<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)*
HEALTHCARE RECOVERIES, INC.
(Name of issuer)
COMMON STOCK, par value $.001 per share
(Title of class of securities)
42220K101
(CUSIP number)
Arthur G. Epker, III.
Vice President
Par Capital Management, Inc.
One Financial Center, Suite 1600
(617) 526-8992
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS)
MAY 5, 2000
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box : [ ].
Note: Schedules filed in paper format shall include a signed original
and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for
other parties to whom copies are to be sent.
(Continued on the following pages)
(Page 1 of 14 Pages)
- ----------------------
*The remainder of this cover page shall be filled out for a reporting persons
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be filed for the purpose of Section 18 of the Securities Exchange Act of 1934
(the Act) or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the Notes).
<PAGE> 2
SCHEDULE 13D
- --------------------------------------------------------------------------------
CUSIP NO. 42220K101 PAGE 2 OF 14 PAGES
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
PAR INVESTMENT PARTNERS, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
STATE OF DELAWARE
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 1,314,800
BENEFICIALLY
OWNED BY EACH
REPORTING
PERSON
WITH
--------------------------------------------------------
8 SHARED VOTING POWER
NONE
--------------------------------------------------------
9 SOLE DISPOSITIVE POWER
1,314,800
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
NONE
--------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,314,800 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON *
PN
- --------------------------------------------------------------------------------
* SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 3
SCHEDULE 13D
- --------------------------------------------------------------------------------
CUSIP NO. 42220K101 PAGE 3 OF 14 PAGES
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
PAR GROUP, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
STATE OF DELAWARE
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 1,314,800
BENEFICIALLY
OWNED BY EACH
REPORTING
PERSON
WITH
--------------------------------------------------------
8 SHARED VOTING POWER
NONE
--------------------------------------------------------
9 SOLE DISPOSITIVE POWER
1,314,800
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
NONE
--------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,314,800 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON *
PN
- --------------------------------------------------------------------------------
* SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 4
SCHEDULE 13D
- --------------------------------------------------------------------------------
CUSIP NO. 42220K101 PAGE 4 OF 14 PAGES
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
PAR CAPITAL MANAGEMENT, INC.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
STATE OF DELAWARE
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 1,314,800
BENEFICIALLY
OWNED BY EACH
REPORTING
PERSON
WITH
--------------------------------------------------------
8 SHARED VOTING POWER
NONE
--------------------------------------------------------
9 SOLE DISPOSITIVE POWER
1,314,800
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
NONE
--------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,314,800 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON *
CO
- --------------------------------------------------------------------------------
* SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 5
SCHEDULE 13D
- --------------------------------------------------------------------------------
CUSIP NO. 42220K101 PAGE 5 OF 14 PAGES
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
MR. ARTHUR G. EPKER, III
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 1,314,800
BENEFICIALLY
OWNED BY EACH
REPORTING
PERSON
WITH
--------------------------------------------------------
8 SHARED VOTING POWER
NONE
--------------------------------------------------------
9 SOLE DISPOSITIVE POWER
1,314,800
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
NONE
--------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,314,800 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON *
IN
- --------------------------------------------------------------------------------
* SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 6
ITEM 1. SECURITY AND ISSUER.
This Statement relates to the common stock, par value $.001
(Common Stock), of HEALTHCARE RECOVERIES, INC. (the Issuer). The principal
executive offices of the Issuer are located at 1400 Watterson Tower, Louisville,
Kentucky, 40218.
ITEM 2. IDENTITY AND BACKGROUND.
(a), (b) and (c). The persons filing this Statement are PAR
Investment Partners, L.P., (PIP), PAR Group, L.P. (PAR Group), PAR Capital
Management, Inc. (PAR Capital) and Mr. Arthur G. Epker, III (Mr. Epker).
PIP is a Delaware limited partnership. Its principal business
is that of a private investment partnership engaging in the purchase and sale of
securities for its own account and its address is Suite 1600, One Financial
Center, Boston, MA 02111.
