UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRELIMINARY SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section
13(e) of the Securities Exchange
Act of 1934)
HART HOLDING COMPANY INCORPORATED
(Name of Issuer)
JAMES W.HART
(Name of Affiliate)
HART HOLDING COMPANY INCORPORATED
JAMES W. HART
(Name of persons filing Statement)
Common Stock, $.01 par value, of Hart Holding
Company Incorporated
(Title of Class of Securities)
416086106
(CUSIP Number of Class of Securities)
Louis J. Bevilacqua, Esq.
Cadwalader, Wickersham & Taft 100
Maiden Lane
New York, New York 10038
(212) 504-6000
(Name, Address and Telephone Number of Person
Authorized to receive Notices and
Communications on Behalf of
Person Filing Statement)
This statement is filed in connection
with (check the appropriate box):
a. X The filing of solicitation materials
or an information statement subject to Regulation 14A
[17 CFR 240.14a-1 to 240.14b-1], Regulation 14C
[17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c)
[ 240.13e-(c)] under the Securities Exchange Act of 1934.
b. The filing of a registration statement under
the Securities Act of 1933.
c. X A tender offer.
d. None of the above.
Check the following box if the soliciting material or
information statement referred to in checking box (a) are
preliminary copies:
X
CALCULATION OF FILING FEE
Amount of Filing Fee
Transaction valuation
$ 1,313,550.00* $0
* 583,800 shares of the Issuer's Common Stock, par value $.01
redeemed for cash consideration of $2.25 per share.
X Check box if any part of the fee is offset as provided by
Rule 0- 11(a)(2) and identify the filing with which the
offsetting fee was previously paid. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
Amount previously paid:$ 262.71
Filing Party: Hart Holding Company Incorporated
Form of Registration: Preliminary Proxy
Statement ($125.00)
Date Filed:December 15, 1992
Issuer Tender Offer Statement ($137.71)
Date Filed:April 20, 1994
--
--
This Rule 13E-3 Transaction Statement is being filed
by Hart Holding Company Incorporated (the "Corporation") and
James W. Hart individually and as an affiliate of the Corporation
with respect to its Common Stock, $.01 par value. The Board of
Directors has approved a resolution adopting an amendment to the
Corporation's Restated Certificate of Incorporation (the
"Amendment"). James W. Hart, the principal stockholder of the
Corporation, who beneficially owns or controls approximately 95%
of the issued and outstanding shares which would be entitled to
vote at a meeting of stockholders if a meeting were held, has
advised the Corporation that he intends to execute a consent with
respect to his shares in favor of the Amendment. The Amendment
provides for a reduction in the number of authorized shares of
the Corporation's common stock from 40,000,000 shares of $.01 par
value ("Existing Shares") to 75,000 shares of $1.00 par value
("New Shares") and a six hundred to one reverse stock split (the
"Reverse Stock Split") of the Corporation's Existing Shares.
Upon the effectiveness of the Reverse Stock Split every 600
Existing Shares will automatically be converted into one New
Share. Upon completion of the Reverse Stock Split, holders of
less than 600 Existing Shares who do not elect or are unable to
purchase additional shares will cease to be stockholders of the
Corporation and the Corporation will acquire for cash all
resulting fractional New Shares at a price equal to $1,350 per
New Share (the "Cash Consideration") which is equivalent to $2.25
for each Existing Share repurchased. As a result of the Reverse
Stock Split, stockholders will receive one New Share for each 600
Existing Shares currently held. All Existing Shares not
converted into New Shares will be converted into the right to
receive the Cash Consideration. Stockholders that hold
fractional shares after the Reverse Stock Split may elect to
forego the Cash Consideration and round up their fractional
holdings to the next whole share (on a first-come, first-served
basis, subject to the availability of fractional shares) by
paying $2.25 for each 1/600 of a share needed to round up their
holdings to equal one New Share. Stockholders owning whole New
Shares as a result of the Reverse Stock Split will be given the
right to tender such whole New Shares for a period of 30 days
following the consummation of the Reverse Stock Split for a
purchase price of $1,350 per New Share (the "Purchase Offer").
The Purchase Offer is not conditional on any minimum number of
shares being tendered and will expire at 5:00 p.m. Eastern
Daylight Time, on ____________, 1994, unless extended. The terms
of the Reverse Stock Split and the offer to purchase any
resulting whole New Share are mandated by and subject to the
conditions set forth in the settlement of two class action
lawsuits entitled Claire Lois Spark Loeb v. James W. Hart, et
al., Del. Ch., C.A. 12830, Jacobs, V.C., and Rochelle Brooks v.
James W. Hart, et al., Del. Ch., C.A. 12831, Jacobs, V.C. filed
in the Court of Chancery of the State of Delaware, challenging an
earlier proposed 300 to one reverse stock split of the
Corporation's common stock which was announced on December 18,
1992. The Court of Chancery entered an order approving the terms
of the settlement on April 15, 1994 (the "Settlement Approval
Date"). In order to be eligible to round up fractional shares of
New Common Stock to the next whole New Share, a stockholder must
be the stockholder of record with respect to such shares on both
the Settlement Approval Date and the effective date of the
Reverse Stock Split.
Concurrently with the filing of this Statement, the
Corporation is filing an Issuer Tender Offer Statement, Schedule
13E-4 ("Schedule 13E-4"), with exhibits, with the Securities and
Exchange Commission. The cross-reference sheet below is being
supplied pursuant to General Instruction F to Schedule 13E-3 and
shows the location in the Schedule 13E-4 of the information
required to be included in response to the items in this
Statement.
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(Pursuant to General Instruction F to Schedule 13E-3)
LOCATION OF ITEM IN LOCATION OF ITEM IN
ITEM IN SCHEDULE 13E-3 SCHEDULE 13E-4 INFORMATION STATEMENT
<S> <C> <C>
Item 1 (a).................Item 1(a) Cover
(b).................Item 1(b) "MARKET AND DIVIDEND
INFORMATION"
(c).................Item 1(c) "MARKET AND DIVIDEND
INFORMATION"
(d).................Item 1(c) "MARKET AND DIVIDEND
INFORMATION"
(e)................. * *
(f)................. "SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split- Repurchase
of the Corporation's
Existing Shares"
"MARKET AND DIVIDEND
INFORMATION"
Item 2 (a)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(b)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(c)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(d)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(e)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(f)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(g)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
Item 3 (a)................. * "BOARD OF DIRECTORS
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(b)................. * "BACKGROUND OF REVERSE
STOCK SPLIT AND PURCHASE
OFFER"
"SPECIAL FACTORS --
Background ad Reasons
for the Reverse Stock
Split- Repurchase of the
Corporation's Existing
Shares"
Item 4 (a).................Item 1(b) "BACKGROUND OF
REVERSE STOCK SPLIT
AND PURCHASE OFFER"
"TERMS OF REVERSE
STOCK SPLIT AND PURCHASE
OFFER"
"EXCHANGE OF SHARES AND
PAYMENT IN LIEU OF FRACTIONAL
SHARES"
(b)................. * *
Item 5 (a).................Item 3(b) *
(b).................Item 3(c) *
(c).................Item 3(d) *
(d).................Item 3(e) *
(e).................Item 3(f) *
(f).................Item 3(i) "REVERSE STOCK SPLIT --
Termination of Exchange
Act Registration"
(g).................Item 3(j) "REVERSE STOCK
SPLIT Termination
of Exchange Act Registration"
Item 6 (a).................Item 2(a) "SOURCE AND AMOUNT OF
FUNDS,EXPENSES"
(b)................. * "SOURCE AND AMOUNT OF
FUNDS,EXPENSES"
(c).................Item 2(b), (1)
and (2)
*
(d)................. * *
Item 7 (a).................Item 3 "SPECIAL FACTORS Purposes of
the Reverse Stock Split"
(b)................. * "SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
(c)................. * "BACKGROUND OF REVERSE
STOCK SPLIT AND PURCHASE OFFER"
"SPECIAL FACTORS --
Background and Reasons
for the Reverse Stock Split"
"SPECIAL FACTORS --Decision to
(d).................Item 3(j) "EFFECTS OF THE REVERSE STOCK SPLIT"
Item 8 (a)................. * "SPECIAL FACTORS --
Background and Reasons
for the Reverse Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
"SPECIAL FACTORS --
Conflicts of Interest,
Lack of Opinions,
Appraisals and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
"RECOMMENDATION OF BOARD
OF DIRECTORS,
VOTE REQUIRED"
(b)................. * "SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
"SPECIAL FACTORS --
Conflicts of Interest,
Lack of Opinions,
Appraisals and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
"RECOMMENDATION OF BOARD
OF DIRECTORS,VOTE REQUIRED"
(c)................. * "SPECIAL FACTORS --
Background and Reasons
for the Reverse Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
"SPECIAL FACTORS --
Conflicts of Interest,
Lack of Opinions,
Appraisals and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
(d)................. * "SPECIAL FACTORS --
Background and Reasons
for the Reverse Stock Split"
"SPECIAL FACTORS -- Decision to
Propose the Reverse Stock Split"
"SPECIAL FACTORS -- Conflicts of
Interest,Lack of Opinions,
Appraisals and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
"RECOMMENDATION OF BOARD
OF DIRECTORS, VOTE REQUIRED"
(e)................. * "SPECIAL FACTORS --
Background and Reasons
for the Reverse Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
"SPECIAL FACTORS --
Conflicts of Interest,
Lack of Opinions,Appraisals
and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
"RECOMMENDATION OF BOARD
OF DIRECTORS, VOTE REQUIRED"
(f)................. * *
Item 9 (a)................. * "SPECIAL FACTORS -Conflicts of
Interest,Lack of Opinions,
Appraisals and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
(b)................. * *
(c)................. * *
Item 10 (a)................. * "BOARD OFDIRECTORS,EXECUTIVE
OFFICERS AND PRINCIPAL
STOCKHOLDERS"
(b).................Item 4 "SPECIAL FACTORS --
Background and Reasons
for the Reverse Stock Split
- Repurchase of Corporation's
Existing Shares"
Item 11 ....................Item 5 "BOARD OFDIRECTORS,EXECUTIVE
OFFICERS AND PRINCIPAL
STOCKHOLDERS"
Item 12 (a).................Item 1(b)"VOTE OF MAJORITY
STOCKHOLDER TO BE DETERMINATIVE"
RECOMMENDATION OF THE BOARD
OF DIRECTORS,
VOTE REQUIRED"
(b)................. * "RECOMMENDATION OF THE
BOARD OF DIRECTORS,
VOTE REQUIRED"
Item 13 (a)................. * "APPRAISAL RIGHTS"
(b)................. * *
(c)................. * *
Item 14 (a).................Item 7(a),(1)
.................... and (2) "FAIRNESS OF THE REVERSE
STOCK SPLIT" "SELECTED
SELECTED CONSOLIDATED
FINANCIAL DATA"
"MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS"
"FINANCIAL INFORMATION"
(b).....................Item 7(b)(1), *
(2), and(3)
Item 15 (a)................. * "SOURCE AND AMOUNT OF
FUNDS,EXPENSES"
(b).................Item 6 "SOURCE AND AMOUNT OF
FUNDS,EXPENSES"
Item 16 Item 8(e) Entire Information
Statement
Item 17 (a)................. * *
(b)................. * *
(c)................. * *
(d).................Item 9(a)(1) Entire Information
Statement
(e)................. * *
(f)................. * *
_______________________
* The Item is not required by Schedule 13E-4.
<PAGE>
Item 1. Issuer and Class of Security Subject to
the Transaction.
(a) The name of the issuer is Hart Holding Company
Incorporated, a Delaware corporation, and the address of its
principal executive office is 1120 Boston Post Road, Darien,
Connecticut 06820.
(b) The exact title of the class of equity
securities to which this statement relates is Common Stock, par
value $.01 per share. The information set forth under the
caption "MARKET AND DIVIDEND INFORMATION" of the Information
Statement is incorporated herein by reference.
(c) The information set forth under the caption
"MARKET AND DIVIDEND INFORMATION" of the Information Statement is
incorporated herein by reference.
(d) The information set forth under the caption
"MARKET AND DIVIDEND INFORMATION" of the Information Statement is
incorporated herein by reference.
(e) Not applicable.
(f) The information set forth under the captions
"SPECIAL FACTORS -- Background and Reasons for the Reverse Stock
Split - Repurchase of the Corporation's Existing Shares" and
"MARKET AND DIVIDEND INFORMATION" of the Information Statement is
incorporated herein by reference.
Item 2. Identity and Background.
(a)-(d), (g) This Statement is filed by Hart
Holding Company Incorporated, a Delaware corporation and a
diversified industrial company, with principal executive offices
at 1120 Boston Post Road, Darien, Connecticut 06820 and James W.
Hart, an individual with a business address of c/o Hart Holding
Company Incorporated, 1120 Boston Post Road, Darien, Connecticut
06820. The information set forth under the caption "BOARD OF
DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS" of the
Information Statement is incorporated herein by reference.
(e)-(f) To the best of the Corporation's
knowledge, each person described under the caption "BOARD OF
DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS" of the
Information Statement is a citizen of the United States and
during the last 5 years no such person has been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) and no such person was a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction as a result of which he was or is subject to a
judgment, decree or final order enjoining future violations of,
or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws. Mr. Hart is a
citizen of the United States and, during the last 5 years, Mr.
Hart has not been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) and was not a party
to a civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which he was or is subject
to a judgment, decree or final order enjoining future violations
of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
Item 3. Past Contracts, Transactions or
Negotiations.
(a) The information set forth under the caption
"BOARD OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL
STOCKHOLDERS" is incorporated herein by reference.
(b) The information set forth under the captions
"BACKGROUND OF REVERSE STOCK SPLIT AND PURCHASE OFFER" and
"SPECIAL FACTORS -- Background and Reasons for the Reverse Stock
Split - Repurchase of the Corporation's Existing Shares" of the
Information Statement is incorporated herein by reference.
Item 4. Terms of the Transaction.
(a) The information set forth under the captions
"BACKGROUND OF REVERSE STOCK SPLIT AND PURCHASE OFFER", "TERMS OF
REVERSE STOCK SPLIT AND PURCHASE OFFER" and "EXCHANGE OF SHARES
AND PAYMENT IN LIEU OF ISSUANCE OF FRACTIONAL SHARES" of the
Information Statement is incorporated herein by reference.
(b) Not applicable.
Item 5. Plans or Proposals of the Issuer or
Affiliate.
(a)-(e) Not applicable.
(f)-(g) The information set forth under the
caption "REVERSE STOCK SPLIT -- Termination of Exchange Act
Registration" of the Information Statement is incorporated herein
by reference.
Item 6. Source and Amount of Funds or Other
Consideration.
(a)-(b) The information set forth under the
caption "SOURCE AND AMOUNT OF FUNDS, EXPENSES" of the Information
Statement is incorporated herein by reference.
(c)-(d) Not applicable.
Item 7. Purpose(s), Alternatives, Reasons and
Effects.
(a) The information set forth under the caption
"SPECIAL FACTORS -- Purposes of the Reverse Stock Split" of the
Information Statement is incorporated herein by reference.
(b) The information set forth under the captions
"SPECIAL FACTORS -- Background and Reasons for the Reverse Stock
Split - Repurchase of the Corporation's Existing Shares",
"SPECIAL FACTORS -- Decision to Propose the Reverse Stock Split"
and "FAIRNESS OF THE REVERSE STOCK SPLIT" of the Information
Statement is incorporated herein by reference.
(c) The information set forth under the captions
"BACKGROUND OF REVERSE STOCK SPLIT AND PURCHASE OFFER", "SPECIAL
FACTORS -- Background and Reasons for the Reverse Stock Split"
and "SPECIAL FACTORS -- Decision to Propose the Reverse Stock
Split" of the Information Statement is incorporated herein by
reference.
(d) The information set forth under the caption
"EFFECTS OF THE REVERSE STOCK SPLIT" of the Information Statement
is incorporated herein by reference.
Item 8. Fairness of the Transaction.
(a)-(e) The information set forth under the
captions "SPECIAL FACTORS -- Background and Reasons for the
Reverse Stock Split", "SPECIAL FACTORS -- Decision to Propose the
Reverse Stock Split", "SPECIAL FACTORS -- Conflicts of Interest,
Lack of Opinions, Appraisals and Reports", "FAIRNESS OF THE
REVERSE STOCK SPLIT" and "RECOMMENDATION OF BOARD OF DIRECTORS,
VOTE REQUIRED" of the Information Statement is incorporated
herein by reference.
(f) Not applicable.
Item 9. Reports, Opinions, Appraisals and Certain
Negotiations.
(a) The information set forth under the captions
"SPECIAL FACTORS -- Conflicts of Interest, Lack of Opinions,
Appraisals and Reports" and "FAIRNESS OF THE REVERSE STOCK SPLIT"
of the Information Statement is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
Item 10. Interest in Securities of the Issuer.
(a) The information concerning the ownership of and
transactions in Common Stock set forth under the caption "BOARD
OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS" of
the Information Statement is incorporated herein by reference.
(b) The information set forth under the caption
"SPECIAL FACTORS -- Background and Reasons for the Reverse Stock
Split - Repurchase of the Corporation's Existing Shares" of the
Information Statement is incorporated herein by reference.
Item 11. Contracts, Arrangements or Understandings
with Respect to
the Issuer's Securities.
The information set forth under the caption "BOARD OF
DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL STOCKHOLDERS" is
incorporated herein by reference.
Item 12. Present Intention and Recommendation of
Certain Persons
with Regard to the Transaction.
(a) The information set forth under the captions
"VOTE OF MAJORITY STOCKHOLDER TO BE DETERMINATIVE" and
"RECOMMENDATION OF THE BOARD OF DIRECTORS, VOTE REQUIRED" of the
Information Statement is incorporated herein by reference.
(b) The information set forth under the caption
"RECOMMENDATION OF THE BOARD OF DIRECTORS, VOTE REQUIRED" of the
Information Statement is incorporated herein by reference.
Item 13. Other Provisions of the Transaction.
(a) The information set forth under the caption
"APPRAISAL RIGHTS" of the Information Statement is incorporated
herein by reference.
(b) Not applicable.
(c) Not applicable.
Item 14. Financial Information.
(a) The information set forth under the captions
"FAIRNESS OF THE REVERSE STOCK SPLIT", "SELECTED CONSOLIDATED
FINANCIAL DATA", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS", and "FINANCIAL
INFORMATION" of the Information Statement is incorporated herein
by reference. Audited financial statements of the Corporation
for the fiscal years ended December 31, 1992 and 1993 are set
forth in the Financial Statements and notes thereto contained on
pages 17 through 38 of the portions of the Corporation's 1992
Annual Report on Form 10-K which are attached hereto as an
Exhibit (the "1992 Form 10-K Report") and on pages 23 through 43
of the Corporation's 1993 Annual Report on Form 10-K (the "1993
Form 10-K Report"). The report of independent accountants
thereon is set forth on page 28 of the 1993 Form 10-K Report.
Unaudited financial statements of the Corporation for the
quarterly period ended April 3, 1994 are set forth in the
Financial Statements and notes thereto contained in pages 3
through 11 of the Corporation's Quarterly Report on Form 10-Q for
the quarterly period ended April 3, 1994 (the "April 10-Q"). The
above noted sections of the 1993 Form 10-K Report, the 1992 Form
10-K Report and the April 10-Q which are attached to the
Information Statement, are hereby incorporated herein by
reference.
(b) Not applicable.
Item 15. Persons and Assets Employed, Retained or
Utilized.
(a)-(b) The information set forth in the cover
page of the Information Statement, and under the caption "SOURCE
AND AMOUNT OF FUNDS, EXPENSES", of the Information Statement are
incorporated herein by reference. The time and efforts of
certain officers and other employees of the Corporation have been
utilized in connection with the preparation of the Schedule 13E
3, the Information Statement and related materials to be sent to
stockholders and have been and will be utilized in connection
with overseeing this transaction. The Corporation may utilize
its employees to solicit tenders of shares from stockholders.
Except as otherwise disclosed in this Item 15, no person has been
or will be retained, employed or compensated to make
solicitations or recommendations in connection with the Rule 13E3
transaction.
Item 16. Additional Information.
All of the information set forth in the Information
Statement is incorporated herein by reference.
Item 17. Material to be Filed as Exhibits.
(a)-(c), (e)-(f) - Not applicable.
(d)- (i) Information Statement of Hart Holding
Company Incorporated.
(ii) Stipulation and Agreement of
Compromise and Settlement;
(iii) Affidavit of Arthur S. Ainsburg
EXHIBIT INDEX
MATERIAL TO BE
PAGE
FILED AS EXHIBITS
NO.
(d)(i) Information
Statement
(d)(ii) Stipulation and
Agreement of
Compromise and
Settlement
(d)(iii) Affidavit of Arthur
S. Ainsburg
<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.
HART HOLDING COMPANY
INCORPORATED
By: /s/James W. Hart
Name: James W.Hart
Title:Chairman of the
Board
JAMES W. HART
/s/James W.Hart
Dated: June 24, 1994
</TABLE>
HART HOLDING COMPANY
INCORPORATED
1120 Boston
Post Road
Darien,
Connecticut 06820
Telephone: (203)
655-6855
PRELIMINARY
INFORMATION STATEMENT
This Information Statement is furnished
in connection with the consent of the Majority
Stockholder (as hereinafter defined) of Hart
Holding Company Incorporated, a Delaware
corporation (the "Corporation"), with principal
offices at 1120 Boston Post Road, Darien,
Connecticut 06820 in connection with (i) the
settlement of two class action lawsuits entitled
Clare Lois Spark Loeb v. James W. Hart, et al., CA
12830, and Rochelle Brooks v. James W. Hart, et al.,
CA 12831 (together, the "Class Action Lawsuits")
filed in the Court of Chancery of the State of
Delaware (the "Court of Chancery"), challenging the
proposed 300 to one reverse stock split of the
Corporation's common stock which was announced on
December 18, 1992 and (ii) the filing of an
amendment to the Corporation's
Restated Certificate of Incorporation in order to
effect the terms of the settlement of the Class
Action Lawsuits (the "Settlement") and the terms of
the reverse stock split, as revised by the
Settlement. The terms of the Settlement include,
among other things, an increase in the cash
consideration to be paid for fractional shares to
$2.25 per share ("Cash Consideration") and an
adjustment to the ratio of the reverse stock split
to 600 to one.
The parties to the Class Action Lawsuit
entered into a Stipulation and Agreement of
Compromise and Settlement dated
January 28, 1994. Copies of a notice summarizing
the terms of the Stipulation and Agreement of
Compromise and Settlement have been sent to each
stockholder of the Corporation and a hearing as to
the fairness of the Settlement, including the terms
of the Reverse Stock Split (as hereinafter
defined), was held on April 15, 1994. On April 15,
1994, the Court of Chancery approved the terms of
the Settlement as fair to the unaffiliated
stockholders (the "Settlement Approval Date").
Following approval of the Settlement by
the
Court of Chancery, the Board of Directors (the "Board
of Directors" or the "Board") approved an
amendment to the Corporation's Restated Certificate
of Incorporation (the "Amendment") providing for a
reduction in the number of authorized shares of
common stock from 40,000,000 shares of $.01 par
value (the "Common Stock") to 75,000 shares of
$1.00 par value (the "New Common Stock") and a 600
to one reverse stock split (the "Reverse Stock
Split") of the Corporation's Common Stock. As a
result of the Reverse Stock Split, stockholders will
receive one share of New Common Stock for each 600
shares of Common Stock currently held. All shares
not converted into New Common Stock will be
converted into the right to receive the Cash
Consideration. Stockholders that hold fractional
shares after the Reverse Stock Split may elect to
forego the Cash Consideration and round up their
fractional holdings to the next whole share (on a
first-come, first-served basis, subject to the
availability of fractional shares) by paying $2.25
for
each 1/600 of a share needed to round up their
holdings to equal one share of New Common Stock.
Stockholders with fractional holdings who do not
elect or are unable to purchase additional shares
will cease to be stockholders of the Corporation
and the Corporation will acquire for cash their
fractional holdings for the Cash
Consideration. Stockholders owning whole shares
of New Common Stock as a result of the Reverse
Stock Split will be given the right to tender such
whole shares for a period of 30 days following the
consummation of the Reverse Stock Split for a
purchase price of $1,350 per share of New Common
Stock (the "Purchase Offer"). The Purchase Offer will
expire at 5:00 p.m., Eastern Daylight Time,
on July __,
1994,
unless extended, and is not conditioned on any
minimum number of shares being tendered. In order
to be eligible to round up fractional shares of New
Common Stock to the next whole share of New Common
Stock, a stockholder must be the stockholder of
record with respect to such shares on both the
Settlement Approval Date and effective date of the
Reverse Stock Split. The Reverse Stock Split will
result in the Corporation's becoming a private
company which will no longer file periodic reports
with the Securities and Exchange Commission (the
"Commission").
