Corporate Secretary
8