The sole general partner of PIP is PAR Group, a Delaware
limited partnership. The principal business of PAR Group is that of a private
investment partnership engaging in the purchase and sale of securities for its
own account and its address is Suite 1600, One Financial Center, Boston, MA
02111.
The sole general partner of PAR Group, is PAR Capital, a
Delaware S corporation. The principal business of PAR Capital is to act as the
general partner of PAR Group. Its offices are located at Suite 1600, One
Financial Center, Boston, MA 02111.
Paul A. Reeder, III is the President and sole director of PAR
Capital. He may be deemed to be a controlling shareholder of PAR Capital.
Frederick S. Downs, Jr. is a Vice President of PAR Capital. He may be deemed to
be a controlling shareholder of PAR Capital. Arthur G. Epker, III is a Vice
President of PAR Capital. He may be deemed to be a controlling shareholder of
PAR Capital. Edward L. Shapiro is a Vice President of PAR Capital. He may be
deemed to be a controlling shareholder of PAR Capital The business address of
Paul A. Reeder, III, Frederick S. Downs, Jr., Arthur G. Epker, III and Edward L.
Shapiro is Suite 1600, One Financial Center, Boston, MA 02111.
(d) and (e). During the last five years PIP, PAR Group, and
PAR Capital have not (i) been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (ii) been a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction as a
result of which they were or are subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violations with respect to
such laws.
During the last five years Paul A. Reeder, III, Frederick S.
Downs, Jr, Arthur G. Epker, III and Edward L. Shapiro, have not (i) been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which they were or
are subject to a judgment, decree or final order enjoining future violations of,
or prohibiting or mandating activities subject to, federal or state securities
laws or finding any violations with respect to such laws.
(f) Paul A. Reeder, III, Frederick S. Downs, Jr., Arthur G.
Epker, III and Edward L. Shapiro are all citizens of the United States.
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<PAGE> 7
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATIONS.
Between May 5, 2000 and December 22, 1999 PIP purchased
1,274,800 shares of Common Stock of the Issuer in open market transactions. The
sole source of the funds used in making purchases of the Common Stock was the
PIP cash account. No part of the purchase price is represented by funds or other
consideration borrowed or otherwise obtained for the purpose of acquiring,
holding, trading or voting the Common Stock. No source of the funds is a loan
made in the ordinary course of business by a bank, as defined in Section 3(a)(6)
of the Act. The amount of funds used in making the purchases is set forth in
Item 5.
Between March 14, 2000 and March 16, 2000 Mr. Epker purchased
40,000 shares of Common Stock of the Issuer in open market transactions. The
sole source of the funds used in making purchases of the Common Stock was Mr.
Epker's Individual Retirement Account. No part of the purchase price is
represented by funds or other consideration borrowed or otherwise obtained for
the purpose of acquiring, holding, trading or voting the Common Stock. No source
of the funds is a loan made in the ordinary course of business by a bank, as
defined in Section 3(a)(6) of the Act. The amount of funds used in making the
purchases is set forth in Item 5.
ITEM 4. PURPOSE OF TRANSACTION.
PIP acquired the shares of Common Stock in the ordinary course
of business for investment purposes. On August 10, 1999, PIP, PAR Group and PAR
Capital (collectively, the Reporting Person) filed a Schedule 13G pursuant to
Rule 13d-1(c). This Schedule 13D is being filed pursuant to Rule 13d-1(e)(i). On
April 11, 2000 the Reporting Person sent a letter to the Issuer describing its
views regarding the management of the Issuer. A copy of the letter is attached
hereto as Exhibit 7(b). The Reporting Person has not made any decision as to its
intended course of action with respect to its ownership interest in the Issuer.