The record date for the vote on the
Amendment is April 15, 1994. Mr. James W. Hart,
Chairman of the Board and President of the
Corporation (the "Majority Stockholder"), has
advised the Corporation that he intends to execute a
consent with respect to his shares, representing
approximately 95% of the outstanding Common Stock,
in favor of the Reverse Stock Split and the
Settlement and approving and adopting the
Amendment. Consequently, no additional vote of
unaffiliated stockholders will be required for
approval of the Reverse Stock Split and the
Corporation does not intend to solicit
additional votes or consents.
No appraisal rights are available to
dissenting
stockholders. See "Appraisal Rights".
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING SHARES OF COMMON STOCK AT THIS TIME.
THIS TRANSACTION HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
THE APPROXIMATE DAY OF MAILING OF THIS
INFORMATION STATEMENT IS JUNE ___, 1994.
<PAGE>
Summary
The following is a summary of certain
information contained elsewhere in this Information
Statement. This summary does not purport to be
complete and is qualified in its entirety by
reference to the more detailed information contained
elsewhere herein.
Background, Class Action Lawsuits and Settlement.
On December 14, 1992, the Board of
Directors approved an amendment to the
Corporation's Restated Certificate of
Incorporation
to effect a 300 to 1 reverse stock split whereby
each resulting fractional share would be
redeemed by the Corporation for $.50 per pre-
split share (the "Initial Proposal").
Shortly
thereafter the Class Action Lawsuits were filed
in the
Court of Chancery alleging that the Initial Proposal
was unfair to the unaffiliated stockholders of the
Corporation. After extensive negotiations with
representatives of the
plaintiffs in the Class Action Lawsuits (the
"Plaintiffs'
Representatives"), the Corporation agreed to revise
the Initial Proposal. The revisions to the Initial
Proposal which were
incorporated into the Settlement include (i)
increasing the consideration to be paid for
fractional shares of New Common Stock to $2.25 per
pre-split share and (ii) effecting the reverse stock
split whereby stockholders will receive one share of
New Common Stock for each 600 shares of Common
Stock which they presently own.
Holders of shares of Common Stock not
converted into whole shares of New Common
Stock (each a "Fractional Stockholder", collectively
"Fractional Stockholders") who do not elect or who
are unable to purchase additional shares would be
redeemed at a purchase price of $2.25 for each pre-
split share. In addition, stockholders who wish to
continue as stockholders of the Corporation will be
given the opportunity (on a first-come, first-served
basis, subject to the availability of fractional
shares) to round up their fractional holdings to the
next whole share by paying $2.25 for each 1/600 of
a share of New Common Stock needed to round up their
holdings to equal one share of New Common Stock.
Stockholders with whole shares of New Common Stock
who do not wish to continue as stockholders of the
Corporation can elect to tender their shares to the
Corporation for a cash purchase price of $1,350 per
share of New Common Stock, which consideration is
equivalent to $2.25 for each pre-split share. Each
stockholder whose share holdings exceed 600 pre-
split
shares, but are not evenly divisible by 600, will be
treated as a Fractional Stockholder with respect to
the fractional portion of such stockholder's post-
split shares.
The Plaintiffs' Representatives retained
Arthur S. Ainsberg with the firm of Richard A.
Eisner & Company, C.P.A.s (the "Plaintiffs'
Financial Advisor") to advise them, from a
financial
point of view, as to the fairness of the Cash
Consideration. A hearing was held on April 15,
1994, at which evidence of the fairness of the
Settlement was presented to the Court of Chancery
and the stockholders of the Corporation were
provided the opportunity to object to the Settlement.
The Court of
Chancery approved the terms of the Settlement.
Except for the options set forth above
and elsewhere in this Information Statement,
stockholders will not have the right to receive
payment for their Existing Shares from the
Corporation from the exercise of appraisal rights or
otherwise. Until the Effective Date, stockholders
can attempt to sell their Existing Shares in the
open market if they so choose. No assurance can
be given that there will be willing buyers in the
open market or what price such buyers, if any, would
be willing to pay for such Existing Shares. No
stockholders opted out of the Settlement or appealed
the decision of the Court of Chancery. The Court of
Chancery also determined that the Corporation had
made reasonable efforts to contact all stockholders,
including those on the missing stockholder list, and
therefore, the Settlement is binding on all
stockholders whether, in fact, they received notice
of the Settlement.
<PAGE>
Consent of Majority Stockholder.
Pursuant to the Settlement of the
Class Action Lawsuits, the Board of Directors on
June
___, 1994 approved the Amendment to reduce the
number of authorized shares of Common Stock from
40,000,000 shares of $.01 par value to 75,000
shares of $1.00 par value, in order to effectuate a
600 for one Reverse Stock Split of the
Corporation's outstanding shares of Common
Stock. Under the Corporation's Restated
Certificate of
Incorporation and the Delaware General Corporation
Law, the affirmative vote or consent of the holders of
greater than 50% of all outstanding shares of Common
Stock
will be required to approve and adopt the
Amendment. The Majority Stockholder beneficially
owns approximately 95% of the outstanding shares of
Common Stock. The Majority Stockholder has
indicated that he intends to execute a written
consent in favor of the Amendment and Settlement;
consequently no additional shares need to be
voted in favor of the Amendment in order for the
Amendment to be adopted.
The Amendment; Reverse Stock Split Transaction;
Purchase Offer.
Pursuant to the Amendment, the
Corporation's Common Stock is to undergo a 600 for
one Reverse Stock Split in which every 600 shares
of the Corporation's Common Stock (each, an
"Existing Share"), issued on the effective date of
the Reverse Stock Split will be automatically
converted into one share of the Corporation's New
Common Stock. All Existing Shares not
converted into whole shares of
New Common Stock will be redeemed at a price equal to
$2.25 per Existing Share. For a period of 30 days
following the Effective Date (as defined
below),
stockholders whose holdings are not evenly divisible
by 600 may elect to forego the Cash
Consideration and round up the fractional portion
of their holdings to the next whole share by paying
$2.25 for each 1/600 of a share of New Common Stock
needed to round up their holdings to equal one
share of New Common Stock.
This will allow those stockholders who wish to
remain stockholders of the Corporation and maintain
an equity interest in the Corporation to do so, to
the extent fractional shares of New Common Stock are
available. In order to be eligible to round up
fractional shares of
New Common Stock to the next whole share of New
Common Stock, a Fractional Stockholder must be
the stockholder of record with respect to such
shares on both the Settlement Approval Date and
the Effective Date. After the expiration of such
30-day period, certificates representing fractional
shares of New Common Stock which have not been
surrendered (the "Outstanding Fractional Shares")
shall only evidence the right to receive the Cash
Consideration.
Fractional shares of New Common Stock
(i) will be available to stockholders desiring to
round up their holdings on a first-come, first-
served basis, (ii) will be provided only from
fractional shares which have been surrendered or
Outstanding Fractional Shares and (iii) may be of
limited availability.
See
"Terms of Reverse Stock Split and Purchase Offer".
In addition, stockholders who continue
to hold whole shares of New Common Stock after the
Reverse Stock Split is effected may tender such
shares to the Corporation for a period of 30 days
(unless extended) following the Effective Date, for a
purchase price of $1,350 for each share of New
Common Stock, which is equivalent to $2.25 for each
pre-split share repurchased (the "Purchase Offer").
The Purchase Offer is being made pursuant to
the terms of the Settlement and is not conditioned
upon any minimum number of shares of New Common
Stock being tendered.
The Court of Chancery was concerned with
the number of missing stockholders who may not
receive notice of the Settlement. There are
approximately 950 record holders for which the
Corporation does not have a current mailing or
forwarding address. The Corporation issued
several press
releases
throughout the course of the Class Action Lawsuit,
the negotiation of the Settlement, the execution of the
Stipulation and Agreement of Compromise and the approval of
the Settlement by the Court of Chancery. On May 21, 1993,
page>
The Wall Street Journal carried an article addressing the
Settlement. In addition, the Corporation made a survey
of its missing stockholders by zip code and published a
notice to stockholders concerning the hearing of the
Settlement in the newspaper with the highest circulation
in the area with the largest concentration of missing
stockholders. In addition, the Corporation checks the
addresses of all stockholders who call the Corporation, in
an effort to reduce the number of missing stockholders.
Despite the Corporation's efforts to locate
missing stockholders, many stockholders may not have received
notice of the Settlement. The Court of Chancery reviewed
the efforts made by the Corporation to locate the such
missing stockholders, and
determined that the Corporation's efforts were adequate
and reasonable and that such missing stockholders would be
bound by the terms of the Settlement, including the Reverse
Stock Split.
The terms of the Reverse Stock Split and the
Purchase Offer are to be applied uniformly to all
stockholders, including those who have not received
actual notice of the Settlement. If a stockholder fails to
elect to "round-
up" his fractional holdings or tender whole shares of New
Common Stock within the period of 30 days (unless
extended)
following the Effective Date, such stockholder will only be
entitled to receive the Cash Consideration for certificates
representing fractional shares of New Common Stock and a
certificate representing one share of New Common Stock for
each 600 Existing Shares owned by
such stockholder. Amounts representing the Cash
Consideration which have not been distributed to
stockholders will be held by the Corporation for the normal
state escheat period.
Certain Effects of the Reverse Stock Split and the
Purchase Offer.
Upon the effectiveness of the Reverse Stock
Split, stockholders of the Corporation who hold, as of the
Effective Date, less than 600 Existing Shares and who do
not elect to "round up" their holdings, will have
their Existing Shares automatically converted into the
right to receive the Cash Consideration and will no longer
have any continuing interest as stockholders in the
Corporation. Holders of 600 Existing Shares or more, as of
the Effective Date, can elect to (i) retain or tender
their whole shares of New Common Stock pursuant to the
Purchase Offer and (ii) to the extent such stockholders
have fractional shares of New Common Stock, round up or
receive the Cash Consideration with respect to their
fractional shares. After the Reverse Stock Split, price
quotes will no longer be available through the National
Association of Securities Dealers' OTC Bulletin Board (the
"NASDAQ OTC Bulletin Board").
The
registration of the shares under the Securities Exchange Act
of 1934 (the "Exchange Act") will also be terminated, thus
relieving the Corporation of the periodic reporting
requirements to which the Corporation is presently subject.
Effective Date.
The Amendment will be effective as of the date
and time that the Amendment is filed with the Secretary of
State of the State of Delaware in accordance with the
Delaware General Corporation Law (the "Effective Date"). The
Reverse Stock Split will be effective simultaneously with
the Amendment becoming effective. The Purchase Offer
will commence on the Effective Date. The Corporation's
Board of Directors reserves the right to halt and terminate
the Reverse Stock Split at any time prior to the filing of
the Amendment with the Secretary of State of the State of
Delaware, if it determines that termination is in the best
interest of the Corporation. In the event the Reverse Stock
Split is terminated, the Corporation will not commence
the Purchase Offer.
<PAGE>
Reasons for the Reverse Stock Split and the Purchase Offer.
The Corporation's Board of Directors and the
Majority
Stockholder believe that the Corporation's stockholders
derive little benefit from the Corporation's status as a
publicly-held corporation. Approximately 950 stockholders
(just under one-half of the Corporation's record holders)
do not receive corporate communications,
including proxy materials, due to changed mailing addresses
and lack of forwarding information.
Market
transactions in the Common Stock occur infrequently.
Except for periodic purchases by the Corporation,
over the last several years the Corporation
estimates that third party purchases or sales
transactions have been insignificant. Therefore, it
is
believed that the benefit of the public market for
Common Stock is limited. Moreover, the
Corporation must incur
significant general and administrative costs
related to its status as a public reporting
corporation under the federal securities laws. The
Board of Directors and the Majority Stockholder also
believe planning and other
management decisions would be simplified by the
deregistration of the Common Stock under the
Exchange Act because such decisions could be made
solely on the basis of the Corporation's long-range
business interests without the necessary
consideration of the shortterm interest of its
public
stockholders. The Purchase Offer, mandated by the
terms of the Settlement, provides stockholders who
would otherwise continue to have an equity interest
in the Corporation following the Reverse Stock Split
with
the option to sell their shares to the
Corporation at a price equivalent to that received by
Fractional Stockholders.
Conflicts of Interest.
The Board of Directors which approved and
adopted the Initial Proposal, the Settlement and the
Amendment consists of Messrs. James W. Hart and
Richard A. Vollmer. Mr. Vollmer does not own any
shares of outstanding Common Stock. Mr. Vollmer had
been an officer and from time to time a
consultant to the Corporation prior to 1992.
Mr. Hart beneficially owns approximately 95% of
the outstanding Common Stock, and will continue to
be a stockholder of the Corporation following the
Reverse Stock Split. To the extent that Mr. Hart
receives fractional shares of
New Common Stock, it is his intention to elect to
round up any such fractional holdings to the next
whole share of New Common Stock. No independent
committee of the Board of Directors reviewed the
fairness of the Reverse Stock Split. See "Special
Factors -- Conflicts of Interest; Lack of Opinions,
Appraisals and Reports".
Position of the Board of
Directors.
At a special meeting held on June ___,
1994, the Corporation's Board of Directors
unanimously approved and adopted the Amendment.
Accordingly, the Corporation's Board of Directors has
concluded that the proposed Amendment, Reverse Stock
Split and Purchase Offer are fair to, and in the best
interest of, all stockholders of the Corporation.
However,
neither
the
Corporation, its Board of Directors nor the Majority
Stockholder makes any recommendation to any
stockholder as to whether to (i) round up
fractional holdings to one whole share of New
Common Stock or (ii) tender shares of New Common
Stock. The Board of Directors has been advised
that none of the directors and executive
officers of the Corporation who will own whole
shares
of New Common Stock following the Reverse Stock
Split expect to tender their shares pursuant to the
Purchase Offer.
Source of Funds.
The funds required to redeem the
fractional
shares created by the Reverse Stock Split and
purchase whole shares pursuant to the Purchase
Offer (estimated to be approximately $1,300,000 if
no stockholders elect to round up fractional
holdings and all unaffiliated stockholders tender
whole shares of New Common Stock) are available from
the current cash
<PAGE>
reserves of the Corporation.
Neither the Corporation nor the Majority
Stockholder will be required to borrow funds to
effect the Reverse Stock Split or the Purchase
Offer.
Appraisal Rights.
No appraisal rights are provided to
dissenting stockholders under the laws of the State
of Delaware, nor are such rights provided under the
Corporation's Restated Certificate of Incorporation
in connection with the Reverse Stock Split or the
Purchase Offer. The Corporation and the
Majority
Stockholder believe that the determination of
fairness made by the Court of Chancery with
respect to the Settlement was the functional
equivalent of the hearing that would be afforded to
dissenting stockholders in an appraisal proceeding.
In addition, the Plaintiffs' Representatives
retained Plaintiffs' Financial Advisor to advise
them, from a financial point of view, as to the
fairness of the Cash Consideration. The
Plaintiffs' Financial Advisor concluded the Cash
Consideration was fair.
No Financial Advisor Retained by the Corporation
or the Majority Stockholder.
Neither the Corporation nor the Majority
Stockholder retained the services of a financial
advisor with respect to the Reverse Stock Split
or the Purchase Offer and neither the
Corporation's Board of Directors nor the Majority
Stockholder received a
fairness opinion from a financial advisor in reaching
its decision to make the Initial Proposal.
However, the Plaintiffs' Representatives did retain
the Plaintiffs' Financial Advisor to assist them
in determining the fairness of the financial
terms of the Settlement, including the terms of the
Reverse Stock Split and the Purchase Offer. An
affidavit of Plaintiffs' Financial Advisor was
filed with the Court of Chancery in connection
with the fairness hearing held on April 15, 1994.
The Plaintiffs'
Financial Advisor has determined that $2.25 per
Existing Share is within the range of fair value,
from a financial point of view.
Certain Federal Income Tax Consequences.
Stockholders who receive cash either
(i) upon redemption of their fractional shares of
New Common Stock as a result of the Reverse Stock
Split or (ii) upon tender of their shares of New
Common Stock pursuant to the Purchase Offer will
recognize gain or loss based on their adjusted
basis in the fractional shares redeemed or the
shares of New Common Stock repurchased. A
stockholder who rounds up his holdings to a whole
share of New Common Stock will not recognize any gain
or loss and the adjusted basis of such stockholder
in such shares of New Common Stock will be the
same as the stockholder's adjusted tax
basis in his exchanged shares of Common Stock plus
$2.25 per 1/600 share of New Common Stock so rounded
up. The discussion of tax consequences contained
in this Information Statement was reviewed by the
Corporation's tax department. The Corporation did not
receive an opinion of counsel or retain a tax
expert in connection
with its assessment of the tax consequences of the
Reverse Stock Split. Each stockholder is urged to
consult his or her own tax advisor. See "Effects of
the Reverse Stock Split -Federal Income Tax
Consequences".
Background of Reverse Stock Split
and Purchase Offer
On December 14, 1992, the Board of
Directors of the Corporation approved a
transaction whereby the Corporation's Restated
Certificate of Incorporation would be amended so as
to effectuate
a reverse stock split of the Corporation's Common
Stock and directed that the amendment
effectuating such transaction be placed on the
agenda for the consideration of
<PAGE>
stockholders at
the special meeting to be held on January 12,
1993. Pursuant to the terms of the amendment, the
Common Stock would undergo a 300 for one reverse
stock split (the "Initial Proposal"). Pursuant to
the Initial Proposal, fractional shares would have
been automatically converted into the right to
receive from the Corporation cash in the amount of
$.50 for each such Existing Share. For a period of
thirty (30) days following the reverse stock split,
stockholders with fractional shares could have
elected to round up their fractional holdings by
paying $.50 for each 1/300 of a share needed to
round up their holdings to equal a whole share on
a firstcome, first-served basis, from fractional
shares surrendered by other stockholders.
The Corporation announced the terms of
the Initial Proposal on December 18, 1992, and
shortly thereafter two class action lawsuits
entitled Clare Lois Spark Loeb v. James W. Hart, et
al., CA 12830, and Rochelle Brooks v. James W. Hart,
et al., CA 12831 (the "Class Action Lawsuits")
challenging the Initial Proposal were filed in
the Court of Chancery against the Corporation and
its directors. The Class Action Lawsuits alleged
that the Initial Proposal was unfair to stockholders
other than the directors and their affiliates
because (i) the price proposed to be paid for
fractional shares was too low, (ii) the
transaction was not subject to "arms length"
negotiation or approval by independent directors or
stockholders and (iii) no opinion had been
obtained from a financial advisor as to the
fairness of the price proposed to be paid for
fractional shares. The Class Action Lawsuits sought
to enjoin the Corporation from proceeding with the
Initial Proposal, to award the class action
plaintiffs compensatory and/or recissory damages and
to assess
costs and disbursements (including reasonable
attorneys' and
experts' fees) against the defendants. The
Corporation agreed to delay the pending special
meeting in
order
to provide Plaintiffs' Representatives with the
opportunity to review the financial condition of
the
Corporation and other matters relevant to the
fairness of the Initial Proposal.
Over the next 5 months the Corporation
provided the Plaintiffs' Representatives with
substantial
business and
financial information concerning the present
condition and prospects of the Corporation. The
Plaintiffs' Representatives and the representatives
of the Corporation and the defendants participated
in a number of
conferences and meetings in an attempt to
familiarize the Plaintiffs' Representatives with the
business and prospects of the Corporation.
Although having initially proposed a substantially
higher price for fractional
shares, the Plaintiffs' Representatives, after
extensive
negotiations, concluded that the Settlement,
including the terms of the Reverse Stock Split,
the Cash Consideration and the Purchase Offer, was
the best proposal obtainable and that it is fair
to the unaffiliated stockholders of the Corporation.
The transactions contemplated by the Settlement
provide the unaffiliated stockholders of the
Corporation with an opportunity to realize an
immediate cash value for their surrendered shares
or, if a stockholder so chooses, an opportunity to
round
up to the next whole share of New Common Stock
and remain as a stockholder of the Corporation.
In addition, an important element of the
transaction proposed in the Settlement is the
option provided to all unaffiliated stockholders who
will hold whole shares of New Common Stock
following the Reverse Stock Split to tender such
shares to the Corporation and receive cash. The Cash
Consideration for Existing Shares has been
increased from $.50, in the Initial Proposal, to
$2.25, an increase of 350%.
Terms of Reverse Stock Split
and Purchase Offer
Reverse Stock Split
The Stipulation and Agreement of
Compromise and Settlement evidencing the Settlement
was approved by the Court of Chancery on April 15,
1994. Pursuant to the resolutions of the Board of
Directors and subject to the execution of the consent
by the
<PAGE>
Majority Stockholder, the Corporation intends
to execute the Amendment to effect the Reverse Stock
Split of the Corporation's Common Stock and cause
the Amendment to be filed.
Upon the
filing of the Amendment, the Common Stock would
automatically undergo a 600 for one Reverse
Stock Split, the number of authorized shares would
be reduced to 75,000 and the par value of the
Existing Shares would be increased from $.01 to
$1.00 per share. As of the Effective Date, (i) each
600 Existing Shares held by a stockholder will be
automatically converted into one whole share of the
Corporation's New Common Stock, and (ii) each
Existing Share held by a Fractional
Stockholder will, unless such Fractional Stockholder
elects to round up to the next whole share of New
Common Stock, be automatically converted into the
right to receive the Cash Consideration. The
Existing Shares owned by such Fractional
Stockholder will be automatically cancelled.
Thereupon, such Fractional Stockholder will cease
to be a stockholder in the Corporation or to have
any interest in the equity or future prospects of
the Corporation with respect to such fractional
shares. Each Stockholder whose share holdings
exceed 600 Existing Shares, but are not evenly
divisible by 600, will be treated as a Fractional
Stockholder with respect to such stockholder's
fractional shares of New Common Stock.
For a period of 30 days following the
Effective Date, Fractional Stockholders may
elect to forego the Cash
Consideration and round up their fractional holdings
by paying $2.25 for each 1/600 of a share of New
Common Stock
needed to round up their holdings to equal a whole
share of New Common Stock. After the expiration of
such 30-day period, the holder of a fractional share
of New Common Stock shall only be entitled to receive
the Cash Consideration. Fractional shares of New
Common Stock (i) will be available to Fractional
Stockholders desiring to round up their holdings on
a first-come, first-served basis, (ii) will be
provided only from fractional shares which have been
surrendered or Outstanding Fractional Shares and
(iii) based on the foregoing, may be of limited
availability. The Corporation
has appointed American Stock Transfer & Trust Company
as exchange agent (the "Exchange Agent") to (i)
receive shares, (ii) match up fractional shares for
rounding up purposes and (iii) disburse funds to
stockholders pursuant to the Reverse Stock Split and
the Purchase Offer, as applicable. Stockholders
should not send share certificates or completed
letters of transmittal to the Corporation. As the
Corporation's Exchange Agent receives elections
from stockholders desiring to round up their
holdings, it will "match up" those requests with
other stockholders' fractional shares needed to
provide rounding up stockholders with a whole share
of New Common Stock. To the extent that fractional
shares surrendered by stockholders during such 30day
period are not sufficient to cover the number of
fractional shares needed to provide all stockholders
desiring to round up to whole shares of New Common
Stock, those stockholders who are not "matched up"
with surrendered fractional shares will be
"matched-up with Outstanding Fractional Shares.
In the event Outstanding
Fractional Shares are not available for "matching
up" purposes, those stockholders who are not
"matched up" with fractional shares will receive
Cash Consideration in exchange for their fractional
shares. In order to be eligible to "round-up"
fractional shares, a stockholder must be the
stockholder of record with respect to such
fractional shares of New Common Stock on both the
Settlement Approval Date and the Effective Date.
Purchase Offer
Pursuant to the Stipulation and
Agreement
of Compromise and Settlement, stockholders who will
continue to hold whole shares of New Common Stock after
the Reverse Stock Split will have the right,
commencing on the Effective Date, to tender such whole
shares to the Corporation and receive in consideration
therefor $1,350 per share of New Common Stock,
which is equivalent to $2.25 for each pre-
split share. The Corporation will accept for payment
and purchase all shares of New Common Stock which are
validly tendered prior to the Expiration Date (as
defined below) and not properly withdrawn as set forth
below. In order to be eligible to tender shares of
New Common Stock pursuant to the Purchase Offer, a
stockholder must be the stockholder of record with
respect to such shares of New Common Stock on the
date certificates evidencing such shares are
transmitted to the Corporation
<PAGE>
pursuant to the terms
of the letter of transmittal. The Purchase Offer is
not conditioned on any minimum number of shares being
tendered. The Purchase Offer will not commence if
the Board determines, in its sole discretion, not
to file the Amendment and effect the Reverse Stock
Split.
The term "Expiration Date" shall mean
5:00 p.m., Eastern Daylight Time, on July ___, 1994,
unless and until the Corporation elects, in its sole
discretion, to extend the period of time for which the
Purchase Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date
at which the Purchase Offer, as so extended, will
expire.
The Corporation reserves the right, in
its sole discretion, at any time and from time to
time, to extend the period of time during which the
Purchase Offer is open by giving oral or written notice
to the Exchange Agent of such extension as promptly as
practicable. There can be no assurance that the
Corporation will exercise its right to extend the
Purchase Offer. The Corporation will promptly pay the
Cash Consideration for shares of New Common Stock
deposited by or on behalf of stockholders. The
Stipulation and Agreement of Compromise and Settlement
prohibits the Corporation from (i) decreasing the
number of shares of New Common Stock being
sought, (ii) increasing or decreasing the consideration
offered to the holders of shares of New Common Stock,
(iii) terminating the Purchase Offer after the
filing of the Amendment or (iv) making any material
change to the terms of the Purchase Offer.
After the Effective Date, no transfers of
record of fractional shares of New Common Stock will be
permitted.
The Corporation reserves the absolute right
to (i) reject any and all tenders of New Common Stock if
they are not in proper form or (ii) reject the
acceptance of or payment for shares of New Common
Stock tendered which would, in the opinion of the
Corporation or its counsel, be unlawful. The
Corporation also reserves the absolute right to
waive any defect
or irregularity in the tender of any shares of New
Common Stock. The Corporation's interpretation of the
terms and conditions of the Purchase Offer (including
the letter of transmittal and the instructions) shall
be final and binding on all parties. Neither the
Corporation nor any other person is or will be under any
duty to give notification of any defects or
irregularities of any kind or for failure to give any
such notification. Tenders will
not be deemed to have been made until any such
irregularities have been cured or waived.
Withdrawal Rights
Tenders of shares of New Common Stock made
pursuant to the Purchase Offer may be withdrawn at any
time prior to the Expiration Date unless previously
accepted and paid for. Thereafter, such tenders
are irrevocable,
except that they may be withdrawn
any time after forty business days from
the
commencement of the Purchase Offer, unless theretofore
accepted for payment as provided in the Purchase Offer.
For a withdrawal to be effective, a
written, telegraphic, or facsimile transmission of a
notice of withdrawal must be timely received by the
Exchange Agent. Any such notice of withdrawal must
specify the name of the person who tendered the
shares, the name of the registered holder(s) if
different from the name of the person who tendered the
shares, the number of shares of New
Common Stock tendered, and the number of shares to be
withdrawn. If certificates representing shares to
be withdrawn have been delivered or otherwise
identified to the Corporation, the serial numbers
shown on
the particular certificates evidencing the shares to
be withdrawn and a signed written notice of
withdrawal (with the signature guaranteed if the
signature was required to be guaranteed when the
shares of New Common Stock were tendered or if the
person making withdrawal is not the person who
tendered the shares of New Common Stock) must be
submitted prior to the physical release of
<PAGE>
the certificates for the shares of New Common Stock to be
withdrawn. Released certificates will be returned to
the registered holder of such shares of New Common
Stock or as otherwise directed by the letter of
transmittal.
All questions as to the form and validity
(including time of receipt) of notices of withdrawal
will be determined in the sole discretion of the
Corporation, which determination shall be final and
binding. Neither the Corporation nor any other
person will be under any duty to give notification of
any defects or irregularities in any notice of
withdrawal nor will any of them incur any liability
of any kind for failure to give any such notification.
Any shares of New Common Stock
withdrawn will be deemed not validly tendered for
purposes of the Purchase Offer. However, withdrawn
shares of New Common Stock may be retendered at any
subsequent time prior to the Expiration Date. See
"Terms of Reverse Stock Split and Purchase Offer -
- - Procedures for Tendering Fractional Shares and
Whole Shares".
Procedures For Tendering Fractional Shares And Whole
Shares
On or as soon as practicable after the
Effective Date, the Corporation will send letters
of transmittal to stockholders for use in
transmitting their stock certificates representing
shares of Common Stock to the Exchange Agent in
exchange for new
certificates representing shares of New Common Stock,
cash, or some combination thereof, as appropriate
in accordance with the terms hereof. Stockholders
should not send in any certificates representing
shares of Common Stock at this time. No Cash
Consideration or delivery of a new certificate will
be
made to a stockholder until such stockholder's
outstanding certificates together with the properly
completed and duly executed letter of transmittal are
delivered to the Exchange Agent.
Stockholders having fractional shares of
New Common Stock will be requested to instruct the
Exchange Agent within thirty 30 days following the
Effective
Date if they elect to round up such fractional
shares for whole shares of New Common Stock and to
enclose the appropriate payment therefor with their
letters of transmittal. Stockholders seeking to
have their fractional holdings rounded up will, after
the end of the 30day period, be promptly notified by
the Exchange Agent as to the amount of their
resulting share ownership of New Common Stock and will
receive a refund of any amount paid by them to the
Exchange Agent for additional fractional shares if
fractional shares were not available for rounding up.
In order for stockholders to tender shares
pursuant to the Purchase Offer, certificates for each share
of New Common Stock, together with a properly completed
and duly executed letter of transmittal, and any other
required documents, must be transmitted to and received by
the Exchange Agent at its address set forth in the letter of
transmittal, before 5:00 p.m., Eastern Daylight Time, on
July ___, 1994, or, if the Purchase Offer is extended, by
the time and date specified in such extension.
The Cash Consideration will be paid after
the Effective Date in cash, net to the stockholder and
without interest, with respect to all fractional shares of
New Common Stock which are not rounded up into a whole
share of New Common Stock and to all stockholders who
tender their whole shares of New Common Stock.
Stockholders delivering any
whole or
fractional shares of New Common Stock will not be obligated
to pay brokerage fees or commissions with respect to sales
of any such fractional or whole shares of New Common Stock
pursuant to the Reverse Stock Split or the Purchase Offer,
as applicable. The Corporation will pay all charges and
expenses of the Exchange Agent incurred in connection with
the Reverse Stock Split and the Purchase Offer.
If certificates for Existing Shares have been
lost or destroyed, the Corporation may, in its sole
discretion, accept at the time of redemption or tender a
duly executed affidavit
<PAGE>
and indemnity agreement of such
loss or destruction, in form satisfactory to the
Corporation, in lieu of such lost or destroyed
certificate. However, no such shares will be purchased by
the Corporation unless and until the Corporation receives a
replacement certificate duly issued by the Corporation, which
may require posting of a bond. Stockholders whose
certificates have been lost or destroyed and who wish to
tender should contact the Exchange Agent as soon as possible
after the Effective Date.
In all cases, payment for fractional shares
purchased pursuant to the Reverse Stock Split or tendered
shares purchased pursuant to the Purchase Offer will be made
only after the timely receipt by the Exchange Agent of
certificates representing such shares, a properly
completed and duly executed letter
of transmittal, any required signature guarantees, any
other
required documents, and only after all conditions of the
Purchase Offer are satisfied or have been waived by the
Corporation.
All questions about the validity, form,
eligibility (including time of receipt), or acceptance
for payment of fractional shares or whole shares of New
Common Stock, will be determined in the sole discretion
of the Corporation. That determination shall be final and
binding on all parties.
It is a violation of Section 10(b) of the
Exchange Act and Rule 10b-4 promulgated thereunder for a
person to tender shares of New Common Stock for his own
account unless the person so tendering (i) owns such shares,
or (ii) owns other securities convertible into or
exchangeable for such shares or owns an option, warrant,
or right to purchase such shares and intends to acquire such
shares for tender by conversion, exchange, or exercise
of such option, warrant, or right. Section 10(b) of the
Exchange Act and Rule 10b-4 thereunder provide a
similar restriction applicable to the tender or guarantee of
a tender on behalf of another person. The tender of
shares of New Common Stock pursuant to any of the
procedures described above will constitute a binding
agreement between the tendering holder of the shares of New
Common Stock and the Corporation upon the terms and subject
to the conditions of the Purchase Offer, including the
tendering stockholder's representation that (i) such holder
owns the shares being tendered within the meaning of Rule
10b-4 under the Exchange Act and (ii) the tender of
such shares complies with Rule 10b-4.
Investment Considerations
Each stockholder should carefully review
the following considerations in deciding whether to
round up fractional shares of New Common Stock or tender
whole shares of New Common Stock.
Holding Company Structure
The Corporation is a holding company which
currently derives all of its operating income from its
subsidiaries. The Corporation owns all of the issued
capital stock of Reeves Industries, Inc. ("Reeves
Industries") (90% on a fully diluted basis), which in turn
owns 100% of the issued stock of Reeves Brothers, Inc.
("Reeves"). The Corporation must ultimately rely upon
distributions from Reeves Industries or other investments to
generate the funds necessary to meet its obligations. The
Reeves Industries bank loan
agreement
and indentures contain
restrictions that could prevent the payment of dividends or
other distributions to the Corporation. In addition, the
ability of Reeves Industries to make such payments will be
subject to, among other things, applicable state laws.
Reeves Industries cannot currently make any dividend or
distributions to the Corporation.
<PAGE>
Leverage
In June 1992, Reeves Industries completed a
public offering of $122,500,000 aggregate principal amount of
11% Senior Notes due 2006 (the "11% Senior Notes"), the
proceeds of which were used to retire outstanding public
indebtedness and repay and terminate outstanding revolving
loans. In August 1992, Reeves Industries and Reeves
entered into a new revolving loan agreement with a group of
banks which provides Reeves Industries and Reeves with an
aggregate $35,000,000 revolving line of credit. In
November 1992, Reeves Industries redeemed $5,000,000
principal
amount of the outstanding $16,000,000 aggregate principal
amount of its 13 3/4% Subordinated Debentures due 2001. In
March 1994, Reeves Holdings, Inc. ("Reeves Holdings"),
a wholly-owned subsidiary of the Corporation which will
become the parent corporation of Reeves Industries, filed a
Registration Statement with the
Commission under the Securities Act of 1933, as amended, in
connection with a public offering of approximately
$___________ face amount of senior discount debentures,
intended to provide proceeds of approximately
$___________.
After giving effect to such offering, if
consummated, and the application of the proceeds
therefrom, the Corporation's total consolidated
indebtedness on April 3, 1994 would have been $227.5
million, its stockholder's equity would have been
$23.5 million and its cash and cash equivalents
would have been $90.2 million. Completion of the
senior discount debenture offering is subject to
market conditions and a number of factors outside
the control of the Corporation. No assurances can
be given as to whether the offering will be
completed or what interest rate the debentures will
bear if the offering is completed.
The degree to which the Corporation
is leveraged could have important consequences to the
holders of the shares of New Common Stock. Such
consequences include the following, any of which
could affect the ability of the Corporation's
subsidiaries to make distributions to the
Corporation and the Corporation's ability to make
payments with respect to its outstanding
indebtedness: (1) the Corporation's ability to obtain
additional financing in the future for working
capital, capital expenditures, acquisitions or
general corporate purposes may be impaired; (2)
a substantial portion of the
Corporation's consolidated cash flow from operations
must be dedicated to the payment of interest on
indebtedness; and (3) the Corporation's leverage
may make it more vulnerable to economic downturns and
may limit its ability to withstand competitive
pressures. See
"Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and
Capital Resources".
Given the highly leveraged financial
position of the Corporation, Reeves Holdings, Reeves
Industries and Reeves, the Board of Directors
believes that an investment in the Corporation is
inappropriate for those investors with little
economic interest in the Corporation. The
Corporation has not paid a dividend on its
Common Stock since 1958. Stockholders with limited
economic interest are subject to the risks
associated with an investment in a highlyleveraged
company without the benefit of a liquid market in
which to dispose of their shares.
Controlling Stockholder
The Majority Stockholder
beneficially owns approximately 95% of the
Corporation's issued and outstanding
Common Stock. Therefore, the Majority Stockholder
controls all actions requiring stockholder approval,
including the election of directors, ensuring his
ability to control the future direction and
management of the Corporation.
Lack of Public Information; Illiquid Public Market.
Upon completion of the Reverse Stock
Split, the Corporation anticipates having less than
100 stockholders of record and that it will not
be required to file public information with the
Commission thereafter. Although
the Corporation and the Majority Stockholder do
<PAGE>
not
believe the public market for its Common Stock is very
liquid currently, it anticipates there will be little
or no market for shares of its New Common Stock.
Thereafter, stockholders that may need to
subsequently realize
on their investment in the Corporation should
consider the fact that a public market may not
exist for shares of the Corporation's New Common
Stock after the completion of the Reverse Stock
Split.
Special Factors
Purposes of the Reverse Stock Split
As a result of historical changes
in the Corporation's business and the composition of
stock ownership, the Corporation and the Majority
Stockholder believe that the risks and expenses of
continuing as a publicly-held company far outweigh the
benefits to current stockholders. Accordingly, the
Board of Directors proposed the Initial Proposal to
achieve the following purposes:
(i) to reduce the number of
stockholders
of
record of the Corporation to less than
300 in order to terminate the
registration of the Corporation's
Common Stock under the Exchange Act;
(ii) to relieve the Corporation of
the burden
and costs associated with the
regulatory and reporting requirements
of the Exchange Act and the rules and
regulations of the Commission issued
thereunder;
(iii) to facilitate management's
long term business plan of
emphasizing product development and
improvement, cost efficiencies,
productivity,
technological innovation, facility
upgrading and superior service and
making strategic acquisitions and
divestitures without consideration of shortterm profits;
(iv) to enable management to
pursue the Corporation's long-term
business plan without consideration
of its effect on unaffiliated public
stockholders and the risks of liability
resulting from its
status as a public company;
(v) to make, by paying cash in lieu
of the
issuance of fractional shares to
Fractional Stockholders and to holders
of whole shares of New Common
Stock that tender such shares, what
the
Corporation believes is an
investment that
will benefit the Corporation and
its remaining stockholders in the
long term at a time when the
Corporation has adequate cash to
effectuate the Reverse Stock Split;
and
(vi) to reduce the cost of
servicing stockholder accounts
while at
the same time affording such
stockholders an opportunity to
receive a fair price for their
Existing Shares in an otherwise
illiquid market without incurring
the attendant costs of a sale.
Although the specific terms of the Initial Proposal
have been revised by the Settlement and Reverse
Stock Split, the foregoing purposes will be achieved
by the Reverse Stock Split.
<PAGE>
Background and Reasons for the Reverse Stock Split
In considering the Reverse Stock Split,
the Board of Directors and the Majority Stockholder
determined that there was little benefit to either
the Corporation or its stockholders from the
Corporation's status as a public company. The
composition of stock ownership had changed to the
point where approximately 95% of the outstanding
shares of Common Stock is currently held by the
Majority Stockholder. In addition, approximately 84%
of the Corporation's unaffiliated stockholders hold
100 or fewer shares of Common Stock and
approximately 48% of the Corporation's unaffiliated
stockholders do not currently receive information
from the Corporation because the Corporation does
not have a current mailing or forwarding address
for such stockholders. Given that a
disproportionate number of unaffiliated stockholders
do not currently receive the information prepared
by the Corporation pursuant to the Exchange Act
and the rules and regulations promulgated
thereunder and that an overwhelming number of
shares are held by the Majority Stockholder, the
Board of Directors no longer believes that it is
efficient to allocate corporate resources, including
management time, to compliance with public
company regulatory and reporting requirements when
few stockholders receive any benefit from such
compliance. Moreover, the Board considered the
effect of its public company status on its current
operations. The Corporation's ability to compete
would be enhanced if management had the flexibility
to make long-term decisions without consideration of
the short-term profits or the effect of such
decisions on unaffiliated stockholders.
Current Operations of the Corporation
The Corporation, through its
subsidiary
Reeves
Industries, is a diversified industrial company with
operations in two principal business segments,
industrial coated fabrics, conducted through its
Industrial Coated Fabrics Group ("ICF"), and
apparel textiles, conducted through its Apparel
Textile Group ("ATG"). In 1993, ICF contributed
approximately 49.6%
of the Corporation's net sales and approximately
73.6% of its operating income and ATG contributed
approximately 50.4% of the Corporation's net
sales and approximately 26.4% of its operating income
(in each case, excluding unallocable corporate
expenses). Throughout its businesses, the
Corporation emphasizes specialty products, product
quality, technological innovation and rapid
responses to the changing needs of its customers.
ICF specializes in the coating of
various substrate fabrics with a variety of
products, such as synthetic rubber,
vinyl, neoprene, urethane and other elastomers, to
produce a diverse line of products for industrial
applications. ICF's principal products include:
(1) a complete line of printing blankets used in
offset lithography, (2) coated automotive airbag
materials, (3) specialty coated fabrics, including
fluid control diaphragm materials, tank seals,
ducting materials and coated fabric materials used
for military and commercial life rafts and vests,
aircraft escape slides, flexible fuel tanks and
general aviation products, and (4) coated fabrics
used in industrial coverings, including fabrics
coated with rubber and vinyl which are used to
make tarpaulins, loading dock shelters and other
industrial products.
The Corporation believes that ICF is
one of the world's leading producers of offset
printing blankets and that ICF has the leading
share of the domestic market for coated automotive
airbag materials. The Corporation also believes that
ICF is a leading domestic producer of specialty
coated fabrics used for a broad range of
industrial applications. ICF's products generally
involve significant amounts of technological
expertise and precise production tolerances. The
Corporation
believes that ICF's product development,
formulation and
production methods are among the most sophisticated in
the coated fabrics industry.
ATG manufactures, processes and sells
specialty textile fabrics to apparel and other
manufacturers. Through its Greige Goods Division, ATG
processes raw materials into greige goods (i.e.,
undyed woven fabrics). Through its Finished Goods
Division, ATG functions as a converter and commission
finisher, purchasing greige goods from
the Greige
<PAGE>
Goods Division and others and contracting to
have the goods dyed and finished for use in various end-
products or dyeing and finishing the goods itself.
The Corporation believes that ATG has
developed strong positions in niche markets in the
apparel textile industry by offering unique custom-
designed fabrics to leading apparel and specialty
garment manufacturers. ATG emphasizes "short-run"
product orders and
targets market segments in which its
manufacturing flexibility, rapid response time,
superior service and quality and ability to
supply exclusive blends are key competitive
factors.
The Corporation's business strategy has
focused on the sale of higher-margin niche products
and
the establishment of leading positions in its
principal markets. The
Corporation
believes that this strategy, combined with its
diverse product and customer base, the
development of new products and
substantial capital investment, has helped the
Corporation increase its sales and profitability in
spite of adverse economic conditions in its U.S. and
European markets during 1990-1993.
Since 1991, the Corporation has
significantly increased its level of capital
investment in its businesses to modernize and expand
capacity, reduce its overall cost structure, increase
productivity and enhance its competitive position.
The Corporation intends to substantially
increase its capital
investment in its businesses to approximately $140 million
during the 1994-1997 period. In addition, as opportunities
arise, the Corporation may seek to augment its growth
through strategic acquisitions, joint ventures and
investments in other industrial companies where the
Corporation believes that it can apply its professional
management techniques to enhance a company's operating
performance. The Corporation regularly
reviews
acquisition opportunities but is not currently a party
to any agreement, or involved in negotiation of
an agreement, with respect to any material
acquisition, joint venture or investment.
</r?
Repurchase of the Corporation's Existing Shares
Over the past several years, in an
attempt to provide liquidity for stockholders
desiring to sell their shares, the Corporation has
engaged in a program of open market and privately
negotiated purchases of its Common Stock. During
1992, the Corporation acquired 81,062 Existing
Shares at
prices approximating $3.00 per share. The average
quarterly purchase price paid during each of the
first through fourth quarters of 1992 was $3.00.
The foregoing purchases were made by the
Corporation directly from individual stockholders,
primarily from calls from stockholders requesting
that the Corporation buy their shares. The balance
of such repurchases were made through brokers. The
Corporation did not acquire any Existing Shares
during 1993 or to date in 1994. For information
regarding overthecounter high and low bid prices
of Existing Shares, see "Market And Dividend
Information".
In 1990, the Board considered, but
determined not to pursue, a reverse stock split
pursuant to which the consideration for fractional
shares was set at $2.125 per share of Common
Stock. If the 1990 reverse stock split had been
completed, the Corporation would have remained a
public company.
These repurchases of Existing Shares have
reduced the amount of Common Stock outstanding to an
aggregate of 12,895,100 shares as of the Record Date,
of which 584,993 shares are held by stockholders
other than officers and directors of the
Corporation.
In addition, the capital structure
of the Corporation's wholly-owned subsidiary, Reeves
Industries, has undergone a number of changes resulting
in
the retirement of shares and consolidation of the
ownership of Reeves Industries common stock.
<PAGE>
Effective on December 31, 1991, the 1,000
shares of Reeves Industries Series I Preferred
Stock, valued in the aggregate at $9,410,000 were
exchanged for 18,820,000 shares of Reeves Industries
common stock, valued at $.50 per share. After giving
effect to the exchange, the Corporation's equity interest
in Reeves Industries increased to 93.5%.
In April 1990, the Corporation and Reeves
Industries filed a lawsuit against the holders of
certain previously issued warrants seeking the
return of 1,918,132 shares of Reeves Industries
common stock issued in connection with the exercise
of such warrants. The aggregate exercise price of
the warrants was $1,158,000. In November 1992,
the lawsuit was settled and, pursuant
to a court order, 1,918,132 issued shares of
Reeves Industries common stock held by Drexel
Burnham Lambert
Incorporated ("Drexel") and partnerships affiliated
with Drexel or certain employees of Drexel were
transferred to Reeves Industries for $1,075,000
(approximately $.56 per share). After giving
effect to the foregoing
transactions, the Corporation owned approximately
98.6% of the 34,967,973 shares of Reeves
Industries common stock outstanding on November 6,
1992.
On October 25, 1993, HHCI, Inc., a
whollyowned subsidiary of the Corporation, merged
with and into Reeves Industries. As a result of
this merger, Reeves Industries became
a 100% owned subsidiary of the Corporation and the
stockholders of Reeves Industries received $.56 in
cash for each share held by such stockholder.
Concentration of Stockholdings
Although originally traded on the New
York Stock Exchange and held by a diverse group
of individuals and
institutional investors, including various creditors,
over time the ownership of Common Stock has come to
be concentrated in a handful of stockholders. Of
the 2,005 stockholders of record, a total of 256
(approximately 13% of the Corporation's unaffiliated
stockholders) hold only one Existing Share
each,
735
(approximately 37% of the Corporation's
unaffiliated
stockholders) hold 10 or fewer Existing Shares
and 1,674 (approximately 84% of the
Corporation's unaffiliated
stockholders) hold 100 or fewer Existing Shares. All
of such
stockholders would become Fractional Stockholders
upon the effectiveness of the Reverse Stock
Split. There are approximately 950 record holders
(approximately 48% of unaffiliated stockholders) for
which the Corporation does not have a current
mailing or forwarding address. Of
such lost stockholders, approximately 87% hold 100 or
fewer Existing Shares and approximately 44% hold 10
or fewer Existing Shares.
Consequently, a substantial number of
the
Corporation's
stockholders have little economic interest in the
Corporation. Approximately 96% of the
outstanding Existing Shares
are
beneficially owned by executive officers and
directors of the Corporation. See "Board of
Directors, Executive Officers and Principal
Stockholders".