In reaching any decision as to its course of action (as well as to the specific
elements thereof), the Reporting Person expects to take into consideration a
variety of factors including, but not limited to, the Issuers business and
prospects, other developments concerning the Issuer and the Issuers industries
generally, other business opportunities available to the Reporting Person and
other developments with respect to the business of the Reporting Person, general
economic conditions and monetary and stock market conditions, including the
market price of the Common Stock. In such event, the Reporting Person would
likely consider the feasibility and advisability of various alternative courses
of action, and the Reporting Person reserves the right, (i) to hold its shares
of Common Stock as a passive investor or as an active investor (whether or not
as a member of a group with other beneficial owners of the Common Stock or
otherwise), (ii) to form a group with other beneficial owners of Common Stock,
(iii) to acquire beneficial ownership of additional shares of Common Stock in
the open market, in privately negotiated transactions or otherwise, (iv) to
dispose of all or part of its holdings of Common Stock, (v) to take other
actions which could involve one or more of the types of transactions or have one
or more of the results described in the next paragraph of this Item 4, or (vi)
to change its intention with respect to any or all of the matters referred to in
this Item 4.
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<PAGE> 8
Other than as described above, neither the Reporting Person
nor, to the best of its knowledge, any of its executive officers, directors or
controlling persons, has any present plans or proposals which relate to or would
result in: (a) the acquisition by any person of additional securities of the
Issuer, or the disposition of securities of the Issuer; (b) an extraordinary
corporate transaction, such as a merger, reorganization or liquidation,
involving the Issuer or any of its subsidiaries; (c) a sale or transfer of a
material amount of assets of the Issuer or any of its subsidiaries; (d) any
change in the present Board of Directors or management of the Issuer, including
any plans or proposals to change the number or terms of directors or to fill any
existing vacancies on the Board; (e) any material change in the present
capitalization or dividend policy of the Issuer; (f) any other material change
in the Issuers business or corporate structure; (g) changes in the Issuers
charter, by-laws or instruments corresponding thereto or other actions which may
impede the acquisition of control of the Issuer by any person; (h) causing a
class of securities of the Issuer to be deleted from a national securities
exchange or to cease to be authorized to be quoted in any inter-dealer quotation
system of a registered national securities association; (i) a class of equity
securities of the Issuer becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the Exchange Act; or (j) any action similar to
any of those enumerated above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As of the date of this statement, Mr. Epker and PIP beneficially owns and
PAR Group and PAR Capital may be deemed to beneficially own 1,314,800 shares of
the Common Stock of the Issuer, representing approximately 11.7% of the number
of shares of Common Stock of the Issuer currently outstanding. The number of
shares of Common Stock of the Issuer believed to be outstanding as of May 5,
2000, as reported in the Form 10-Q of the Issuer for the quarterly period ending
December 31, 1999 (which is the most recently available filing by the Issuer
with the Commission) is 11,225,118. The total amount of funds used in purchasing
the 1,314,800 shares of Common Stock was $5,048,829.90.
To the best knowledge of PIP, PAR Group, PAR Capital and Mr. Epker, none of
PIP, PAR Group, PAR Capital or Mr. Epker, nor any officer or director of PIP,
PAR Group or PAR Capital beneficially owns any other shares of Common Stock of
the Issuer.
(b) PIP, PAR Group, PAR Capital and Mr. Epker have sole voting and dispositive
power with respect to the 1,314,800 shares of Common Stock of the Issuer.
(c) To the best knowledge of PIP, PAR Group, PAR Capital and Mr. Epker, none of
PIP, PAR Group, PAR Capital and Mr. Epker, nor any officer or director of PAR
Capital has effected any transactions in the Common Stock of the Issuer during
the past 60 days, other than as set forth below:
8 of 14
<PAGE> 9
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Price
Date Purchased (1) Per Share
---- ------------------- ---------
<S> <C> <C>
03/26/99 20,000 4.50
03/29/99 5,000 4.75
04/07/99 10,000 4.69
04/19/99 15,000 4.38
05/04/99 11,900 4.41
05/10/99 35,000 4.56
05/11/99 9,100 4.50
05/11/99 10,000 4.50
05/13/99 5,000 4.56
05/14/99 10,000 4.56
05/18/99 35,000 4.22
05/19/99 35,000 4.22
05/20/99 134,800 4.19
05/25/99 50,000 4.31
06/04/99 2,000 4.22
06/04/99 3,200 4.19
06/28/99 50,000 4.44
08/10/99 480,000 3.68
08/24/99 79,000 3.94
08/31/99 35,000 3.89
09/01/99 12,500 3.75
09/02/99 25,000 3.69
12/21/99 8,300 2.80
12/22/99 5,000 2.69
03/14/00 10,200 4.36
03/15/00 1,800 4.41
03/16/00 28,000 4.41
04/24/00 20,000 2.75
04/25/00 25,000 3.00
04/28/00 10,000 2.86
05/02/00 20,000 2.88
05/02/00 10,000 2.94
05/03/00 20,000 2.88
05/05/00 14,000 2.88
05/05/00 70,000 3.05
</TABLE>
(1) All transactions were effected on the Nasdaq National Market System
(d) Not applicable.