Reduction of Reporting Costs
The Board of Directors also
considered that the Corporation incurs general and
administrative costs related to its status as a
public reporting company under the federal
securities laws. Although Reeves Industries' loan
documents also require compilation of information
comparable to that contained in reports on Forms
10-K and 10-Q, the costs of preparing additional
reports, such as Forms 8-K and disclosure required
pursuant to Section 16 of the Exchange Act, as
well as the expenses of preparing, printing and
mailing proxy solicitation materials and formal
annual reports
for distribution to
stockholders prior to each annual meeting, are a
consequence of the Corporation's registration
pursuant to the Exchange Act. In
addition to the commitment of time and energy on
the part of management, additional costs incurred by
the Corporation include legal, accounting and
printing fees. On an annual basis, the costs of
being a publicly-held company total approximately
$85,000. This amount does not include the expense of
officer and director liability insurance, for
which the Corporation is currently paying an
annual premium of $220,000. If
the
Corporation were not
<PAGE>
a publicly-held company, these
costs could be reduced or
eliminated. The Corporation
also incurs
substantial indirect costs as a result of, among
other things, the executive time expended to
prepare and review various filings, furnish
information to stockholders and attend to other
stockholder matters.
Although there are some stockholder
benefits to retaining public reporting status, the
Board believes that the expenses of remaining a
public corporation are not justified by these
benefits, particularly in light of the lack of
any meaningful market activity in the Existing
Shares and the unaffiliated stockholders' limited
economic interest in the Corporation. Nor does
the Board believe that the additional protections
afforded by the securities laws to stockholders of a
public company justify the expense of the Corporation
remaining a public corporation.
Furtherance of Business Plan
The Board of Directors believes that its
decision to effect the Reverse Stock Split is in
furtherance of its longrange business plan to have
the Corporation focus on maintaining its competitive
position through strategic acquisitions and
divestitures. As a non-public company, the
Corporation would have greater flexibility in
negotiating the acquisition or disposition of
business
entities or unprofitable operations. To
the extent that the Corporation will not have to
comply with Commission regulations requiring the
issuance of press releases and periodic reports,
the Corporation may realize strategic benefits in
structuring and financing proposed transactions. The
Corporation's over-all expenses would be reduced to
the extent that it will no longer incur the costs
of complying with such regulations. Furthermore,
the expense of proxy solicitation of stockholder
approval for certain actions of the Corporation could
be avoided. Consequently, the Corporation would
be better positioned to quickly identify, arrange
necessary financing, and conclude potential
acquisitions and divestitures. Moreover, the Board
does not presently anticipate that the Corporation
would take advantage of its status as a public
company to raise capital or effect acquisitions
through the issuance of common stock in the
foreseeable future.
Enhanced Operating Flexibility
In addition to the time and expense
required to ensure compliance with applicable
Federal and state securities laws, the operation of
a public reporting company can limit the operating
flexibility of corporate management.
The Board of Directors believes that
administrative control of the Corporation would
be simplified by the
deregistration of the Common Stock under the
Exchange Act. Planning and other management decisions
then could be made solely on the basis of the
Corporation's long-range business interests without
the necessary consideration of possible adverse
shortterm effects upon the interests of its public
stockholders.
Currently, the Corporation's status
as a public company means that management's
decisions must be responsive to both the
Corporation's long-range business plans and the
interests of its public stockholders. The
Corporation's
operations have evolved to a point where these
interests are too disparate. Certain officers and
directors beneficially own approximately 96% of the
Existing Shares and are required to base their
management decisions, in part, on the interest
of unaffiliated stockholders who own less than 4% of
the Existing Shares.
In addition, the Board anticipates that
as a result of its capital expenditure
requirements or in the event the Corporation makes a
future acquisition, additional leverage will be
required to effect such a transaction. The Board of
Directors believes that the Corporation's current
leverage position is such that an investment in
the Corporation is
<PAGE>
inappropriate for stockholders
with a de minimis investment in the Corporation.
The Board of Directors believes that in light of the
overwhelming concentration of Existing Shares in the
hands of the Majority Stockholder, the
Corporation's long-term business plans would be
facilitated if the
Corporation were not a public company.
Little Benefit to Stockholders in an Illiquid
Market
Finally, the Board of Directors believes
that there is a very limited market for the
Common Stock and that its stockholders derive
little benefit from the Corporation's status as a
publicly-held corporation. The Existing Shares are
traded in the over-the-counter market. The range of
high and low bid prices of the Common Stock for
each quarterly period during the last two fiscal
years as supplied by the National Quotation Bureau,
Inc. is set forth under the caption "Market And
Dividend Information". The Corporation believes that
transactions in the Existing Shares occur quite
infrequently. The Corporation itself has been the
primary buyer of its Existing Shares. The limited
supply of shares traded in the public market and the
predominant ownership by management results in a
market that management believes is inefficient
and, as a consequence, provides little opportunity
for a stockholder to realize the value of his
investment in the Corporation after payment of
commissions and other market transaction costs. The
Reverse Stock Split and the Purchase Offer provide
an opportunity to Fractional Stockholders to exchange
their Existing Shares at fair value.
Decision to Propose the Reverse Stock Split
In an effort to address the escalating
costs and operating constraints resulting from the
evolution of the
Corporation's business as well as the increasingly
illiquid market for its shares, the Corporation has
considered a number of alternatives. One such
alternative, the share repurchase program,
discussed above, had proved time-consuming and
cumbersome. Considering the profile of the
Corporation's stockholder list, including the
approximately 950 of 2,005 record holders (approximately
48% of unaffiliated stockholders) for which the
Corporation lacks current addresses, the program was not
intended to, and did not result in, an appreciable
reduction in the number of stockholders. Such missing
stockholders own of record a total of approximately
90,000 Existing Shares, and approximately 0.70% of the
outstanding Existing Shares. The
Corporation has not made such repurchases of Existing
Shares since November 16, 1992. The current bid price
for Existing Shares is $1.00.
Commencing in the late fall of 1992, the
Corporation gave preliminary consideration as to how it
might accomplish the goal of deregistering the Common
Stock under the Exchange Act, including the possibility
of a reverse stock split. A number of alternatives
were considered, but because of its anticipated
effectiveness, the Initial Proposal was considered to be
the most appropriate transaction.
On November 23, 1992 and December 14, 1992,
the Board of Directors met to consider the
appropriateness and
desirability of the Initial Proposal to establish a
fair price for the fractional shares redeemed as a
result of
the transaction. Following consideration of a number
of factors, the Board unanimously approved the
Initial Proposal and decided that consideration of
$.50 per Existing Share (the "Initial Proposal Cash
Consideration") would be paid to fractional stockholders
in
lieu of issuing fractional shares of new common stock
to such fractional stockholders. The Board directed
that the Initial Proposal be placed on the agenda
for the consideration of stockholders at a special
meeting. On December 18, 1992, the Corporation
announced the terms of the Initial Proposal. Shortly
thereafter, the Class Action Lawsuits were filed in the
Court of Chancery alleging that the Initial Proposal
was unfair to the unaffiliated stockholders of the
Corporation because (i) the price proposed to be paid
for fractional shares was too low, (ii) the transaction
was not subject to "arms length" negotiation or approval
by independent directors or stockholders and (iii) no
opinion had been obtained from a financial adviser as
to the fairness of the price proposed to be paid for
fractional shares.
<PAGE>
After extensive negotiations with
Plaintiffs'
Representatives, the parties to the Class Action Lawsuits
entered into a Stipulation and Agreement of Compromise
and Settlement. The Court of Chancery held a hearing on
April 15, 1994 regarding the fairness of the Settlement
and unaffiliated stockholders were given an opportunity
to object to the Settlement. On April 15, 1994 the
Court of Chancery entered an order approving the terms
of the Settlement.
Conflicts of Interest; Lack of Opinions, Appraisals
and Reports
The Corporation's Board of Directors
consists of two directors, one of whom is the Majority
Stockholder and as a result is an interested party to
the Reverse Stock Split. The
other director, Mr. Vollmer, was an officer and from
time to time a consultant to the Corporation prior to
1992. Mr. James W. Hart, Chairman of the Board and
President of the Corporation, beneficially owns
approximately 95% of the Corporation's outstanding
Common Stock and will
continue to be a stockholder of the Corporation upon the
completion of the Reverse Stock Split. See
"Board of Directors, Executive Officers and
Principal
Stockholders". The Board of Directors did not
retain an
unaffiliated representative acting solely on
behalf
of stockholders for the purposes of negotiating the
terms of the Initial Proposal or the Reverse Stock
Split, or preparing a report covering the fairness
of the Initial Proposal or the Reverse Stock Split.
Nor did an independent committee of the Board of
Directors review the fairness of the Initial Proposal or
the Reverse Stock Split.
Neither the Corporation nor the Board of
Directors nor any committee of the Board has solicited
or obtained any appraisal, report or opinion by any
outside party regarding the Initial Proposal or the
Reverse Stock Split. The Board chose not to retain the
services of an independent advisor because it believes
the cost of such services would be excessive relative to
the size and cost of the Initial Proposal or the
Reverse Stock Split.
In connection with the negotiation of the
Settlement, the Corporation provided the
Plaintiffs' Representatives with substantial
business and financial information concerning the
present condition and the prospects of the
Corporation.
Plaintiffs' Representatives and representatives
of the Corporation and the defendants
participated in numerous conferences and meetings
regarding the
business and prospects of the Corporation from
January 1993 through May
6, 1993 when a Memorandum of Understanding was
entered into outlining the principal terms of
the Settlement. Subsequently further
extensive confirmatory analysis was done by the
Plaintiffs'
Representatives to confirm the merits of the proposed
Settlement for all the unaffiliated stockholders.
On January 28, 1994, the Corporation and the
defendants executed the Stipulation and Agreement
of Compromise and Settlement and filed the same
with the Court of Chancery. In
addition, the Plaintiffs'
Representatives retained Arthur S. Ainsberg with
the firm of Richard A. Eisner &
Company, C.P.A.s, to advise them,
from a financial point of view, as to the fairness
of the Settlement. Although having initially
proposed a substantially higher price for
fractional shares, the Plaintiffs' Representatives
concluded that the Settlement, including the terms
of the Reverse Stock Split, the Cash
Consideration, and the Purchase Offer, was the best
offer obtainable from the Corporation and defendants
and is fair to the unaffiliated stockholders of the
Corporation, from a financial point of view.
At a hearing held on April 15, 1994,
evidence of the fairness of the Settlement,
including the fairness opinion prepared by the
Plaintiffs' Financial Advisor was presented to the
Court of Chancery. At such hearing, the
unaffiliated
stockholders of the Corporation were provided an
opportunity to object to the Settlement. No
objection to the terms of the Settlement was
made and the court determined, after specific
review of the confirmatory discovery process
undertaken by the Plaintiffs' Representatives, that
the terms of the Reverse Stock Split, as set forth
in the Settlement, are fair. On April 15, 1994,
the Court of Chancery entered an order approving the
terms of the Settlement.
<PAGE>
The Board urges each stockholder,
if
any
such stockholder becomes a Fractional Stockholder, to
seek advice in connection with such stockholder's
decision to either receive the Cash Consideration or
"round up" his or her holdings, or if such
stockholder holds whole shares of New Common Stock
after the Reverse Stock Split, to seek advice in
connection with such stockholder's decision to
tender such shares pursuant to the Purchase Offer
or remain a stockholder.
Fairness of the Reverse Stock Split
The Board of Directors met on June
__, 1994 to consider the fairness of the Settlement
and the Amendment. As
part of its deliberations, the Board considered
its initial determination that the Initial Proposal
was fair,
the changes to the Initial Proposal that resulted
from the negotiations with the Plaintiffs'
Representatives, the affidavit of Plaintiffs'
Financial Advisor and
the
determination made by the Court of Chancery that
the Settlement was fair. The Board of Directors
considered that the Plaintiffs' Representatives
had retained Plaintiffs' Financial Advisor to
determine whether the terms of the Settlement were
fair from a financial point of view. Plaintiffs'
Financial Advisor concluded that the terms of the
Settlement, including such Reverse Stock Split,
were fair to unaffiliated stockholders. The
Board of Directors also
considered that the Court of Chancery provided
unaffiliated stockholders with an opportunity to
object to the transaction at a hearing held on
April 15, 1994. At such hearing the Court of
Chancery was presented with evidence regarding the
fairness of the Settlement, including the terms of
the Reverse Split. There were no objections made by
unaffiliated stockholders at such hearing and the
Court of Chancery approved the terms of the
Settlement as fair to the unaffiliated stockholders.
The Board of Directors also considered that the
terms of the Reverse Stock Split provide
unaffiliated stockholders with the opportunity to
remain stockholders of the Corporation by
rounding-up their
fractional holdings to the next whole share of New
Common Stock. Alternatively, a stockholder with
shares of New Common Stock has the opportunity to
liquidate such holdings by tendering such shares to
the Corporation pursuant to the Purchase Offer.
After consideration of the factors
discussed below and elsewhere in
this Information Statement, the Board of Directors
concluded that the Settlement and Amendment, taken
as a whole, was procedurally and otherwise fair
to, and in the best interests of, the
unaffiliated stockholders of the
Corporation.
Fairness of the Settlement and the Amendment
In reaching its determination to approve
the Initial Proposal, the Board considered that a
reverse stock split would provide those
stockholders who elect to receive the cash
consideration for fractional shares with an
opportunity to
liquidate their holdings, without incurring brokerage
costs that could be disproportionately high given
the low market price of
the Existing Shares. In this regard, the Board
recognized that the Corporation's list of 2,005
record holders contained a disproportionately high
number of stockholders holding small numbers of
shares. For example, 260 stockholders of record
(approximately 13% of the Corporation's
unaffiliated stockholders) held only one Existing
Share each and 745
stockholders of record (approximately 37% of the
Corporation's unaffiliated stockholders) held 10 or
less Existing Shares. Over 1,700 stockholders of
record (approximately 85% of
the
Corporation's unaffiliated stockholders) held
100 or less Existing Shares. The Corporation
does not have current mailing addresses for
approximately 950 stockholders.
Approximately 87% of such
lost stockholders hold 100 or fewer shares and
approximately 44% of such lost stockholders hold
10 or fewer shares. As these small stockholders
would typically be charged minimum brokerage
commissions (which are in the $30 to $50 range) if
they sought to sell their Existing Shares, market
sales through brokerage firms would be uneconomical
for many holders.
<PAGE>
The Board also recognized that the cost
savings the Corporation would realize as a result
of the deregistration of
the Common Stock under the Exchange Act,
following
the
consummation of a reverse stock split, will indirectly
inure to
the benefit of the continuing stockholders,
including the
unaffiliated stockholders, to the extent the Corporation
will no
longer incur the costs associated with the
regulatory and reporting requirements of the Commission.
Administrative control of the Corporation would be
simplified by deregistration of the Common Stock under
the Exchange Act. Moreover, the elimination of the
need to devote senior management time and attention to
matters related to the Corporation's publicly-traded
status will enable the Corporation's management to
devote such time and attention to the Corporation's
long-term business plans involving the maintenance of
its competitive position through the
modernization of its facilities and strategic
acquisitions and divestitures. Strategic planning and
other management decisions could be made solely on the
basis of the Corporation's long-term business interests
without the necessary consideration of
possible adverse short-term effects upon the interests
of the smaller stockholders.
In its deliberations considering the
Initial Proposal, the Board determined that the Initial
Proposal would be beneficial to the Corporation as a
whole because the costs associated with the public
reporting requirements of the Exchange Act have, in its
opinion, become excessive given the fact that only
approximately 5% of outstanding Existing Shares are held
by unaffiliated stockholders. The Board also
believes that
the risks associated with managing a public company
in which a large percentage of the stockholders have
a relatively small equity interest is
disproportionately high relative to the benefits
afforded such stockholders by such public company
status.
After considering the fairness of
the
Initial
Proposal, the Board considered various alternatives
which could reduce the number of record holders of
Existing Shares to less than 300. The Board
considered the alternative
of privatelynegotiated or open-market purchases to
be unfeasible because of the large number of
persons who hold small numbers of the Existing
Shares and the fact that many of these small
holders appear to be lost stockholders. It would be
very difficult for the Corporation or its
transfer agent to locate these stockholders, as
the only information available is
the last known mailing address. The Corporation
believes that the list of bad addresses has
accumulated over the course of a number of years. In
addition, the Corporation does not have a record of
the social security numbers of stockholders since no
dividends have been paid on the Common Stock
since 1958. Given the established
difficulties in reaching these small holders, and the
relatively illiquid and inactive market for the
Existing Shares, the Board was of the opinion that
it might not be possible, in any reasonable
period of time, to make any significant reduction in
the number of stockholders through open-market
purchases.
The Board of Directors also
considered
the
alternative of a possible self-tender offer with
no reverse split. However, such alternative was
rejected because in light of the lack of means of
contacting approximately 50% of its unaffiliated
stockholders, there was no assurance that a
selftender would generate a sufficient response in
order to result in the Corporation having fewer than
300 stockholders, thereby permitting the Corporation
to become a nonreporting company under the
Commission's rules and regulations. Moreover, the
cost of a self-tender offer would be
disproportionately high compared to the benefits to
the stockholders.
Consequently,
the
effectiveness of a negotiated open market purchase or
self tender is severely diminished.
The Board concluded that the most
efficient transaction would be the Initial Proposal,
pursuant to which each 300 Existing Shares held by a
stockholder would be converted into one share of new
common stock. The Corporation anticipated that the
Initial Proposal would have reduced the number
of stockholders below the required going private
threshold.
The Board then discussed the
suggestion made by counsel that stockholders with
fractional
<PAGE>
shares that would otherwise be redeemed
be allowed to purchase
additional fractional shares from those repurchased in
order to round up to a whole share. This would
provide those
stockholders who so chose to remain stockholders of
the Corporation rather than being cashed out. The
Board determined to structure the Initial Proposal
to permit those stockholders who would otherwise
receive the Initial Proposal cash consideration with
an opportunity to continue to participate in the
equity of the Corporation by rounding up their
fractional holdings. The procedures for and the
effects of rounding-up were discussed and considered
during the negotiation of the Settlement.
The Board also considered the effect on
the remaining stockholders of the Initial Proposal and
noted, after discussion, that although public
information would no longer be required to be filed
with respect to the Corporation, the benefits
discussed
above were more significant and, therefore, a reverse
stock split would be beneficial to the remaining
stockholders. The Board acknowledged the fact that
approximately 96% of the Existing Shares are
beneficially owned by officers and directors who will
continue as stockholder of the Corporation
following the
consummation of the transaction contemplated by
the Initial Proposal. However, the Board
determined that it was not
appropriate to appoint an independent committee of the
Board or an independent appraiser to review the
fairness of the Initial Proposal,
nor to neutralize the vote of a
majority of
stockholders by requiring separate minority approval,
in view of the cost of such actions relative to the
size of the transaction, the significant interest of
the majority stockholders and the fact that
stockholders who desire to retain an equity interest
in the Corporation will be given the opportunity
to round up fractional shares.
In connection with the Settlement of the
Class Action Lawsuits, the Initial Proposal was
revised to increase the Initial Proposal cash
consideration to $2.25 per share and to effect the
Reverse Stock Split at a ratio of 600 to one.
Stockholders will be given the opportunity to purchase
additional fractional shares in order to round up to a
whole share at a price of $2.25 per Existing
Share. A limitation on the rounding up, however,
would be that it would be on a first-come, first
served basis and only to the extent that shares being
rounded up were matched with fractional shares
surrendered or Outstanding Fractional Shares. In
addition, holders of whole shares of New Common
Stock who do not wish to continue as a stockholder of
the Corporation, can tender each share of New Common
Stock to the Corporation for a purchase price
of $1,350 per share, which is equivalent to $2.25
per presplit share. See "Background of Reverse
Stock Split and Purchase Offer".
On April 15, 1994, a hearing was held to
determine the fairness of the Settlement, including
the terms of the Reverse Stock Split and the
Purchase Offer. On April 15, 1994, the Court of
Chancery approved the terms of the Settlement,
including the Reverse Stock Split and the Purchase
Offer. On
June ___, 1994, the Board of Directors approved the
Amendment providing for the Reverse Stock Split and
reducing the number of authorized shares from
40,000,000 shares of $.01 par value to 75,000
shares of $1.00 par value.
Fairness of the Cash Consideration
In deciding upon the fairness of the
Settlement and the Reverse Stock Split, the Board
of Directors considered a number of factors. In
December 1992, the Board, in connection with its
consideration of the Initial Proposal, had concluded
that due to the infrequency of open market
transactions, market prices were not a meaningful
factor. In fact, the Corporation and the Majority
Stockholder believe that much of the market activity
prior to the announcement of the Initial Proposal had
been the result of the Corporation buying its own
shares directly from stockholders. Based on the
records of its transfer agent, the Corporation
identified most of the activity in its stock as
coming from repurchases made by the Corporation.
After the Board of Directors approved the Initial
Proposal, the Corporation stopped repurchasing
shares. During this period following the Initial
Proposal there was little activity in the market for
the Corporation's stock. The Board considered that
the market price of the Common Stock might not be a
valid indication of fair value due to the large
percentage
<PAGE>
of stock owned by officers and directors
and to the lack of a liquid public market. The
Plaintiffs' Financial Advisor reached the same
conclusion in connection with his evaluation of
the fairness of the Cash Consideration.
The Corporation's value on liquidation
was determined by the Board to be an inappropriate
measure of value because (i) there is no present
intention of liquidating the Corporation or selling
a substantial portion of its assets; and (ii) if
the Corporation were compelled to liquidate in a
distress setting, it would receive a
disproportionately low consideration for its
properties and businesses. In addition to other
matters, the Board considered the likelihood that
the Corporation would not pay dividends in the
foreseeable future and perhaps for an indefinite
period of time because of restrictive debt covenants.
Although the Board generally considered the
applicability of going concern value, but did not
calculate a dollar value thereof, it did not give
such a value special weight because the
Corporation's principal stockholder is not
considering the sale of his interest or the sale
of the company as a whole. Furthermore, the Board
did not consider going concern value to be an
appropriate measure since the transaction
contemplated by the Initial Proposal will not
result in the disposition of the Corporation's
entire business although it will result in the
termination of the equity interest of the Fractional
Stockholders in the Corporation. However, as
discussed below, the Plaintiffs' Financial Advisor
considered the Corporation's "enterprise value" to be
the appropriate measure of value. The interest of
the Fractional Stockholders (based on the number of
record holders of less than 600 shares) represents
only approximately 1% of the total equity of the
Corporation. The book value and tangible book value
of the Corporation as of December 31, 1993 were
$20,409,000 ($1.58 per Existing Share) and a negative
$29,201,000 (a negative $2.26 per share),
respectively. The book value and tangible book
value of the Corporation as of the quarter ended
April 3, 1994 were $23,941,000 ($1.86 per Existing
Share) and a negative $25,152,000 (a negative $1.95
per share), respectively. The Board also noted
that in 1990 it had considered, but determined not
to pursue, a reverse stock split pursuant to which
the consideration for fractional shares was set at
$2.125 per Existing
Share. The Board of Directors also
considered the impact
of various factors on the Corporation. The Board
considered the degree to which Reeves
Industries, the Corporation's only significant
asset, is leveraged. This factor was also considered
by the Plaintiffs' Financial Advisor. In June
1992, Reeves Industries completed a successful debt
offering of $122,500,000 of 11% Senior Notes. The
proceeds of the public debt offering were used to
redeem all the outstanding 12.5%
Senior Notes and the 13% Senior Subordinated
Debentures as well as to repay and terminate the
revolving loans outstanding under a bank loan
agreement. In connection with this
transaction, Reeves Industries recorded in 1992
an extraordinary
loss of
approximately $5,775,000, net of applicable income
tax benefits of approximately $2,974,000, from the
write-off of debt issuance and financing costs
associated with the retired debt and the payment
of premiums on the early extinguishment of such debt.
In August 1992, Reeves Industries obtained additional
bank financing which provides Reeves Industries and
Reeves with an aggregate $35,000,000 revolving line
of credit. As a result of the refinancing of
Reeves Industries, management believes it has
reduced the risk of Reeves Industries' failing to
meet its debt obligations. However, the Corporation
continues to be a highly leveraged corporation.
Since the Board's consideration of the
Initial
Proposal, the Corporation's wholly-owned
subsidiary, Reeves Holdings, intends to commence a
public offering of approximately $___________ face
amount ($___________ of proceeds) of senior
discount
<PAGE>
debentures. After giving effect to Reeves
Holdings' offering, if completed, and the application
of the proceeds, the Corporation's total consolidated
indebtedness on April 3, 1994, would have been
$227.5 million. As of December 31, 1993 and April
3, 1994, the Corporation's debt to equity ratio
was approximately 6.5 to 1 and 5.8
to
1, respectively. Completion of
the senior discount debenture offering is subject
to market conditions and a number of factors
outside the control of the Corporation. No
assurances can be given as to whether the
offering will be completed or what interest rate the
debentures will bear if the offering is
completed.
The Plaintiffs' Financial Advisor considered the
effect of this offering on the Corporation's
leveraged position in his analysis of the fairness
of the Cash Consideration.
The Reeves Industries debt obligations
substantially restrict the payment of dividends on
the Reeves Industries common stock. The new
financing, if issued, for Reeves Holdings will
further limit the incurrence of additional
indebtedness by the Corporation's subsidiaries.
In considering the Initial Proposal,
the Board
of Directors believed that the degree of
leverage of Reeves Industries reduces the
availability of opportunities and
increases the costs to the Corporation if the
Corporation were to raise additional capital in
the public market. The Board
discussed the lack of liquidity in the market
for
the
Corporation's Common Stock and that the public
equity and debt markets had become more difficult to
use as alternative
sources of financing. At that time, the Board noted
that there was no present intention to raise
capital in
the public market.
The Board also reviewed a number of
contingencies affecting the Corporation and its
subsidiaries, including certain unresolved tax
matters and certain pending litigation. Moreover,
the Board considered the Corporation's exposure
to the uncertainties facing the economies of
certain foreign countries in which it
manufactures or sells its products. Such
contingencies were also considered by
the
Plaintiffs' Financial Advisor.
The Board next considered its analysis
and discussion in connection with the approval
in December 1991 of the Corporation's exchange of
1,000 shares of Reeves Industries Series I
Preferred Stock, par value $1.00 per share, for
18,820,000 shares of Reeves Industries common stock,
par value $.01 per share (the "Exchange
Transaction"). For purposes of the Exchange
Transaction, the Corporation adopted resolutions
setting the fair value of Reeves Industries common
stock at $.50 per share.
In view of the variety of factors
considered in connection with its evaluation of the
fairness of the Initial Proposal, the Board of
Directors did not find it practicable to assign
relative weights to the factors considered in
reaching its determination that, taken as a whole,
the Initial Proposal was fair to and in the best
interests of the Corporation.
No independent committee of the Board
of Directors reviewed the fairness of the Initial
Proposal. No unaffiliated representative acting
solely on behalf of stockholders for the
purpose of negotiating the terms of the Initial
Proposal, or preparing a report covering the fairness
of the Initial Proposal, was retained by the
Corporation.
The Board unanimously concluded that,
based
upon the above stated factors, including the
ability of stockholders to retain an equity interest
in the Corporation by rounding up their holdings,
the Initial Proposal was reasonable from the
Corporation's standpoint and fair to both
the fractional
stockholders and remaining stockholders of the
Corporation after the consummation of the
transactions contemplated by the Initial Proposal.
A stockholder had the option to either receive
the
Cash Consideration for his shares and cease to be
a stockholder or round-up his holdings and
remain a stockholder of the Corporation.
The Board believes that all the
factors set forth above, which it considered
relevant in connection with the Initial
Proposal, are relevant factors in its consideration
of the
<PAGE>
Settlement and the Amendment. Further, in
connection with the Settlement of the
Class Action Lawsuits, the
Cash
Consideration to be paid for fractional shares was
increased 350% to $2.25 as a result of the
Corporation's negotiations with the Plaintiffs'
Representatives. As described below, the
Plaintiffs' Financial
Advisor independently concluded that the Cash
Consideration is fair, from a financial point of view.
In addition, holders of whole shares of New Common Stock
following the Reverse Stock Split have the opportunity to
tender their shares to the Corporation for a purchase
price of $1,350 per share of New Common Stock, which is
the equivalent to $2.25 for each pre-split share.
The Plaintiffs' Representatives retained
an
independent financial adviser who concluded in an
affidavit submitted to the Court of Chancery that the Cash
Consideration was fair to unaffiliated stockholders of the
Corporation. In
concluding that the Cash Consideration is fair to
the Corporation's public stockholders, Plaintiffs' Financial
Advisor considered that the market for the Common Stock is
illiquid and therefore not necessarily reflective of the
underlying value of the Common Stock. The Plaintiffs'
Financial Advisor also considered the November 1992 court
ordered transfers of Reeves Industries' common stock from
Drexel to Reeves Industries. The
Plaintiffs' Financial Advisor concluded that the most
appropriate measurement of value, for purposes of his
opinion, is a multiple of the Corporation's earnings
before interest, tax and
amortization of goodwill (EBITA). His opinion indicates that
the Corporation's EBITA in 1993 was $31,370,000, before a
one-time restructuring charge. The Plaintiffs'
Financial Advisor determined that the appropriate
multiple of EBITA to use for purposes of valuing the
Corporation should range between five and six. This
determination was based upon the Plaintiffs' Financial
Advisor's past experience and his review of financial
information provided to him by the Corporation. The
Plaintiffs' Financial Advisor calculated the value of the
Corporation on an unleveraged basis (the enterprise value)
to range from $156.9 million to $188.2 million using the
multiple of five to six EBITA. The Plaintiffs' Financial
Advisor reached a range of value between $1.87 and $4.31
per share by subtracting the Corporation's debt balance at
December 31, 1993 of $132.7 million from the enterprise
value and dividing the resulting equity value of $24.2
million to $55.5 million by the 12.9 million shares of
Common Stock outstanding at December 31, 1993.
The Plaintiffs' Financial Advisor also
considered that, with a debt to equity ratio of 6.5 to 1
at December 31, 1993, the Corporation is highly-leveraged.
In early March 1993, the Corporation informed the Plaintiffs'
Financial Advisor of the proposed debt offering by Reeves
Holdings. In his affidavit to the Court of Chancery,
the Plaintiffs' Financial
Advisor considered such offering
when assessing the Corporation's high degree of leverage
and the risk such leverage creates for the Corporation's
stockholders in the event of a cyclical downturn in earnings.
He also considered the cash demands in the Corporation to be
significant. In conclusion, the Plaintiffs' Financial
Advisor determined that fair value for the shares of
the Corporation's Common Stock should be at the low end of
the $1.87 and $4.31 per share value range that he had
established and that the $2.25 per fractional share price
is fair, from a financial point of view.
On April 15, 1994, the Court of Chancery held
a hearing as to the fairness of the Settlement and
provided unaffiliated stockholders of the Corporation
with the opportunity to object to the Settlement. There
were no
objections raised at the hearing. On April 15, 1994,
the Court of Chancery entered an order
approving the terms of the Settlement. The Board
considered the process involved in the Settlement,
including the extensive negotiations, the fairness
opinion prepared by
Plaintiffs' Financial Advisor, and the approval of the
Court of Chancery, as the most significant factor in
determining the fairness of the Reverse Stock Split.
For these reasons, and those described in "SPECIAL
FACTORS -Purposes of the Reverse Stock Split" and
"SPECIAL FACTORS -- Background and Reasons for the
Reverse Stock Split" above, the Board unanimously
approved the Reverse Stock Split.
<PAGE>
Vote of Majority Stockholder to be Determinative
The Majority Stockholder has advised the
Corporation that he intends to vote his shares,
representing approximately 95% of the outstanding
Common Stock, in favor of the Reverse Stock Split, the
Settlement and the Amendment. Consequently, no
additional vote of unaffiliated stockholders will be
required for approval of the transaction.
Effects of the Reverse Stock Split
General Effects
Upon the Majority Stockholder's
execution of a written consent approving and adopting
the
Amendment, the number of authorized shares of
Common Stock will be decreased from 40,000,000 to
75,000 and the par value of such shares will be
increased from $.01 per share to $1.00 per share.
After giving effect to the Reverse Stock Split,
management expects that the number of
stockholders of record will be reduced such that
registration of the shares of New Common Stock
pursuant to the Exchange Act could be terminated.
In addition, the quotation of prices of Existing
Shares on the NASDAQ OTC Bulletin Board would cease.
The Corporation will no longer incur the expense
of compliance with the Exchange Act regulatory
and reporting requirements. Corporate resources
currently devoted to such compliance (approximately
$85,000 (exclusive of management time)) can be
allocated to other areas where they can be used
more efficiently.
Following completion of the Reverse
Stock Split, Fractional Stockholders electing
to receive the Cash
Consideration and holders of whole shares of New
Common Stock electing to tender their shares
pursuant to the Purchase Offer will cease to be
stockholders or have any interest in the equity or
future prospects of the Corporation. Such
stockholders will sustain the detriment of
foregoing any participation in the possible
increase in the value of the Corporation or the New
Common Stock. Fractional Stockholders who elect to
round up their holdings and holders of whole shares
of New Common Stock who elect to retain their
shares, however, will no longer have a public
market in which they may liquidate their shares of
New Common Stock. The lack of such liquidity
could restrict their ability to resell or pledge
shares of New Common Stock as collateral for
loans.
Assuming the Reverse Stock Split is
consummated and in the event that all outstanding
shares are redeemed pursuant to the Reverse Stock
Split or repurchased pursuant to the Purchase
Offer, the Majority Stockholder would become the
Corporation's sole stockholder. Although it cannot
be determined at this time whether all of the
Corporation's minority stockholders will, in fact,
surrender their shares, the calculations below set
forth the benefits that would inure to the Majority
Stockholder in such event. The net book value
per share held by the Majority Stockholder after
giving effect to the payment for the Fractional
Shares and tendered new shares of New Common
Stock would be reduced from $1.58 to $1.53 per
share as of December 31, 1993. The tangible book
value attributable to the Majority
Stockholder's
shares would be reduced from a negative $2.26 to a
negative $2.56 per share. After giving effect
to such
transactions, the earnings per share with respect
to the shares of Common Stock owned by the
Majority Stockholder would be increased from
$.56 to $.68 for the year ended December 31,
1993 and from $.18 to $.19 for the three months
ended in April 3, 1994. The Majority
Stockholder would be therefore entitled to
receive the benefits of all future earnings
attributable to the equity of the Corporation, and
stockholders that received cash for their equity
interest in the Corporation would not share in any
future earnings of the Corporation.
<PAGE>
Termination of Exchange Act Registration
The Existing Shares are currently
registered under the Exchange Act. Such
registration may be terminated upon application of
the Corporation to the Commission if there are
fewer than 300 record holders of the shares.
Upon the consummation of the Reverse Stock
Split, the Corporation will have approximately 60
stockholders of record, assuming no
Fractional Stockholders elect to purchase Existing
Shares under the terms of the Reverse Stock Split so
as to become holders of a whole share of New Common
Stock and no holders of whole shares of New Common
Stock exercise their option to tender their shares
to the Corporation. The Corporation intends to make
an application for termination of registration of
the shares of New Common Stock as promptly as
possible after the Effective Date. Termination of
registration of the shares of New Common Stock under
the Exchange Act would substantially reduce the
information required to be furnished by the
Corporation to its stockholders and to the
Commission and would make certain provisions of the
Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b), the
requirement of furnishing a proxy or information
statement in connection with stockholder meetings
pursuant to Section 14(a), and the requirements
of Rule 13E-3 under the Exchange Act with
respect to "going private" transactions, no longer
applicable to the Corporation. Furthermore,
"affiliates" of the Corporation may be deprived of
the ability to dispose of
such securities pursuant to Rule 144
promulgated under the Exchange Act. If
registration under the Exchange
Act were terminated, the shares of New Common Stock
could not be utilized as "margin securities".
The
Corporation estimates that termination of
registration of the shares of New Common Stock
under the Exchange Act will save the Corporation
approximately $85,000 in legal, accounting,
printing and other expenses per year, after
taking into account continuing reporting obligations
under Reeves Holdings' and Reeves Industries'
respective loan documents.
Effect on Market for Shares
If the Amendment is approved, and, as
contemplated, the shares of New Common Stock
are deregistered under the Exchange Act, the
shares of New Common Stock will not be eligible for
quotation on the National Association of Securities
Dealers' Automated Quotation System ("NASDAQ")
nor listing on any securities exchange. There
will be a significant decrease in the amount and
availability of information about the Corporation,
as well as a reduction in the number of
stockholders. All of these factors could adversely
affect the liquidity and market value of the shares
of New Common Stock, and may also tend to make the
trading price of the shares of New Common Stock more
volatile.
Federal Income Tax Consequences
The receipt by each Fractional
Stockholder of cash in lieu of fractional shares
of New Common Stock pursuant to the Reverse Stock
Split and the receipt by each holder of whole
shares of New Common Stock of cash in connection
with the tender of such shares pursuant to the
Purchase Offer will be a taxable transaction for
federal income tax purposes under the United
States Internal Revenue Code of 1986, as amended
(the "Code").
Under Section 302 of the Code, a
stockholder will recognize gain or loss upon
receiving cash in lieu of fractional shares or
upon the tender of whole shares of New Common Stock
pursuant to the Purchase Offer if (i) the Reverse
Stock Split or tender, as applicable, results in a
"complete redemption" of all of the stockholder's
Existing Shares and shares of New Common Stock,
(ii) the receipt of cash is
"substantially disproportionate" with respect to the
stockholder, or (iii) the receipt of cash is "not
essentially equivalent to a dividend" with respect
to the stockholder. These three tests are applied
by taking into account not only shares that a
stockholder actually owns, but also shares that a
stockholder constructively owns pursuant to Section
318 of the Code, described below.
<PAGE>
If any one of these three tests is
satisfied, the stockholder will recognize gain or
loss equal to the difference between the amount of
cash received by the stockholder pursuant to the
Reverse
Stock Split or the tender, as applicable, and the
tax basis in the Existing Shares or the shares of
New Common Stock held by the stockholder. Provided
that the Existing Shares or the shares of New
Common Stock, as applicable, constitute a capital
asset in the hands of the stockholder, this gain or
loss will be long-term capital gain or loss if
such shares are held for more than one year and
will be short-term capital gain or loss if such
shares are held for one year or less. In
determining the basis and holding period of a
stockholder's New Common Stock, the basis and
holding period of such stockholder's Existing
Shares will
carry over as the basis and holding period of such
shares of New Common Stock.
Pursuant to the constructive
ownership rules of Section 318 of the Code, a
stockholder is deemed to
constructively own shares owned by certain related
individuals and entities in addition to shares
actually owned by the stockholder.
For instance, an individual
stockholder is
considered to own shares owned by or for his
spouse and his children, grandchildren and parents
("family attribution"). In
addition, a stockholder is considered to own a
proportionate number of shares owned by estates or
certain trusts in which the stockholder has a
beneficial interest, by partnerships in which the
stockholder is a partner, and by corporations in
which 50% or more in value of the stock is owned
directly or indirectly by or for such
stockholder. Similarly, shares directly or
indirectly owned by beneficiaries of estates of
certain trusts, by partners of partnerships and,
under certain circumstances, by stockholders of
corporations maybe considered owned by these
entities ("entity attribution"). A stockholder is
also deemed to own shares which the stockholder
has the right to acquire by exercise of an
option.
The receipt of cash by a stockholder
pursuant to the Reverse Stock Split or the
Purchase Offer, as applicable, will result in a
"complete redemption" of all of the stockholder's
Existing Shares or shares of New Common Stock so
long as the stockholder does not constructively
own any shares of New Common Stock immediately
after the Reverse Stock Split or the receipt of
payment pursuant to the Purchase Offer. However, a
stockholder may qualify for gain or loss
treatment under the "complete redemption" test
even though such stockholder constructively owns
shares of New Common Stock provided that (i) the
stockholder constructively owns shares of New Common
Stock as a result of the family attribution rules
(or, in some cases, as a result of a combination
of the family and entity attribution rules), and
(ii) the stockholder qualifies for a waiver of the
family attribution rules (such waiver being subject
to several conditions, one of which is that the
stockholder has no interest in the Corporation
immediately after the Reverse Stock Split or the
receipt of payment pursuant to the Purchase Offer
(including as an officer, director or employee),
other than an interest as a creditor).
It is anticipated that most Fractional
Stockholders and stockholders tendering shares of
New Common Stock will qualify for capital gain
or loss treatment as a result of satisfying the
"complete redemption" requirements. However, if
the constructive ownership rules prevent compliance
with
these requirements, such stockholder may
nevertheless qualify for capital gain or loss
treatment by satisfying either the
"substantially disproportionate" or the "not
essentially equivalent to a dividend" requirements.
In general, the receipt of cash pursuant to the
Reverse Stock Split or the Purchase Offer will be
"substantially disproportionate" with respect to
the stockholder if the percentage of shares of New
Common Stock constructively owned by the
stockholder immediately after the Reverse
Stock Split, or the receipt of payment pursuant to
the Purchase Offer, is less than 80% of the
percentage of Existing Shares actually and
constructively owned by the stockholder immediately
before the Reverse Stock Split or the Purchase
Offer. Alternatively, the receipt of cash pursuant
to the Reverse Stock Split or the Purchase Offer
will, in general, be "not essentially equivalent to
a dividend" if the Reverse Stock Split or the
receipt of payment pursuant to the Purchase Offer
results in a "meaningful reduction" in the
stockholder's
proportionate
interest in the Corporation.
<PAGE>
If none of the three tests
described above is
satisfied, the stockholder will be treated as
having received a taxable dividend in an amount
equal to the entire amount of cash received by the
stockholder pursuant to the Reverse Stock Split or
the Purchase Offer.
The receipt of whole shares of New
Common Stock in the Reverse Stock Split by
stockholders of the Corporation who do not exercise
their tender option with respect to such shares will
be a non-taxable transaction for federal income
tax purposes. Consequently, a stockholder of the
Corporation receiving shares of New Common Stock
will not recognize gain or loss, or dividend income,
as a result of the Reverse Stock Split with respect
to the shares of New Common Stock received. In
addition, the basis and holding period of such
stockholder's Existing Shares will carry over as
the basis and holding period of such stockholder's
shares of New Common Stock, subject to a basis
increase equal to any payment made to round up
fractional shares.
The backup withholding rules require
a payor to deduct and withhold a tax if (a) the
payee fails to furnish a taxpayer identification
number ("TIN") to the payor, (b) the IRS notifies
the payor that the TIN furnished by the payee
is incorrect, (c) the payee has failed to report
properly the receipt of "reportable payments" on
several occasions and the IRS has notified the payor
that withholding is required, or (d) there has been
a failure of the payee to certify under the penalty
of perjury that a payee is not subject to
withholding under Section 3406 of the Code.
As a result, if any one of the
events
discussed above occurs, the Corporation, its
paying agent or other withholding agent will be
required to withhold a tax equal to 31% of any
"reportable payment" made in connection with the
Reverse Stock Split or the Purchase Offer. A
"reportable payment" includes, among other things,
dividends and amounts paid through brokers in
retirement of securities. Any amounts withheld
from a payment to a stockholder under the
backup withholding rules will be allowed as a refund
or credit against such stockholder's federal income
tax, provided that the required information is
furnished to the IRS. Certain stockholders
(including corporations and certain tax exempt
organizations) are not subject to the backup
withholding and information reporting requirements.
THE FOREGOING IS ONLY A GENERAL
DESCRIPTION OF CERTAIN OF THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE REVERSE STOCK
SPLIT AND THE PURCHASE OFFER TO THE
STOCKHOLDERS WITHOUT REFERENCE TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR
STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT
HIS OR HER OWN TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF
THE REVERSE STOCK SPLIT AND PARTICIPATION
IN THE PURCHASE OFFER (INCLUDING THE APPLICATION
AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX
LAWS).
Appraisal Rights
No appraisal rights are provided
to dissenting stockholders under the laws of the
State of Delaware, the jurisdiction in which the
Corporation is incorporated, nor are such rights
provided under the Corporation's Restated
Certificate of Incorporation in connection with the
Reverse Stock Split. The Court of Chancery held a
hearing as to the fairness of the Settlement,
including the terms of the Reverse Stock Split. At
such hearing, evidence of the fairness of the
Settlement was presented to the Court of Chancery,
including the opinion of Plaintiffs' Financial
Advisor, and the stockholders of the
Corporation were provided the opportunity to
object to the Settlement. The Court of Chancery
determined that the terms of
the Settlement, including the Reverse Stock Split,
were fair to
the Corporation's stockholders. The Corporation and
the Majority Stockholder believe that the
determination of fairness made by
the Court of Chancery with respect to the
Settlement was the functional equivalent of the
hearing that would be afforded to
dissenting stockholders in an appraisal hearing.
<PAGE>
Additionally, since stockholders have the right to
remain as stockholders by
rounding-up to the next whole share of New Common
Stock, the Corporation and the Majority Stockholder
believe that the Reverse Stock Split is structured
to be fair to all stockholders.
Recommendation of Board of Directors, Vote Required
The Board of Directors, including
Richard A.
Vollmer, the only Director who is not a stockholder
or officer of the Corporation, has unanimously
approved the Amendment necessary to effect the
Reverse Stock Split. There are no contracts,
arrangements, understandings or relationships in
connection with the Reverse Stock Split or the
Purchase Offer between the Corporation, its
officers or its directors, and any other person
with respect to any securities of the Corporation.
The proposed Amendment to effect the
Reverse Stock Split must, under the terms of
the Corporation's Restated Certificate of
Incorporation, be approved by a vote of not less
than a majority of the Existing Shares. The
General Corporation Law of the State of
Delaware, specifically Section 228(a) thereof,
provides that ". . . any action required by
this chapter to be taken at any annual or special
meeting of such stockholders of a corporation, or
any action which may be taken at any annual or
special meeting of such stockholders, may be taken
without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the
action so taken, shall be signed by holders of
outstanding stock having not less than the minimum
of votes that would be necessary to authorize or
take such action at a meeting at which all shares
entitled to vote thereon were present and voted .
. .". The Board of Directors has been informed
that the Majority Stockholder intends to
execute a written consent in favor of the Amendment
(see "Vote of Majority Stockholder to be
Determinative").
Exchange of Shares and Payment in Lieu
Of Issuance of Fractional Shares
If the Amendment is approved by
the Majority Stockholder, the Board of Directors
will cause the Certificate of Amendment to be filed
with the Secretary of State of the State of Delaware
and a notice of such filing ("Notice of Filing")
along with the Letter of Transmittal (as
hereinafter defined) and instructions to be
transmitted to the stockholders of the
Corporation promptly after the Effective Date.
American Stock Transfer & Trust Company has been
appointed exchange agent (the "Exchange Agent") to
carry out the exchange of certificates for shares of
New Common Stock and/or the Cash Consideration.
On the Effective Date, each certificate
representing shares of Common Stock will be deemed
for all corporate purposes, and without any further
action on the part of the holder thereof, to
evidence ownership of the appropriate reduced number
of shares of New Common Stock and/or the right
to receive the Cash Consideration for any
fractional interest. In addition, any stockholder
holding fewer than 600 Existing Shares will cease
to
have any rights with respect to the New Common
Stock, except to receive the Cash Consideration
or, for a period of 30 days following the
Effective Date, to round up (through the Exchange
Agent) such stockholder's fractional interest in
shares of New Common Stock. Stockholders may
elect to forego the Cash Consideration and round
up their fractional
holdings by paying $2.25 for each 1/600 of a share
needed to round up their holdings to equal a whole
share (or an additional whole share, as the case may
be) of New Common Stock. After the expiration of
such 30-day period, the holder of a fractional
share of New Common Stock shall only be entitled
to receive the Cash Consideration. Each
stockholder whose share holdings exceed 600 Existing
Shares, but are not evenly divisible by 600, will
be treated as a Fractional Stockholder with respect
to such stockholder's fractional shares of New
Common Stock.
<PAGE>
Fractional shares of New Common Stock
(i) will
be provided to stockholders desiring to round up
their holdings by the Exchange Agent on a first-
come, firstserved basis, (ii) will be provided only
from fractional shares of New Common Stock which
have been surrendered by other stockholders or
Outstanding Fractional Shares and (iii) based on the
foregoing, may therefore be of limited
availability. As the Corporation's Exchange Agent
receives elections from stockholders desiring to
round up their holdings, it will "match up"
fractional shares surrendered by other stockholders
with the fractional shares needed to provide
rounding up stockholders with a whole share of New
Common Stock. To the extent that fractional shares
surrendered by stockholders during such 30-day
period are not sufficient to cover the number of
fractional shares needed to provide all stockholders
desiring to round up to whole shares of New
Common Stock, those stockholders who are not
"matched up" with surrendered fractional shares
will be "matched up" with Outstanding
Fractional Shares. In the event Outstanding
Fractional Shares are not available for "matching
up" purposes, those stockholders who are not
"matched up" with fractional shares will receive the
Cash Consideration in exchange for their fractional
shares. In order to round up, the stockholder must
own the fractional interest as of the Settlement
Approval Date as well as the Effective Date. To the
extent that a beneficial stockholder divides his
shares into more than one record holder position,
the Corporation will not allow such beneficial
stockholder to purchase more fractional shares than
necessary to round up to one whole share of New
Common Stock as if such beneficial stockholder had
not divided his shares.