(e) Not applicable.
9 of 14
<PAGE> 10
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
None.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
7(a) Joint Filing Agreement
7(b) Letter from the Reporting Person to the Issuer dated April 11,
2000.
10 of 14
<PAGE> 11
SIGNATURE
After due inquiry, to the best of our knowledge and belief, we certify
that the information set forth in this statement is true, complete and correct.
Dated: May 5, 2000
PAR INVESTMENT PARTNERS, L.P.
By: PAR GROUP, L.P.
its general partner
By: PAR CAPITAL MANAGEMENT, INC.
its general partner
By: /s/ Frederick S. Downs, Jr., Vice President
-------------------------------------------
PAR GROUP, L.P.
By: PAR CAPITAL MANAGEMENT, INC.,
its general partner
By: /s/ Frederick S. Downs, Jr., Vice President
-------------------------------------------
PAR CAPITAL MANAGEMENT, INC.
By: /s/ Frederick S. Downs, Jr., Vice President
-------------------------------------------
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<PAGE> 12
EXHIBIT 7(a)
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(k) under the Securities Exchange
Act of 1934, as amended, the undersigned agree to the joint filing on behalf of
each of them of a statement on Schedule 13D (including amendments thereto) with
respect to the Common Stock of Healthcare Recoveries, Inc. and further agree
that this agreement be included as an exhibit to such filing. Each party to the
agreement expressly authorizes each other party to file on its behalf any and
all amendments to such statement. Each party to this agreement agrees that this
joint filing agreement may be signed in counterparts.
In evidence whereof, the undersigned have caused this
Agreement to be executed on their behalf this 5th day of May, 2000.
PAR INVESTMENT PARTNERS, L.P.
By: PAR GROUP, L.P.
its general partner
By: PAR CAPITAL MANAGEMENT, INC.
its general partner
By: /s/ Frederick S. Downs, Jr., Vice President
-------------------------------------------
PAR GROUP, L.P.
By: PAR CAPITAL MANAGEMENT, INC.,
its general partner
By: /s/ Frederick S. Downs, Jr., Vice President
-------------------------------------------
PAR CAPITAL MANAGEMENT, INC.
By: /s/ Frederick S. Downs, Jr., Vice President
-------------------------------------------
12 of 14
<PAGE> 13
EXHIBIT 7(b)
April 11, 2000
Mr. William C. Ballard, Jr., Ms. Jill L. Force, Mr. John H. Newman, Ms. Elaine
J. Robinson, Mr. Chris B. Van Arsdel
Members of the Special Committee of The Board of Directors
Healthcare Recoveries, Inc.
1400 Watterson Tower
Louisville, KY 40218
Dear Directors:
I believe that as directors you have failed to fulfill your roles as
representatives of the shareholders best interests. I hereby request that
current members of the Special Committee of the Board of Directors resign and
that the Board be replaced with directors whose communication is more open,
whose economic interests more closely parallel those of the shareholders, and
who will exercise more sensible business judgment.
On August 31, 1999, the Board appointed a Special Committee to evaluate
strategic alternatives. Unfortunately, the decision to create such a Committee
was not shared with the shareholders until October 5, 1999. Management indicated
at that time the Special Committee would take 6-8 months to complete this
process. On March 31, 2000, the Special Committee announced, without sufficient
explanation, that it had ceased seeking a buyer for Healthcare Recoveries, Inc.