Each holder of the Corporation's
Existing Shares will receive one share of New
Common Stock for each 600 Existing Shares
previously held by such stockholder. After the
Effective Date, no transfer of record of fractions
of shares of New Common Stock will be permitted.
For a period of 30 days following the Effective
Date, holders of whole shares of New Common Stock
may elect to tender all or a portion of such
shares to the Corporation for a purchase price
of $1,350 per share of New Common Stock.
Stockholders having fractional interests
in
shares of New Common Stock will be requested to so
instruct the Exchange Agent within 30 days
following the Effective Date if they elect to round
up such interests and to enclose the appropriate
payment therefor with their Letters of Transmittal.
Stockholders seeking to have their fractional
holdings rounded up will be promptly notified by
the Exchange Agent as to the amount of their
resulting share
ownership and will receive a refund of any amount
paid by them to the Exchange Agent for additional
fractional shares if fractional shares were not
available for rounding up. Stockholders will be
entitled to receive shares of New Common
Stock, or the Cash Consideration, only by
transmitting to the Exchange Agent stock
certificate(s) for Existing Shares, together with
the properly executed and completed Letter of
Transmittal and such evidence of ownership of such
shares as the Corporation may require. The payment
of the Cash Consideration will be made to
Fractional Stockholders only upon surrender of the
relevant certificates; such payment will be made
promptly after receipt of a properly completed
Letter of Transmittal and stock
certificate(s) for Existing Shares. Similarly,
stockholders who will remain such after the
Effective Date will not receive certificates for
shares of New Common Stock unless and until the
certificates representing their Existing Shares are
surrendered.
Stockholders seeking to tender all or
any portion of their shares of New Common Stock
must do so at or prior to the Expiration Date.
Such stockholders will be entitled to receive
$1,350 per each share of New Common Stock
tendered only by transmitting to the Exchange
Agent stock certificate(s) for shares of New
Common Stock, together with the properly executed
and completed Letter of Transmittal and such
evidence of
ownership of shares as the Corporation may require.
Payment for tendered shares of New Common Stock
will be made to stockholders only upon surrender
of the relevant certificates; such payment
<PAGE>
will be made promptly after receipt of a
properly
completed Letter of Transmittal and stock
certificates for
the tendered shares.
THE NOTICE OF FILING AND THE LETTER OF
TRANSMITTAL WILL BE TRANSMITTED BY THE CORPORATION
TO STOCKHOLDERS AT A DATE SUBSEQUENT TO THE
EFFECTIVE DATE. STOCKHOLDERS SHOULD NOT SEND IN
THEIR CERTIFICATES UNTIL THE NOTICE OF FILING AND
LETTER OF TRANSMITTAL ARE RECEIVED AND SHOULD
SURRENDER THEIR CERTIFICATES ONLY TO THE EXCHANGE
AGENT WITH SUCH LETTER OF TRANSMITTAL.
There will be no service charges
payable by
stockholders in connection with the exchange
of
their certificates or in connection with the payment
of cash either in lieu of the issuance of
fractional shares of New Common Stock or the tender
of whole shares of New Common Stock. These costs
will be borne by the Corporation.
Source and Amount of Funds, Expenses
The total amount of funds which will be
required by the Corporation to fund the cash
payments in lieu of the issuance of fractional
shares of New Common Stock under the Reverse Stock
Split and to purchase shares of New Common
Stock from unaffiliated
stockholders pursuant to the Purchase Offer is
estimated to be as much as $1,300,000 (based on the
stock records of the Corporation as of April
13, 1994 and assuming no stockholders elect to
round up fractional holdings and all unaffiliated
stockholders tender shares of New Common Stock),
including estimated fees and expenses of
approximately $110,525.
The Corporation will pay all expenses
in connection with the Reverse Stock Split and
Purchase
Offer and intends to finance such expenses from
its current cash reserves. The
following table sets forth the approximate
amount of such expenses expected to be incurred
in connection with the
effectuation of the Reverse Stock Split and the
Purchase Offer:
Item Approximate
Amount
Legal $75,000.00
Printing 5,000.00
Accounting 13,000.00
Exchange Agent 15,000.00
Filing Fees 525.00
Miscellaneous 2,000.00
Total $110,525.00
Selected Consolidated Financial Data
The selected consolidated financial
data set forth below with respect to the years
ended December 31, 1989, 1990, 1991, 1992 and
1993 and at the end of such periods has been
derived from the consolidated financial
statements of the
Corporation which have been audited by Price
Waterhouse, independent accountants. The selected
consolidated financial data set forth below with
respect to
the quarters ended March 28, 1993 and April 3, 1994
and at the end of such periods, are unaudited but
have been prepared on a basis substantially
consistent with the audited financial statements and,
in the opinion of management, contain all adjustments
consisting only of normal recurring adjustments,
necessary for a fair presentation.
<PAGE>
The results of
operations for the quarter ended April 3,
1994 are not necessarily indicative of results to be
expected for the full year. The financial data set
forth below is
qualified by and should be read in conjunction
with the Consolidated Financial Statements and the
related notes thereto and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" included elsewhere in this Information
Statement.
The historical operations and balance
sheet data included in the selected data set forth
below are derived from the consolidated financial
statements of the Corporation (in thousands except
per share data and ratios).
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
December 31, March 28, April 3,
1989 1990 1991 1992 1993 1993 1994
Statement of
Operations Data (1):
Net Sales
<S> <C> <C> <C> <C> <C> <C> <C>
Industrial Coated
Fabrics Group $114,313 $119,749 $121,264 $126,576 $140,735 $31,066 $ 37,264
Apparel Textile Group 143,035 138,110 148,295 144,528 142,918 32,714 35,733
Total net sales $257,348 $257,859 $269,559 $271,104 $283,653 $63,780 $ 72,997
Operating income
Industrial Coated
Fabrics Group $ 24,715 $ 23,250 $ 23,940 $ 24,732 $ 29,287 $ 6,641 $ 6,651
Apparel Textile Group 11,513 10,059 10,121 10,693 11,583 1,841 3,004
Corporate expenses (6,888) (8,137) (8,059) (8,851) (10,915) (2,312) (2,105)
Facility restructuring
charges (1,003) ---- ----
Total operating income $ 29,340 $ 25,172 $ 26,002 $ 26,574 $ 28,952 $ 6,170 $ 7,550
Income from continuing
operations $ 5,812 $ 5,348 $ 4,214 $ 6,145 $ 8,238 $ 1,583 $ 2,314
Interest expense and
amortization of financing
costs and debt discount $ 22,590 $ 19,934 $ 21,777 $ 17,633 $ 16,426 ($4,152) ($4,085)
Income from continuing
operations per share $ .33 $ .35 $ .28 $ .41 $ .56 $ .11 $ .18
Ratio of earnings to
fixed charges (2) 1.5x 1.3x 1.2x 1.5x 1.8x 1.4x 1.8x
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
December 31, March 28, April 3,
1989 1990 1991 1992 1993 1993 1994
Earnings (loss) per
common share
Primary:
Income from continuing
<S> <C> <C> <C> <C> <C> <C> <C>
operations $ .33 $ .35 $ .28 $ .41 $ .56 $ .11 $ .18
Income (loss) before
extraordinary item .83 (1.77) .44 .41 .56 .11 .18
Dividends paid
Net income (loss) .85 (1.77) .44 .23 .56 .11 .18
<PAGE>
Fully diluted:
Income from continuing
operations $ .33 $ .35 $ .27 $ .41 $ .56 $ .11 $ .18
Income (loss) before
extraordinary item .83 (1.77) .43 .41 .56 .11 .18
Dividends paid
Net income (loss) .85 (1.77) .43 .23 .56 .11 .18
Weighted average number
of shares
Primary 15,998 15,242 15,228 15,130 14,686 14,913 13,103
Fully diluted 15,998 15,256 15,339 15,130 14,686 14,913 13,103
Operating Data:
Depreciation and goodwill
amortization expense $ 6,394 $ 6,707 $ 7,178 $ 8,187 $ 8,624 $ 2,207 $2,327
Capital expenditures 6,821 7,007 11,015 15,788 16,506 (2,051) (5,686)
Balance Sheet Data:
Total assets (3) $249,550 $230,597 $217,135 $196,006 $206,375 $205,049 $212,058
Long-term debt (including
current portion) $149,863 $148,837 $148,960 $132,921 $132,677 $140,290 $138,402
Stockholders' equity(4) 39,675 11,513 17,283 14,184 20,409 14,056 23,941
</TABLE>
Footnotes to Statement of Operations and Balance Sheet Data
[FN]
(1) The fiscal year ended December 31,
1989 has been
restated
to reflect the exclusion of the discontinued
operations of the ARA Automotive Group. See
Footnote 3, Discontinued Operations and Facility
Restructuring Charges, of the Notes to
Consolidated Financial Statements of the
Corporation.
(2) For the purpose of calculating the ratio of
earnings
to
fixed charges, earnings consist of income from
continuing operations before income taxes, plus
fixed
charges. Fixed charges consist of interest on
all indebtedness, amortization of financing costs and
debt discount, and onethird of all rentals, which is
considered representative of the interest portion
included therein, after adjustments for amounts related
to discontinued operations.
(3) Total assets include the assets of discontinued
operations
prior to disposal. In 1990, Reeves
discontinued the operations of Reeves' ARA
Automotive Group.
(4) The decline in stockholders' equity from 1989
to
1990
includes the recognition of a net loss of
$34,594,000 from the disposal of the remaining
operations of
Reeves' ARA Automotive Group. The decline in
stockholders' equity from 1991 to 1992 primarily
reflects translation adjustments of $6,626,000
caused by foreign currency fluctuations.
[/FN]
The Reverse Stock Split will not have a
material impact on the Corporation's financial
position or results of operations.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
General
The Corporation is a holding company, the
principal assets of which consist of its ownership of
100% of the stock of Reeves Industries (approximately
90% on a fullydiluted basis). The Corporation
currently derives all of its operating income from
Reeves Industries.
<PAGE>
The Corporation acquired Reeves Industries
in 1986. Under the direction of the Corporation's
management, Reeves Industries' operations have
benefited from new product developments and a
series of
productivity improvements, including improved
manufacturing processes and information systems,
work force reductions and technological upgrading
of facilities and production methods. Between
1991 and 1993, the Corporation invested
approximately $52.1 million in its businesses,
including the cost of equipment leased under
operating leases of $8.8 million, in order to
modernize and expand capacity, reduce its
overall cost structure, increase productivity
and enhance its competitive position. Between
1991 and 1993, the Corporation's sales and
operating income increased from $269.6 million
to $283.7 million and from $26.0 million to $30.4
million (before facility restructuring charges of
$1.0 million and other charges of $.5 million
in 1993), respectively. The Corporation's
operating results have improved primarily due to
increased sales and profits related to coated
automotive airbag materials and productivity
improvements achieved through increased capital
investment. These results have been achieved
despite the
continuation of recessionary influences which
have adversely affected sales of Reeves
Industries' apparel textile and printing blanket
products in its U.S. and European markets.
Results Of Operations (1991-1993 And Quarters
Ended March 28, 1993 And April 3, 1994)
Sales
Consolidated sales increased from $269.6
million
in 1991 to $283.7 million in 1993 (5.2%) due to
increased sales of the Industrial Coated Fabrics Group
(16.0%) related primarily to growth in coated automotive
airbag materials, partially offset by a decline in
sales of the Apparel Textile Group (3.6%) due to a
shift to basic, lower margin products, price
competition, adverse recessionary influences affecting
domestic textile markets and the cessation of ATG's
weaving operations at its Woodruff, South Carolina
facility in 1993. Consolidated sales increased $9.2
million (14.5%) in the first quarter of 1994 as compared
to the first quarter of 1993, due to growth in
sales of coated automotive air bag materials and
apparel textiles.
Industrial Coated Fabrics Group.
ICF's sales were $121.3 million, $126.6
million and $140.7 million in 1991, 1992 and 1993,
respectively. The 16.0%
increase during the period was due to increased
sales of specialty coated fabrics, primarily coated
automotive airbag materials, partially offset by a
decline in offset printing blanket volume. The
increase in coated
automotive airbag materials sales was due to an
increase in unit volume caused by the increased use
of driverside airbags primarily in cars manufactured
in the United States. The decline in domestic
printing blanket sales was primarily due to reduced
demand as a result of the slowdown in the printing
industry. Sales of Reeves Industries' Italian
subsidiary ("Reeves S.p.A.") fluctuated during the
period
primarily due to movements in foreign currency exchange
rates. ICF's net sales increased $6.2 million (20.0%)
during the first quarter of 1994 as compared to the
first quarter of 1993. ICF's net sales increased
primarily due to higher unit volume for specialty
coated fabric materials, primarily coated automotive
airbag materials. This increase was partially offset by
a decrease in other coated fabric product lines,
principally domestic printing blankets continuing the
trend experienced in 1992 and 1993.
Apparel Textile Group.
ATG's sales were $148.3 million, $144.5
million and $142.9 million in 1991, 1992 and 1993,
respectively. The 2.6%
sales decline in 1992 as compared to 1991 was evenly
<PAGE>
distributed between ATG's greige and finishing
divisions. The decline in each division was primarily
due to unusually strong sales in 1991 to the U.S.
military as a result of Operation Desert Storm and, to
a lesser extent, the economic recession in the United
States in 1992.
ATG's
products experienced both a decline in unit
volume as well as a shift to more basic, lower margin
products in 1992 as compared to 1991. The 1.1%
decline experienced in
1993 as compared to 1992 resulted from a decrease in
greige goods sales as a result of the cessation of
weaving operations at the Woodruff, South Carolina
facility due to declining sales to the
U.S. military, offset partially by increased sales of
finished goods due to greater demand for higher
quality and more varied product offerings and
styles. ATG's net sales increased $3.0 million
(9.2%) during the first quarter of 1994
as compared to the first quarter of 1993. ATG's
net sales increase reflects growth in unit volume
due to stronger customer demand in the finished
goods division partially offset by lower greige goods
volume due to the elimination of weaving capacity
at the Woodruff, South Carolina facility.
Operating Income
Consolidated operating income was
$26.0 million, $26.6 million and $29.0 million
in 1991, 1992 and 1993, respectively. The 11.5%
increase between 1991 and 1993 resulted primarily
from increased profits contributed by ICF's
specialty materials
products (predominantly coated automotive airbag
materials) and, to a lesser extent, increased profits
contributed by ATG (in spite of reduced sales volume)
as a result of cost reductions and productivity
gains achieved during the period related to its
capital investment program. The operating income
increase experienced during the period was partially
offset by increased
corporate expenses and, in 1993, by
facility restructuring charges of $1.0 million.
Operating income, as a percentage of sales, increased
from 9.6% in 1991 to 9.8% in 1992 and to 10.2% in 1993.
Operating income for the first quarter of 1994 was
$7.6 million compared to $6.2 million for the first
quarter of 1993. As a percentage of net sales,
operating income increased to
10.3% of net sales for the first quarter of 1994
compared to 9.7% in the same period of 1993.
Operating income growth was primarily due to higher
sales volume and cost reductions implemented at ATG in
1993 and, to a lesser extent, lower corporate expenses.
Industrial Coated Fabrics Group.
ICF's operating income was $23.9
million, $24.7 million and $29.3 million in 1991, 1992
and 1993, respectively, and represented 19.7%, 19.5%
and 20.8% of ICF's sales in such years.
Operating income growth in 1992 as compared to 1991 was
due primarily to increased sales of coated
automotive airbag materials and, to a lesser extent,
the elimination of certain lower-margin specialty
coated fabric products.
The 18.6% increase in operating income in 1993 as
compared
to 1992 was primarily due to the benefits of
economies of scale realized in connection with
increased sales of coated automotive airbag materials.
Operating income from printing blankets declined in
1992 and 1993 reflecting the worldwide slowdown in the
printing industry partially offset by efficiencies
experienced by Reeves S.p.A. primarily related to
increased material yields. ICF's operating income
for the first quarter of 1994 was essentially unchanged
from the first quarter of 1993 but, as a percentage of
sales, decreased to 17.8% from 21.4%. Increases in
operating income generated by sales of coated
automotive airbag materials were offset by: (i) lower
operating income from printing blankets due to
significant development and other costs associated with
the introduction of new products, (ii) foreign currency
exchange losses resulting from the strengthening of
the Italian lira against certain other currencies and
(iii) lower volume and higher development costs
related to other coated fabrics product lines.
<PAGE>
Apparel Textile Group.
ATG's operating income was $10.1
million, $10.7 million and $11.6 million in 1991, 1992
and 1993, respectively, and represented
6.8%, 7.4%
and 8.1% of ATG's sales in such years.
The operating income and margin improvement
experienced during the period was achieved in spite of
an overall 3.6% sales decline reflecting the benefits
of cost reductions and productivity improvements
realized from ATG's capacity
modernization program initiated at
its Chesnee and Bishopville, South Carolina
facilities. ATG's operating income for the first
quarter of 1994 increased by $1.2 million (63.2%) as
compared to the first quarter of 1993, primarily as a
result of increased sales volume in the finished goods
division and manufacturing cost reductions. The
manufacturing cost reductions resulted principally
from completion of the Chesnee facility modernization
in the first quarter of 1994 and the transfer of
greige goods capacity from the Woodruff facility to
Chesnee. Operating income as a percentage of sales
increased to 8.4% from 5.6%.
Corporate Expenses.
Corporate expenses were $8.1 million, $8.9
million and $10.9 million in 1991, 1992 and 1993,
respectively, and represented 3.0%, 3.3% and 3.8% of
consolidated sales in such years. The
increase
in corporate expenses during the period
related primarily to increased staffing and
compensation expense necessary to support corporate
development activities. In 1993, corporate expenses
included a provision for costs related to Reeves
Industries' discontinued Buena Vista, Virginia facility
of $.5 million. Corporate expenses decreased $.2
million (9.0%) during the first quarter of 1994 as
compared to the first quarter of 1993. The decrease
resulted primarily from a gain arising
from the settlement of a pension obligation
related to a discontinued pension plan.
Goodwill Amortization and Facility
Restructuring Charges.
The Corporation recorded provisions for
goodwill amortization of $1.2 million in 1991 and $1.4
million in 1992 and 1993. In
1993,
the Corporation also recorded facility
restructuring charges of $1.0 million. The one-time
charges related primarily to the cessation of
weaving activities at Reeves Industries' Woodruff,
South Carolina facility due to declining sales to
the U.S. military, the conversion of that facility
into a captive yarn mill and consolidation of weaving
capacity at ATG's remaining facilities. Prior to
restructuring, the
Corporation conducted weaving operations at its
Woodruff, Osage and Chesnee plants. The Woodruff
facility's looms were deemed to be
technologically outdated. As part of
the
restructuring, the Corporation added an additional shift
at its Osage facility and installed 53 state-of-the-art
looms at its Chesnee facility. As
a
result,
the weaving capacity at the
Woodruff facility was eliminated.
Restructuring costs incurred consisted
primarily of: employee severance and other related
costs ($.3
million), equipment modifications, relocations and
other related costs ($.2 million) and facility
charges related
to the shutdown of the weaving operations
($.5 million). The Corporation does not expect
to incur additional costs related to this
restructuring.
Interest Expense, Net
Interest expense, net consists of
consolidated
interest expense plus amortization of financing costs
and debt discounts less interest income on investments.
Interest expense, net was $20.7 million, $17.2 million
and $16.2 million in 1991, 1992 and 1993,
respectively, and $4.1 million in each of the first
quarters of 1993 and 1994. Included in such net
amounts are provisions for the amortization of
financing costs and debt discounts totaling $1.3
million,
<PAGE>
$1.0 million and $.7 million in 1991, 1992 and
1993, respectively, and $.2 million in each of the first
quarters of 1993 and 1994. The decline in
interest expense, net during the period resulted
primarily from the repayment of bank debt, the
refinancing of Reeves Industries' long-term debt in
1992 with proceeds from the sale of the 11% Senior
Notes and
the repurchase of a portion of the outstanding
subordinated debentures.
Income Taxes
The Corporation's effective income tax rate on
income from continuing operations before income taxes
for 1991, 1992 and 1993 was 9.8%, 30.6% and
34.9%, respectively.
The
effective
income tax rate on income from continuing operations for
1991 and 1992 differed from the federal statutory rate
of 34% primarily due to the impact of goodwill
amortization and Reeves S.p.A.'s lower effective tax
rate. The higher effective income tax rate in 1992 as
compared to 1991 was primarily due to an increase in
domestic taxable income which is taxed at a higher
rate than income earned at Reeves S.p.A., a new
Italian tax affecting Reeves S.p.A.'s tax liability
and the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("FAS
109").
During 1993, the Corporation established
a $.8
million valuation reserve against its deferred tax
assets reflecting estimated utilization of foreign tax
credits. The
Corporation has foreign tax credit carryforwards of $1.9
million of which $1.7 million expire in 1994 and $.2
million expire at varying dates through 1997.
The
valuation
reserve was
established based on its estimate of foreign source
taxable income expected to be received from Reeves
S.p.A. during the foreign tax credit carryover period.
Income from Continuing Operations
Income from continuing operations was $4.2
million, $6.1 million and $8.2 million in 1991,
1992 and 1993, respectively, and $1.6 million and $2.3
million
in the first quarters of 1993 and 1994, respectively.
Income
from continuing operations excluded (i) a gain on
disposal of discontinued operations, net of taxes,
aggregating $2.8 million in 1991, (ii) an
extraordinary loss of $6.1 million in 1992 from the
write-off of
financing costs and debt discounts related to the
early extinguishment of long-term debt in the
Corporation's 1992 refinancing and (iii) a gain of $3.0
million in 1992 related to the
cumulative effect of adopting a change in
accounting
principle (FAS 109).
Liquidity and Capital Resources
Capital Expenditures
The Corporation has made substantial
capital investments in its businesses (approximately
$83 million) since 1986. Commencing in 1991, the
Corporation began significantly increasing its levels
of capital investment in its businesses in order to
modernize and expand capacity, reduce its overall cost
structure, increase productivity and enhance its
competitive position. Between 1991
and 1993, the
Corporation invested
approximately $52.1 million in aggregate ($11.0 million
in 1991, $15.8 million in 1992, $16.5 million in 1993
and $8.8 million, representing the cost of
manufacturing equipment leased under operating leases,
in 1992 and 1993).
Between 1991 and 1993, the Corporation
invested approximately $13 million in ICF's domestic
facilities in order to purchase new production
equipment, increase productivity and expand capacity
in its traditional lines of business as well as to
enter the coated automotive airbag materials market.
In addition, ICF spent approximately $12 million in
its Reeves
<PAGE>
S.p.A. facilities to construct an 80,000
square foot addition and
purchase related equipment. Such investment
increased capacity to manufacture offset printing
blankets and installed coated fabrics capacity in Europe
to meet anticipated demand for sophisticated specialty
materials. Between 1991 and 1993, the Corporation
invested approximately $24.2 million in
ATG's facilities at Chesnee and Bishopville, South
Carolina to increase productivity and manufacturing
flexibility, expand capacity for more sophisticated
fabrics and allow more rapid response to market
demand and a broader product offering. Of such $24.2
million, approximately $8.8
million represents the cost of manufacturing
equipment leased under operating leases.
The Corporation intends to substantially
increase its capital investment in its existing
businesses during the 19941997 period. In the first
quarter of 1994, the Corporation spent $5.7 million as
compared to $2.1 million in the first quarter of 1993.
The Corporation currently anticipates in
excess of $40 million of capital expenditures in
1994 and in excess of $100 million of aggregate
spending between 1995 and 1997. In 1994,
the Corporation anticipates spending approximately $17
million to construct, furnish and equip a state-of-
theart plant in
Spartanburg, South Carolina to weave automotive airbag
materials, approximately $5 million to complete the
capacity expansion of ATG's Chesnee, South Carolina
plant and
approximately $16 million to expand the capacity of
and improve productivity at ICF's worldwide coated
fabrics and offset printing blanket facilities.
Projected capital expenditures beyond 1994 are
expected to complete ATG's modernization and
expansion of its textile
capacity, expand ICF's automotive airbag materials
capacity in response to anticipated domestic and
international market requirements and enhance the
profitability and competitive position of ICF's
printing blanket and traditional coated fabrics
businesses through additional spending for cost
reductions and productivity improvements.
As a result of the nature of the
Corporation's business and
its substantial expenditures
for capital
improvements over the last several years, current
and future capital expenditure requirements are
flexible as to both timing and amount of capital
required. In the event that cash flow proves
inadequate to fund currently projected expenditures,
such expenditures can be adjusted so as not to exceed
available funds.
Liquidity
The Corporation's EBITDA (before
facility
restructuring and other charges) was $32.6 million,
$34.4 million and $39.0 million in 1991, 1992 and 1993,
respectively, and $8.4 million and $9.9 million in the
first quarters of 1993 and 1994, respectively. The
Corporation's net cash provided by operating activities
increased from $8.4 million in 1991 to $15.3 million in
1992 and $25.6 million in 1993. The improvement in net
cash provided by operating activities resulted from
higher levels of income from continuing operations and
significant improvements in working capital management.
The Corporation had a cash deficit from operations of
$(7.4) million in the first quarter of 1994 as compared
to a deficit of $(4.7) million in the first quarter of
1993, due to increased working capital requirements
necessary to support higher sales volumes.
The Corporation anticipates that it will be
able to meet its projected working capital, capital
expenditure and debt service requirements through
internally generated
funds,
borrowings available under an existing $35 million
Bank Credit Agreement, funds available through an
equipment leasing facility and if completed, a portion
of the net proceeds from the sale of the Reeves
Holdings' senior discount debentures.
In August 1992, in conjunction with the
refinancing of the Corporation's bank and
institutional indebtedness, the Corporation entered
into the Bank Credit Agreement which provides it with
an aggregate $35 million revolving line of credit and
letter of credit facility. The Bank Credit Agreement
expires on December 31, 1995 and is secured by
accounts receivable and inventories. As of April 3,
1994, the Corporation had available borrowing
<PAGE>
capacity
(net of $1.4 million of outstanding
letters of credit) of $27.9 million under the Bank
Credit Agreement.
In May 1994, the Corporation received a
commitment from an equipment lessor to finance up
to $12.0 million of capital equipment pursuant to
long-term operating leases, of which $3.1 million
was utilized in May 1994. The
Corporation believes that a substantial portion of
the balance will be utilized in 1994.
The Corporation enters into foreign
exchange forward contracts to limit risk of changes in
foreign currency exchange rates associated with
certain assets and future foreign currency
transactions, primarily cash flows from accounts
receivable and firm purchase commitments. Gains and
losses on these contracts are deferred until the
underlying hedge transaction is completed. The
cash flows from the forward contracts are
classified consistent with the cash flows from the
transactions being hedged. To the extent that they are
matched with underlying sale transactions, these
contracts do not subject the Corporation to risk from
foreign exchange rate movements, because gains and
losses on the contracts offset losses and gains
on the transactions being hedged.
At April 3, 1994, the Corporation
had foreign currency hedge contracts outstanding,
equivalent to $11.1 million to exchange various
currencies, including the U.S. dollar, Japanese yen,
pound sterling, Deutsche mark, and French franc into
Italian lire. The contracts mature during 1994. The
April 3, 1994 fair value of these foreign currency
hedge contracts was $11.2 million.
Impact Of Inflation
The Corporation does not believe that its
financial results
have been materially impacted by the effects
of
inflation.
Other Matters
In February 1992, the Corporation
received approximately $17 million from the federal
government
in payment of a tax refund. The refund resulted
from the Corporation carrying back tax operating
losses generated in 1991, primarily related to the
disposal of the ARA Automotive Group, to offset
previous years' taxable income.
In 1992, the Corporation adopted FAS 109
effective as of the beginning of1992. Under FAS
109, in the year of
adoption, previously reported results of operations for
the year are restated to reflect the effects of
applying FAS 109, and the cumulative effect of
adoption on prior years' results of operations is
shown in the income statement in the year of
change. The cumulative effect of this change in
accounting principle increased net income by $3.0
million in 1992.
Business
General
The Corporation, through its
subsidiary, Reeves Industries, is a diversified
industrial corporation with operations in two
principal business segments, industrial coated
fabrics, conducted through its Industrial Coated
Fabrics Group, and apparel textiles, conducted
through its Apparel Textile Group. In 1993,
ICF contributed approximately 49.6% of the
Corporation's net sales and approximately 73.6% of its
operating income, and ATG
<PAGE>
contributed
approximately 50.4% of the Corporation's net sales
and approximately 26.4% of its operating income (in
each case, excluding unallocable corporate expenses).
Throughout its businesses, the Corporation emphasizes
specialty products, product quality, technological
innovation and rapid responses to the changing needs
of its customers.
ICF specializes in the coating of various
substrate fabrics with a variety of products such as
synthetic rubber, vinyl, neoprene, urethane and
other elastomers, to produce a diverse line of
products for industrial applications. ICF's
principal products include: (1) a complete line of
printing blankets used in offset lithography, (2)
coated automotive airbag materials, (3) specialty
coated fabrics and (4) coated fabrics used in
industrial coverings.
The Corporation believes that ICF is
one of the world's leading producers of offset
printing blankets and that ICF has the leading share
of the domestic market for coated automotive airbag
materials. The Corporation also believes that ICF is
a leading domestic producer of specialty coated
fabrics used for a broad range of industrial
applications. ICF's products generally involve
significant amounts of technological expertise and
precise production tolerances. The Corporation
believes that ICF's product
development,
formulation and production methods are among the most
sophisticated in the coated fabrics industry.
ATG manufactures, processes and sells
specialty textile fabrics to apparel and other
manufacturers. Through its Greige Goods Division, ATG
processes raw materials into griege goods (i.e.,
undyed woven fabrics). Through its Finished Goods
Division, ATG functions as a converter and commission
finisher, purchasing greige goods (from the Griege
Goods Division and others) and contracting to have
the goods dyed and finished or dyeing and finishing
the goods itself. The dyed and finished goods are
then sold for use in a variety of end-products.
The Corporation believes that ATG has
developed strong positions in niche markets in the
apparel textile industry by offering unique, custom-
designed fabrics to leading apparel and specialty
garment manufacturers. ATG emphasizes "short-run"
product orders and targets market segments in
which its manufacturing flexibility, rapid response
time, superior service and quality and the ability to
supply exclusive blends are key competitive factors.
The Corporation's business strategy has
focused on the sale of higher-margin niche products and
the establishment of leading positions in its
principal markets. The Corporation believes that
this strategy, combined with its diverse product and
customer base,
the development of new products and
substantial capital investment, has helped the
Corporation increase its sales and profitability in spite
of adverse economic conditions in its U.S. and European
markets during 1990-1993.
Since 1991, the Corporation has
significantly
increased its level of capital investment in its
businesses
to modernize and expand capacity, reduce its overall cost
structure, increase productivity and enhance its
competitive position. The
Corporation intends to substantially increase its
capital investment in its businesses to approximately
$140 million during the 1994-1997 period. In addition,
as opportunities arise, the Corporation may seek to
augment its growth through strategic acquisitions,
joint ventures and investments in other industrial
companies where the Corporation believes that it can
apply its professional management techniques to
enhance a company's operating performance.
The following table shows the amount of total
revenue contributed by product lines which accounted for
10% or more of the Corporation's consolidated revenues
in any of the last three fiscal years.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1991 1992 1993
(in thousands)
<S> <C> <C> <C>
Industrial Coated Fabrics Group:
Specialty Materials $ 55,581 $ 61,684 $ 78,151
Graphic Arts 65,683 64,892 62,584
$121,264 $126,576 140,735
Apparel Textile Group:
Finished Goods and Dyeing and Finishing $ 74,893 $ 72,977 $ 77,416
Greige Goods 73,402 71,551 65,502
$148,295 $144,528 $142,918
</TABLE>
Industrial Coated Fabrics Group
The Industrial Coated Fabrics Group
specializes in
the coating of various substrate fabrics with a
variety of products, such as synthetic rubber, vinyl,
neoprene, urethane, and other elastomers, to produce a
diverse line of products for industrial applications.
ICF's products comprise four categories:
(1) a complete line of printing blankets used in
offset
lithography, (2) coated automotive airbag materials,
(3) specialty coated fabrics, including fluid control
diaphragm materials, tank seals, ducting materials and
coated fabric materials used for military and
commercial life rafts
and vests, aircraft escape slides, flexible fuel tanks
and general aviation products, and (4) coated fabrics
used in industrial coverings, including fabrics coated
with rubber and vinyl which are used to make tarpaulins,
loading dock shelters and other industrial products.
ICF's products require significant
amounts of technological expertise and the Corporation
believes that ICF's product development, formulation and
production methods are among the most sophisticated in
the coated fabrics industry. Since
1990, ICF has been awarded seven patents
with respect to polyurethane coatings and has eight
pending patent applications relating to printing
blankets, airbag fabric and specialty coatings.
Approximately eight other patent applications are in
process.
ICF generally manufactures specialty coated
fabrics according to a production backlog. ICF's
products, other than printing blankets and coated
automotive airbag material, involve relatively short
runs and custom manufacturing.
Printing
blankets are sold primarily to distributors and dealers.
ICF's other products are sold directly to end users and
fabricators by its direct sales force. No customer of
ICF represented 10% or more of the Corporation's
consolidated sales in 1993.
Printing Blankets
The Corporation believes that ICF is one
of the world's leading producers of printing blankets
used in offset lithography, the predominant printing
process for the commercial, financial, publication and
industrial printing markets.
Offset printing blankets are used in the
printing process to transfer a printed image from a
metal printing plate onto paper or other printing
material. ICF markets a
<PAGE>
complete line of conventional,
compressible and sticky-back blankets under the VulcanO
name. The Corporation's line includes the 714O, the
first compressible printing blanket, the 2,000O Plus, an
advanced general purpose blanket, the Vision SRTM, a
premium blanket targeted at the sheet-fed market, and
the MarathonO, a blanket targeted to the highspeed web
press market. Each blanket in the product line is
designed for a specific printing need and ICF sells an
appropriate blanket for most types of commercial,
financial, publication and industrial printing
applications.
The Corporation believes that ICF's
blankets
consistently offer high performance and quality.
This performance is due to a number of proprietary
features of the blankets, many of which are the
subject of pending patent applications. Distinctive
characteristics of ICF's blankets include unique
printing surface compounds, improved composition and
placement of compressible layers, surface buffing and
water and solventresistant back plies.
Purchasers of ICF's blankets include
commercial,
financial and industrial printers and publishers of
newspapers and magazines. ICF's blankets are sold to
over 10,000 U.S. printers and more than 15,000 foreign
printers, in 64 countries worldwide.
ICF has established a network of over 60
distributors and 125 dealers in the United States, Canada
and Latin America to market its printing blankets. In
addition, ICF is represented by a distributor in most
of the other countries in which it does business.
The Corporation's distributors typically purchase
rolls of uncut blankets from ICF and then cut, finish and
package the blankets prior to delivery to dealers
or endusers.
Internationally, ICF's relationships with distributors
tend to be long-standing and exclusive, with most
distributors dealing only in ICF's printing blankets
and ICF selling only to
such distributors in their respective
territories. Domestic distributors tend to carry
printing blankets from a number of manufacturers.
Dealers generally purchase finished blankets from
distributors for resale. ICF services all of its
customers, and its direct sales force actively
markets and promotes ICF's printing blankets.
Automotive Airbag Materials
Reeves believes that ICF has the leading
share of the domestic market for coated automotive airbag
materials. ICF is a significant supplier of such
material to TRW, Inc. ("TRW") and the Safety
Restraints
Division of AlliedSignal, Inc.
("Allied-Signal"). Allied-Signal supplies Morton
International ("Morton") with airbag components. TRW
and Morton are two of four major domestic
manufacturers of airbag systems and, together with
Allied-Signal, supply all of the domestic automobile
manufacturers and many of the European and Japanese
automobile manufacturers.
The Corporation believes that TRW and Morton account
for in excess of 50% of the worldwide market for airbag
systems.
National Highway Traffic Safety
Administration regulations currently mandate the use of
both
driver-side and passenger-side airbags for all 1998
model year passenger cars and 1999 model year light
trucks, vans and multipurpose vehicles ("LTVs"). A
phase-in `schedule establishes that at least 95% of a
manufacturer's passenger cars built on or after
September 1, 1996 for sale in the United States, must
be equipped with an airbag at the driver's and the
right front passenger's seating positions. All LTVs
built after September 1, 1997, must have some form of
automatic occupant protection, and at least 80% must
have either driver-side or driver-side and passenger-
side airbags.
Due to market demand for airbag-equipped
vehicles, automobile manufacturers have been installing
airbags (primarily driver-side) more extensively than
required by the foregoing regulations. The
Corporation expects sales of airbag systems and coated
airbag fabric to increase substantially in future
years and believes that ICF is wellpositioned to
benefit from such growth.
<PAGE>
Following the lead of the U.S.
automobile manufacturers, European and Asian
automobile manufacturers have begun installation of
automobile airbags. No legislation or regulation
presently requires the installation of airbags outside
of the United States market. Reeves S.p.A. has
sufficient capacity for production of coated airbag
material if demand develops outside of the United
States for such products.
Corporation participation in the airbag
market to date has been through the use of coated
airbag fabric in driverside applications where
coated airbag fabric offers certain advantages such
as greater thermal insulation to withstand the rapid
inflation of the airbag by means of hot gases
and impermeability to prevent the escape of gases.
Side-impact airbags (presently offered on certain
models of Volvo and Mercedes Benz) are expected to
use coated airbag fabric.
Most passenger-side airbags are currently
designed to use uncoated fabrics. Passenger-side
airbags deploy more
slowly than driver-side airbags. Consequently, they
can be manufactured at a lower cost using uncoated
fabric. The Corporation does not presently produce an
uncoated airbag fabric. Although there can be no
assurance that it will be able to do so, the
Corporation plans to participate in the growth of
passenger-side applications through an expansion
program capitalizing on its
textile expertise and research and development efforts.
As part of this program, the Corporation is
constructing an approximately
100,000 square foot facility in Spartanburg, South
Carolina for weaving both coated and uncoated airbag
fabric. The facility is expected to be operational by
the end of 1994.
Through its research and development
activities, the Corporation is continuously working to
develop new proprietary fabric technologies and
procedures for the next generation of driver-side and
passenger-side airbags. Airbag fabrics must meet
rigorous specifications, testing and certification
requirements and airbag fabric contracts tend to be
awarded several years in advance. These factors may
deter the entry of other
manufacturers into this business.
Specialty Coated Fabrics
The Corporation believes that ICF is a
leading domestic producer of specialty coated fabrics
used for a broad range of industrial applications.
ICF's specialty coated fabrics business is largely
customer or "job shop" oriented. In 1993, more than
90% of ICF's sales of
specialty coated fabrics were derived from fabrics
manufactured to meet particular customers'
specifications.
Specialty coated fabrics generally
consist of a fabric base, or substrate layer, and an
elastomer coating (i.e., coating consisting of an
elastic substance, such as rubber) which is applied to
the fabric base. The Corporation believes that ICF's
line of elastomerfabric combinations is the most
comprehensive in the industry, enabling it to design
products to satisfy its customers' needs. Fabric
bases used in ICF's specialty coated fabrics include
polyester, nylon, cotton,
fiberglass and silk. ICF's elastomers include natural
rubber, nitrile, ThiokolO, NeopreneO, silicone,
HypalonO, VitonO and polyurethane.
ICF sells its specialty coated fabrics
under the registered trademark ReevecoteO. The
Corporation believes that ICF has established a
reputation for quality and
product
innovation in specialty coated fabrics by virtue
of ICF's technological capability, advanced plant and
equipment, research and
development facilities and specialized chemists
and engineers.
ICF's specialty coated fabrics are
separated into five product lines:
<PAGE>
General Purpose Goods.
This product line includes air cells,
tank seals, gaskets, compressor valves, aerosol seals
and washers and
coated fabrics used by other manufacturers in the
production of insulation materials, soundproofing and
inflatable "lifting bags" used to jack up automobiles or
trucks.
Gas Meter Diaphragms.
ICF manufactures a line of rubber diaphragm
material for use in gas meters which are the primary
mechanisms in gas meters for controlling gas flow.
ICF's products are sold to most of the major
manufacturers of gas meters.
Synthetic Diaphragms.
The Corporation's synthetic diaphragms are
used in carburetors, controls, meters, compressors, fuel
pumps and other applications.
Specialty Products.
ICF manufactures a large number of
miscellaneous specialty coated products, including v-
cups for oil rig drills, expansion joints and
urethane specialty items, such as fuel containers,
commercial diaphragms and desiccant bags.
Military, Marine and Aerospace Products.
ICF produces coated fabrics used in
truck and equipment
covers, waterproof duffel bags, pneumatic air
mattresses, collapsible tanks for fuel and water
storage, temporary shelters, rafts, inflatable boats,
various types of safety devices, pneumatic and
electrical plane de-icers, specialty molded aircraft
parts, aerospace fuel cells, aircraft evacuation
slides, helicopter floats, surveillance balloons and
miscellaneous
items. A portion of ICF's work in this area is
performed as a subcontractor on United States
government contracts. ICF's direct sales force
sells primarily to fabricators who use ICF's
specialty coated fabrics in products sold to end-users.
Industrial Coverings Fabrics
ICF sells coated fabrics to customers that
produce a wide variety of industrial coverings,
including truck tarpaulins, trailer covers, cargo
covers, agricultural
covers, hangar curtains, industrial curtains, boat
covers, athletic field covers, temporary shelters,
semibulk containers and specialized flotation devices
used for the containment of oil spills and other
environmental pollutants. ICF's industrial coverings
fabrics are produced by the same methods as its
specialty coated fabrics and are sold under the
CoverlightO registered trademark.
The industrial coverings fabrics
business also includes coated fabric for loading dock
shelters, which are pads or bumpers placed around the
exterior of a loading dock door for weathersealing.
ICF sells to manufacturers of loading dock
shelter systems and believes it is the leading
supplier of loading dock shelter material produced
with rubber and other special elastomers.
<PAGE>
ICF's sales force sells primarily to
fabricators of industrial coverings who in turn sell
to end-users. Sales
personnel concentrate on the largest producers of
industrial coverings and loading dock shelter systems in
the United States.
Competition
ICF's competitive environment varies by
product line For graphic arts products (in which the
Corporation believes it is one of the three leading
firms), the Corporation's principal competitors are Day
International and W.R Grace To a lesser extent,
the Corporation also competes with a number of other
firms, including David M, Kinyo, Zippy, Sumitomo, DYC
and Meiji In its specialty materials product line,
except for airbag materials, the Corporation
produces numerous products and competes in a number
of highly fragmented market segments where competition
varies by product In the United States,
competition comes from Chemprene, Archer Rubber, Seaman
Corp., Cooley, Fairprene and selected foreign
suppliers
The
Corporation's coated automotive airbag materials compete
against those of Milliken and Highland Industries as
well as several other small manufacturers The
Corporation believes its share of the coated
automotive airbag materials market is in excess of 50%.
Quality, compliance with exacting product
specifications, delivery terms and price are important
factors in competing effectively in ICF's markets.
Apparel Textile Group
The Apparel Textile Group consists of two
divisions, Greige Goods and Finished Goods. ATG
concentrates on segments of the market where its
manufacturing flexibility, rapid response time,
superior service, quality and the ability to supply
customers with exclusive blends are key competitive
factors. No customer of ATG represented 10% or more
of the Corporation's consolidated sales in 1993.
ATG's Greige Goods Division processes raw
materials into undyed woven fabrics known as greige
goods. The Greige Goods Division manufactures greige
goods of synthetic fibers, wool, silk, flax and
various combinations of these fibers. Products of the
Greige Goods Division are primarily utilized for
apparel and the Greige Good Division's most significant
customers are outside converters and, to a lesser
extent, ATG's Finished Goods Division.
The Corporation believes that the
Greige Goods Division is distinguished from its
competitors by its ability to efficiently manufacture
small yardage runs, its rapid response time, the high
quality of its products and its ability to produce
samples rapidly on demand. ATG's greige goods
plants engage principally in short production runs
producing specialty fabrics requiring a variety of
blends and textures. Fabrics are produced by the
Greige Goods Division according to an order backlog and
are typically "sold ahead" three to four months in
advance. Most of the Greige Goods Division's sales
are sold under firm contracts. In
comparison to manufacturers of large volume
commodity fabrics such as print cloth, corduroy and
denim, the Greige Goods Division has been less
adversely affected in recent years by foreign imports
because of its position as a small
quantity, specialty fabric producer.
ATG's Finished Goods Division functions
as a converter and commission finisher. The Finished
Goods Division purchases greige goods from the Greige
Goods Division and other greige suppliers and either
contracts to have such goods
converted into finished fabrics of varying weights,
colors, designs and finishes or converts them itself.
The
dyed and finished fabrics are used in various end
products and sold primarily
to apparel manufacturers in the women's
wear,
rainwear/outerwear, men's/boys' wear and career apparel
markets.
<PAGE>
The Corporation believes that ATG's
Finished Goods Division is one of the most flexible
operations of its kind in the United States due to
the variety of products it can finish and the broad
range of dyeing processes and finishes it is able to
offer. The Finished Goods Division focuses on high
valueadded fabrics with unique colors and specialty
finishes. The Finished Goods Division's fabrics are
currently being used by a number of the leading men's
and women's sportswear manufacturers and its dyeing and
finishing services are sold to major domestic
converters.
A wide variety of fabrics can be woven at
the Greige Goods Division's two weaving plants. The
dyeing and finishing plant of the Finished Goods
Division is equipped to do a variety of piece dyeing,
as well as to provide specialty finishings. This
manufacturing flexibility increases ATG's ability to
respond rapidly to changes in market demand.
Substantially all of the Apparel Textile
Group's products are sold directly to customers
through its own sales force. The balance is sold
through brokers and agents.
Competition
The textile industry is highly
competitive. While
there are a number of integrated textile companies,
many larger than ATG, no single company dominates the
United States market. Competition from imported fabrics
and garments continues to be a significant factor
adversely affecting much of the domestic textile
industry. Because of the nature of ATG's markets, the
Corporation believes it is less susceptible to foreign
imports than the industry as a whole and is more
insulated from the risk of foreign imports than high-
volume commodity producers. The most important factors
in competing effectively in ATG's product markets are
service, price, quality, styling, texture, pattern
design and color. ATG seeks to maintain its market
position in the industry through a high degree of
manufacturing flexibility, product quality and
competitive pricing policies.
The Greige Goods Division distinguishes
itself from its competitors by its ability to
manufacture runs as small as 40,000 square yards, its
rapid response time and the high quality of the
products manufactured. The Greige Goods
Division has extensive proprietary technical knowledge
in
the structure of its spinning and weaving operations,
which the Corporation believes represents a significant
competitive advantage.
The Finished Goods Division is capable of
finishing a wide variety of products and offers a
broad range of dyeing processes and finishes. This
manufacturing flexibility increases the Finished Goods
Division's ability to respond rapidly to changes in
market demand, which the Corporation believes enhances
its competitive position.
Raw Materials, Manufacturers and Suppliers
The principal raw materials used by ICF
include polymeric resins, natural and synthetic
elastomers, organic and inorganic
pigments, aromatic and
aliphatic solvents,
polyurethanes, polyaramids and calendered
fabrics.
ATG
principally utilizes wool, flax, specialty yarn, man-
made fibers, including acrylics, polyesters, acetates,
rayon and nylon and a wide variety of dyes and
chemicals. Such raw materials are largely purchased
in domestic markets and are available from a variety
of sources. The Corporation is not presently
experiencing any difficulty
in obtaining raw materials. However, the Corporation
has from time to time
experienced difficulty in obtaining the substrate
fabric that it uses to produce coated automotive
airbag materials. The Corporation anticipates that
the completion of its new weaving facility in
Spartanburg, South Carolina may reduce the risk of
such supply shortages. Airbag fabric produced by the
new facility will be subject to rigorous testing and
certification before it will be available for
production.