("HRI"). The implication of this decision is that some other strategic
alternative offered better value for the shareholders. Unfortunately, no other
strategic alternative was announced. Rather we were told that the Committee was
continuing to review alternative means of enhancing shareholder value. How can
the Board rule out alternatives with clear value to the shareholders in the
absence of any other option? The Special Committee has failed to share with
stockholders its rationale for making this determination. The best offer should
have been presented to the shareholders, and democracy should have been allowed
to carry the day. Each shareholder could have evaluated the best offer in light
of the prospects for the company, its market capitalization and current market
conditions. I ask that the Board share the offer(s) details with the
shareholders, thereby providing a yardstick against which to measure your
performance as directors in the future. The shareholders have a clear right to
understand the options that were presented to HRI and to understand why they
were rejected.
Regarding economic interests, the most recent proxy indicates that the special
committee members own a total of 33,500 shares of HRI, and have options to
purchase 60,000 additional shares. These same special committee members received
$50,000 in retainer and $82,500 in meeting fees in 1999 alone. (Amounts from
2000 have not yet been disclosed.) These fees represent an average of $3.96 per
share owned by special committee members. As a large shareholder, a $3.96/share
dividend may change my opinion about whether the company should be sold or not.
Unfortunately, I was not given this option. Board members are duty
13 of 14
<PAGE> 14
bound to represent the shareholders. The compensation given to special committee
members to perform a task that is part of their ordinary duties as directors is
egregious. Clearly, as special committee members you have an incentive to
continue holding meetings, independent of whether you accomplish anything. This
is not in the best interests of the other shareholders, and could be rectified
by paying the special committee members less, or by replacing yourselves with
board members who have larger ownership interests. Ideally, both will occur.
Finally, the business judgment of the special committee is so clearly flawed
that there is no reasonable basis upon which to conclude that the relevant
decisions were made with due care and in good faith. In addition to the logical
inconsistencies outlined above, your failure to accept the best offer made is
absolutely indefensible. You have spent the shareholders' money retaining
Donaldson, Lufkin and Jenrette, held at least 11 meetings, and spent 7 months
looking for a buyer. The market has spoken, and you have elected not to listen.
Any argument that the best offer received was insufficient is unsustainable when
made by a Board of Directors that approved a $10,000,000 share repurchase on
March 15, 1999, and only used 14% of those funds to buy back shares at an
average price of $4.50/share. If HRI is worth more than the best offer, why did
the company not aggressively repurchase shares at lower prices last year? Why
have members of the special committee not personally purchased shares in the
last year while the stock has traded below $5.00? Your words say one thing ("the
stock is cheap") but your actions say another ("the stock wasn't worth buying at
$4.50"). The old saying "talk is cheap" leads me to conclude that your actions
more closely reflect your true beliefs. Your prior decisions are consistent with
only one conclusion: any offer of greater than $4.50 per share should be
considered acceptable by the Special Committee. If there is a plan for realizing
greater shareholder value than was represented by the highest offer received,
what is it, and why wasn't it announced? Why should any alternative be
eliminated before a conclusion is reached? Please share the wisdom that we paid
dearly for.
When one looks at your performance as directors, it is impossible not to be
appalled. Your economic incentives are different from your constituents, your
communication skills are lacking and your business judgment is indefensible. You
have presided over the company while the stock price has declined from its peak
of over $25.00 to its current price of $3.00, and yet you have turned down a
lifeline offered to the shareholders. Mr. Ballard told me on the phone that he
felt underpaid as a director and member of the Special Committee. Given his
concern, he would be doing what is best for him and for the shareholders if he
resigned. To reiterate my most fundamental point, I hereby request that all
members of the Special Committee of the Board of Directors resign as Directors
immediately. I am willing to serve as a member of the Special Committee for no
fee, and I am sure other large shareholders would also nominate new directors
who will serve the shareholders.
Sincerely,
Arthur G. Epker III
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