<PAGE>
Foreign Operations
All of Reeves' foreign operations are
conducted through Reeves S.p.A., a wholly-owned
subsidiary located in Lodi Vecchio, Italy. Reeves
S.p.A. forms a part of Reeves' ICF Group. The financial
data of Reeves S.p.A. is as follows:
<TABLE>
<CAPTION>
1991 1992 1993
(in thousands)
<S> <C> <C> <C>
Sales $ 35,437 $ 38,444 $ 36,932
Net income 6,808 9,165 7,446
Assets 33,011 31,608 33,092
</TABLE>
The financial results of Reeves S.p.A. do not
include any allocations of corporate expenses or
consolidated interest
expense.
Backlog
The following is a comparison of open order
backlogs at December 31 of each year presented:
<TABLE>
<CAPTION>
1991 1992 1993
(in thousands)
<S> <C> <C> <C>
Industrial Coated Fabrics Group $ 16,942 $ 16,824 $ 17,072
Apparel Textile Group 47,129 32,994 39,390
Totals $ 64,071 $ 49,818 $ 56,462
</TABLE>
The increase in ICF's backlog from 1992 to
1993 is due to growth in the coated automotive airbag
materials business. The decrease in the Apparel Textile
Group backlog from 1991 to
1992 was the result of a decrease in military sales, which
were unusually strong in 1991 as a result of Operation
Desert Storm and reduced orders due to market uncertainty.
The increase in
the ATG backlog from 1992 to 1993 is due to the addition
of several new customers in the Finished Goods Division.
The backlog as of December 31, 1993 for
the Industrial Coated Fabrics Group and the Apparel Textile
Group is reasonably expected to be filled in 1994.
Under certain circumstances, orders may be canceled at
the Corporation's discretion prior to the commencement
of manufacturing. Any significant decrease in backlog
resulting from lost customers could adversely affect
future operations if these customers are not replaced in a
timely manner.
Environmental Matters
The Corporation is subject to a number of
federal, state and local laws and regulations pertaining to
air emissions, water discharges, waste handling and disposal,
workplace exposure and release of
chemicals. During 1993, expenditures in
connection with the Corporation's compliance with federal,
state and local environmental laws and regulations
<PAGE>
did
not have a material adverse effect on its earnings, capital
expenditures or competitive position. Although the
Corporation cannot predict what laws, regulations and
policies may be adopted in the future, based on current
regulatory standards, the Corporation does not expect such
expenditures to have a material adverse effect on its
operations.
Employees
On April 3, 1994, the Corporation
employed
approximately 2,273 people, of whom 1,829 were in production,
188 were in general and administrative functions, 53 were
in sales and 203 were at Reeves S.p.A. At
such date, ICF had
approximately 848 employees and ATG had approximately
1,371 employees, with the remainder of the Corporation's
employees in general and administrative positions.
Properties
The Corporation's principal facilities, their primary
functions and their locations are as follows:
<TABLE>
<CAPTION>
Location Function Owned Leased
Size(Sq. Ft.)
Manufacturing Facilities
Industrial Coated Fabrics Group
<S> <C> <C> <C>
Rutherfordton, NC Specialty Materials 215,000
Spartanburg, SC Graphic Arts 308,364
Lodi Vecchio, Italy Graphic Arts and
Specialty Materials 160,000 4,900
Subtotal 683,364 4,900
Apparel Textile Group
Woodruff, SC Greige Goods 368,587
Chesnee, SC Greige Goods 303,100
Bessemer City, NC Greige Goods 218,992
Bishopville, SC Finished Goods 226,684 2,400
Bishopville, SC Warehouse 72,650
Subtotal 1,117,363 75,050
Total Manufacturing Facilities 1,800,727 79,950
Non-Manufacturing Facilities
New York, NY Administrative and Sales 12,000
Spartanburg, SC Administrative and Sales 43,000
Darien, CT Administrative 6,800
Total Manufacturing Facilities 43,000 18,800
TOTAL 1,843,727 98,750
</TABLE>
The Corporation is a party to facility leases
with terms ranging from month-to-month to fifteen years,
with rental expense aggregating $.5 million for the
twelve months ended December 31, 1993. The Corporation
believes that all of its facilities are suitable and
adequate for the current conduct of its operations.
<PAGE>
Legal Proceedings
The Corporation believes that there are no
legal proceedings, other than ordinary routine litigation
incidental to the business of the Corporation, to which the
Corporation or any of its subsidiaries are a party.
Management is of the opinion that the ultimate outcome of
existing legal proceedings would not have a material adverse
effect on the Corporation's consolidated financial position
or results of operations.
Market and Dividend Information
The Existing Shares consist of the
Corporation's Common Stock, par value $.01 per share.
SUCCESSFUL COMPLETION OF THE REVERSE STOCK SPLIT IS
EXPECTED TO RESULT IN THE DEREGISTRATION OF THE NEW
COMMON STOCK UNDER
THE EXCHANGE ACT AND THE NEW COMMON STOCK NOT BEING ELIGIBLE
FOR QUOTATION ON NASDAQ NOR LISTING ON ANY SECURITIES
EXCHANGE. The Corporation's Existing
Shares are traded over-the-counter.
The range of high and low bid prices of the
Existing Shares for each quarterly period during the last two
fiscal years as supplied by the National Quotation Bureau,
Inc. is set forth below. These over-the-counter market
quotations represent interdealer prices, without retail
markup, mark-down or commission and may not represent
actual transactions.
<TABLE>
<CAPTION>
Fiscal Year Ended High Low
<S> <C> <C>
December 31, 1992
First Quarter 2 1/2 2 1/2
Second Quarter 2 1/2 2 1/2
Third Quarter 2 3/4 2 1/2
Fourth Quarter 3 1/4 1
December 31, 1993
First Quarter 1 1
Second Quarter 1 1/2 1
Third Quarter 1 1
Fourth Quarter 1 1
December 31, 1994
First Quarter 1 1
</TABLE>
On April 14, 1994, the last trading day
prior to the announcement of the entry by the Court of
Chancery of an order approving the Settlement, the
high and low bid price of the Existing Shares of the
Corporation was $1.00. At March 30, 1994, there were
12,895,100 Existing Shares outstanding held by
approximately 2,005 holders of record.
Although there are no contractual
restrictions on the Corporation's ability to pay
dividends, as a practical matter, such ability is
limited as a result of significant restrictions on the
ability of Reeves Holdings, Reeves Industries and Reeves
Brothers to pay dividends or make advances or
distributions to their stockholders, including the
Corporation, pursuant to the terms of the loan
agreements and the indentures covering existing public
indebtedness. The Corporation has not paid dividends
since 1958.
Financial Information
The Corporation hereby incorporates by
reference the information on industry segments
contained in Part 1, Item 1, pages 1 through 6 of
the portions of the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992
which are attached hereto as an Exhibit (the "1992 10-
K"), the information on foreign operations contained in
Part 1, Item 1, pages 5 and 6 of the 1992 10-K, the
Selected Financial Data contained in Part II, Item 6,
pages 7 through 9 of the 1992 10-K, the Financial
Statements and notes thereto contained in Part II, Item
8, following page 19 of the 1992 10-K, the report
of independent accountants thereon contained in Part
II, Item 8, page 19 of the 1992 10-K, the
Management's Discussion and Analysis of Financial
Condition and
Results of Operations contained in Part II, Item 7,
pages
10 through 16 of the 1992 10K, the information on
industry segments contained in Part I, Item 1, pages 3
through 12 of the Corporation's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993 (the
"1993 10K"), the information on foreign operations
contained in Part I, Item 1, page 11 of the 1993 10-
K, the Selected Financial Data contained in Part II,
Item 6, pages 15 through 17 of the 1993 10K, the
Financial Statements and the notes thereto contained in
Part II, Item 8, pages 23 through 43 of the 1993 10-K,
the report of independent accountants thereon contained
in Part II, Item 8, page 22 of the 1993 10-K, the
Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in
Item 7, pages 17 through 21 of the 1993 10-K, the
financial information
contained in Part I, Item 1, pages 3
through 11 of the Corporation's Quarterly Report on Form
10Q for the quarterly period ended April 3, 1994 (the
"April 10Q") and the Management's Discussion and
Analysis of Financial Condition and Results of
Operations contained in Part I, Item 2, pages 12
through 15 of the April 10-Q.
Board of Directors, Executive Officers,
and Principal Stockholders
The following table sets forth certain
information, as of April 3, 1994 known to the
Corporation regarding the directors, executive
officers
and principal stockholders of the Corporation and
their beneficial ownership of Existing Shares. Each
person set forth in the table below is a United
States citizen. The business address of each of Mr.
Augustus I. duPont,
Ms. Jennifer H. Fray and Messrs. Douglas B. Hart,
James W. Hart, James W. Hart, Jr., Steven W. Hart and
Joseph P. O'Brien is c/o Hart Holding Company
Incorporated, 1120 Boston Post Road, Darien,
Connecticut 06820. The business address of Anthony L.
Cartagine is 104 West 40th
Street, New York, New York 10018. The business address of each
of Messrs. V. William Lenoci and Patrick M. Walsh is c/o Reeves
Industries, Inc., Highway 29 South, P.O. Box 1898, Spartanburg,
South Carolina 29304.
The directors, executive officers and principal
stockholders and information with respect to the occupation and
employment during the last five years of such persons, as
applicable, are set forth below:
<TABLE>
<CAPTION>
Name Position Age as of Amount Of Percentage
January 1, 1993 Beneficial Common Stock
Ownership of
Common Stock
<S> <C> <C> <C>
Anthony L. Cartagine Vice President of 59 1,000 0%
Reeves Industries
and Reeves;
President-Apparel
Textile Group of
Reeves
Augustus I. duPont Vice President and 42 0 0%
General Counsel of
Reeves Industries
and Reeves
Jennifer H. Fray Secretary and General
Counsel 29 0 0%
of the Corporation;
Secretary
and Assistant General
Counsel of Reeves
Industries and Reeves
Douglas B. Hart Senior Vice 31 0 0%
President-Operations
of Reeves Industries
and Reeves
James W. Hart(1)(2) Director, Chairman 60 13,623,507 94.6%
of the Board, President,
Chief Executive Officer,
Chief Operating Officer
and Chief Financial
Officer of the
Corporation; Chairman
of the Board and
Director of Reeves
Industries and Reeves
James W. Hart, Jr.(3) President, Chief 40 60,300 0.5%
Executive Officer and
Chief Operating Officer
of Reeves Industries
and Reeves
Steven W. Hart(4) Executive Vice President,37 240,300 1.9%
Chief Financial Officer
and Treasurer of Reeves
Industries and Reeves
V. William Lenoci Vice President of 58 5,000 0%
Reeves Industries
and Reeves; President
and Chief Executive
OfficerIndustrial
Coated Fabrics Group
of Reeves
Joseph P. O'Brien Vice President- 53 0 0%
Finance of Reeves
Industries and Reeves
Richard A. Vollmer Director of the 66 0 0%
Corporation
Patrick M. Walsh Vice President- 53 0 0%
Administration of
Reeves Industries
and Reeves
All Officers and 13,930,107 95%
Directors as a Group
(12 persons) (1)
</TABLE>
______________
[FN]
(1) As of April 3, 1994, James W. Hart is the beneficial
owner of 13,623,507 shares of Common Stock
(approximately 95%) of which (i) 12,123,507 shares are
owned directly, and (ii) 1,500,000 shares are subject to
a presently exercisable option (the "Hart Holding
Option") issued in November 1993. The Hart Holding
Option expires on December 31, 2028 and provides for the
issuance of up to 4,000,000 shares upon exercise of
options as follows: 1,500,000 immediately exercisable at
$2.25 per share; 1,500,000 exercisable one year from
grant date at $2.50 per share; and 1,000,000 exercisable
two years from grant date at $2.75 per share. James W.
Hart may be deemed the controlling person of the
Corporation.
[/FN]
[FN]
(2) On January 26, 1994, James W. Hart was granted an
option to purchase up to 3,800,000 shares of common
stock of Reeves Industries, which has an expiration date
of December 31, 2023. The option is exercisable at $.56
per share for 1,400,000 shares (exercisable
immediately), $.75 per share for 1,400,000 shares
(exercisable one year from grant date) and $1.00 per
share for 1,000,000 shares (exercisable two years from
grant date).
[/FN]
[FN]
(3) As of April 3, 1994, James W. Hart, Jr. is the
beneficial owner of 60,300 shares of Common Stock
(representing less than 1% of such outstanding Common
Stock), of which 300 shares are owned directly and the
balance is subject to a presently exercisable option.
[/FN]
[FN]
(4) As of April 3, 1994, Steven W. Hart is the
beneficial owner of 240,300 shares of Common Stock
(1.9%) of which 180,300 shares are owned directly and
the balance is subject to a presently exercisable
option.
[/FN]
Mr. Cartagine has been with Reeves
Brothers since 1964. He was named President - Greige
Goods Division of the Apparel Textile Group in
1984 and President of the Apparel Textile Group in
1986. He was named Vice President of Reeves
Industries and Reeves in 1988.
Mr. duPont joined Reeves Industries and
Reeves in May 1994 as Vice President and General
Counsel. From 1987 to 1992, Mr. duPont served as
Vice President, General Counsel and
Secretary of Sprague Technologies, Inc. ("STI"), a
manufacturer of electronic components, and during 1993
he served as Vice President, General Counsel and
Secretary of American Annuity Group, Inc., an
insurance holding company and successor by merger to
STI.
Ms. Fray joined the Corporation,
Reeves
Industries and Reeves in September 1992 as Assistant
General Counsel. In 1992, she was named Secretary of
the Corporation,
Reeves Industries and Reeves. In June 1994, she
was named General Counsel of the Corporation. From
1990 to 1992, Ms.
Fray was engaged in studies leading to a Master
of Laws Degree in Taxation from Boston University,
from 1990 to 1991 she was employed as a Tax Associate
at Coopers & Lybrand, certified public accountants
in Boston, Massachusetts
and
from 1987 to 1990 she was engaged in studies
leading to a Juris Doctor Degree from Suffolk
University.
Mr. Douglas B. Hart served as a Director
of Reeves Industries and Reeves from 1991 to 1992.
He was named Vice President - Real Estate in 1989,
Senior Vice President in 1991 an Senior Vice President
- - Operations in 1992 of Reeves Industries and Reeves.
Mr. Hart served
as a Director of the Corporation from 1991 to 1992,
as Vice President - Real Estate of the Corporation
from 1988 to 1991 and as Senior Vice President of the
Corporation from 1991 to 1992. In 1992, Mr. Hart
became President, Chief Executive Officer and Chief
Operating Officer of Hart Investment Properties
Corporation, a
whollyowned
diversified corporate investment entity of the
Corporation, with current holdings in real
<PAGE>
estate.
Prior to 1989, Mr. Hart was Assistant Vice President
at Sentinel Real Estate Corporation in New York, an
owner/developer of malls, shopping centers, office
buildings and single family residential communities
throughout the United States.
Mr. James W. Hart has been Director
of Reeves Industries and Reeves since 1986 and became
Chairman of the Board in 1987. Mr. Hart served as
President and Chief Executive Officer of Reeves
Industries and Reeves from 1988 until 1992. Mr.
Hart
has been a Director, President, Chief Executive
Officer, and Chairman of the Board of the Corporation
since 1975 and became Chief Operating Officer and
Chief Financial Officer of the Corporation in 1992.
Mr. James W. Hart, Jr. served as a Director
of Reeves Industries and Reeves from 1986 to 1992. Mr.
Hart became Vice President of Reeves Industries and
Reeves in 1987 and was named Senior Vice President -
Operations in 1988 and Executive Vice President and
Chief Operating Officer in 1989. In 1992, he was named
President, Chief Executive Officer and Chief
Operating Officer of Reeves Industries and Reeves. Mr.
Hart served as a Director of the Corporation from 1984
to 1992. He served as Vice President of the
Corporation from 1984 to 1992, Senior Vice President -
Operations of the Corporation from 1988 to 1992 and as
Executive Vice President and Chief Operating Officer of
the Corporation from 1989 to 1992.
Mr. Steven W. Hart served as a Director
of Reeves Industries and Reeves from 1986 to 1992. He
became Vice President of Reeves Industries and Reeves in
1987 and was named Senior Vice President and Chief
Financial Officer in 1988, Executive Vice President
and Chief Financial Officer in 1989 and Treasurer in
1994. Mr. Hart served as a Director, Treasurer and
Chief Financial Officer of the Corporation from 1984 to
1988, Senior Vice President of the Corporation from 1988
to 1989 and Executive Vice President of the Corporation
from 1989 to 1992. Mr. Hart
joined the Corporation in 1983 as Vice President
Strategic Planning.
Mr. Lenoci has been with Reeves since 1967.
He was named President - Industrial Coated Fabrics
Group in 1986 and Vice President of Reeves Industries
and Reeves in 1988. In 1990 he became Chief
Executive Officer of the Industrial Coated Fabrics
Group.
Mr. O'Brien joined Reeves Industries and Reeves
in 1993 as Vice President - Finance. From 1980 to 1993, Mr.
O'Brien served as Vice President - Finance of Howmet
Corporation,
an
integrated manufacturer of components for gas turbine jet
engines and aircraft structural parts.
Mr. Richard A. Vollmer has been a Director of
the Corporation since 1983. Mr. Vollmer served as a
Director of
Reeves Industries and Reeves from 1987 to 1989. From 1989
to 1992, Mr. Vollmer served as Director - Financial
Planning of Reeves Industries and Reeves. In 1992, Mr.
Vollmer retired from Reeves Industries and Reeves. Prior to
1989, Mr.
Vollmer was an
independent financial consultant.
Mr. Walsh has been with Reeves since 1987,
as Director of Human Resources. IN 1990, he was
elected Vice President - Administration of Reeves and,
in
1993, Vice President - Administration of Reeves Industries.
Mr. James W. Hart is the father of Ms. Fray
and Messrs. Douglas B. Hart, James W. Hart, Jr. and Steven W.
Hart.
Directors of the Corporation are elected at
each annual meeting of the stockholders. The term of office
of each director is from the time of his election and
qualification until the next annual meeting of stockholders
and until his successor shall have been duly elected and
qualified, unless such director shall have earlier been
removed. Executive officers serve at the discretion of the
Boards of Directors of the Corporation, Reeves Industries
and Reeves, as applicable.
One of the two directors is an officer of
the Corporation and beneficially owns approximately 95%
of the Existing Shares. One director recently retired as an
officer of
Reeves Industries and Reeves and such director does not own
any Existing Shares.
Additional Information
The Corporation is subject to the
informational requirements of the Exchange Act and in
accordance therewith files periodic and current reports and
other information with the Commission. The Corporation has
filed a Schedule 13E-3 with the Commission in connection
with the proposed Reverse Stock Split and a Schedule 13E4
with the Commission in connection with Purchase Offer.
This Information Statement does not contain all of the
information set forth in the Schedule 13E-3 and the Schedule
13E4, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission.
The Schedule 13E-3, including exhibits, Schedule 13E-4,
including exhibits, and other filings made by the
Corporation as described above, may be inspected without
charge, and copies may
be
obtained at prescribed rates, at the public reference
facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; 14th
Floor, 75 Park Place, New York 10007; and 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such
materials can also be obtained by mail, upon payment of the
Commission's prescribed rates, from the Commission's Public
Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549.
By Order of the Board of
Directors
James W. Hart
Chairman
--
--
IN THE COURT OF CHANCERY OF THE STATE OF
DELAWARE IN AND FOR NEW CASTLE
COUNTY
CLARE LOIS SPARK LOEB and
ROCHELLE BROOKS,
Plaintiffs, C.A.
No. 12830
CONSOLIDATED v.
JAMES W. HART, RICHARD A.
VOLLMER and HART HOLDING
COMPANY INCORPORATED,
Defendants.
STIPULATION AND
AGREEMENT OF
COMPROMISE AND
SETTLEMENT
The parties to the above-captioned action
(the "Action"), by and through their respective attorneys,
propose the following Stipulation and Agreement of
Compromise and Settlement ("the Stipulation"
and/or "the Settlement") for the
Court's approval.
WHEREAS:
A. On or about December 18,
1992, Hart Holding Company, Incorporated
("HHCI" or "the
Company") announced its intention to effect a 300 to
one reverse stock split of its common stock in which
each fractional share would be repurchased by the
Company at the rate of $0.50 per pre-split share (the
"Reverse Split").
B. Two separate lawsuits entitled Clare
Lois
Spark
Loeb v. James W. Hart, et at., C.A. No. 12830, and
Rochelle
Brooks v. James W. Hart. et at., C.A. No. 12831, were
filed in the Court of Chancery of the State of Delaware,
in and
for New Castle County (the "Court of Chancery"),
challenging the proposed Reverse Split on behalf of a
putative class consisting of all the Company's common
stockholders other than the defendants and
officers and directors of the Company or subsidiaries
of the Company. The cases were consolidated by
Order signed by the
Court on January 21, 1994.
C. The complaints in the Action alleged
that the defendants breached their fiduciary duty
of fair dealing in structuring the Reverse Split in
the
following
respects: no independent investment advisors, financial
analysts or attorneys were retained to represent the
interests of
the Class in connection with the transaction;
no independent committee of HHCI's directors was
appointed to consider or negotiate the terms of the Reverse
Split on
behalf of the Class; the Reverse Split was not subject
to a vote of a majority of the members of the Class;
and the option to purchase additional pre-split shares
to round up to whole shares of
post-split stock is illusory. The complaints also
allege that the cash consideration to be paid by the
Company for fractional shares is unfairly low.
D. Defendants have denied and continue to
deny
all
material allegations of the complaints and assert that
the claims alleged therein are without merit, that
they have meritorious defenses to the claims, that their
conduct has at all times been legal and proper and
that judgment should be entered dismissing the
complaints.
E. In January 1993, the parties
commenced
settlement negotiations. After further review of
documents, exchanges of
information, and numerous
meetings,
correspondence and communications between and
among representatives of plaintiffs, their investment
advisors, and defendants, the parties, in May of 1993,
reached an agreement in
principle to resolve the action, subject to the
completion of discovery and the preparation of this
Stipulation and other required papers. The material
terms of the proposed settlement were incorporated in a
Memorandum of
Understanding (the "MOU"), dated May 6, 1993.
F. Plaintiffs' attorneys have
investigated the
facts and circumstances involved in this litigation
and the
law applicable thereto, and have concluded discovery,
including the inspection of records, documents and
papers which the defendants produced in response to
the plaintiffs' request for production, and an
interview of defendants' counsel.
G. Based upon their review and analysis
of the facts and circumstances relating to the claims
asserted in the Action, the plaintiffs and their
attorneys have agreed to settle the Action upon the
terms and conditions hereinafter set forth, after taking
into account:
(i) the benefit that the
Company's
common stockholders will receive
from the Settlement;
(ii) the risks and delays of
continued
litigation; and,
(iii) the conclusion reached
by plaintiffs and their attorneys
that the settlement upon the terms
and provisions set forth herein
is
fair, reasonable, adequate and in
the best interests
of both those stockholders who
receive
cash for fractional shares and
those stockholders who
remain as
stockholders of the Company after
the Reverse Split.
H. Although denying any wrongdoing
whatsoever
and believing that the Action is without merit, the
defendants consider that it is nevertheless desirable that
the Action be settled in the manner and upon the
terms and conditions hereinafter set forth in order
to avoid the expense, inconvenience, burden and
distraction of further legal proceedings.
NOW, THEREFORE, without admission of any
liability or wrongdoing whatsoever by defendants, it is
hereby STIPULATED AND AGREED, between and among
plaintiffs and defendants, by their respective
attorneys, after extensive arm's-length negotiations,
that the Action and any and all claims which plaintiffs
and all members of the Class as hereinafter defined, or
any of them, ever had, now have or hereafter can,
shall or may have, whether individually,
representatively, or in any other capacity, by
reason of or arising out of or relating to or in
connection with any of the facts, matters,
transactions, actions or conduct, actual or purported,
alleged or which could have been alleged in the
complaints or which were or could have been alleged in
the Court or in any other forum based upon the
allegations in the complaints, or which were or could
have been alleged relating in any manner whatsoever to
the Reverse Split other than any claim for breach of
the Stipulation (the "Settled Claims"), shall be
dismissed, discharged and released on the merits
and with prejudice with respect to each and every
defendant named in the Action, and each of their
present or former respective officers, directors,
employees, agents, advisors, attorneys, investment
bankers, financial advisors, representatives,
predecessors, affiliates, parents and
subsidiaries, and the successors, heirs, administrators,
executors and assigns of any of the foregoing (the
"Discharged Parties"), subject to the Court's approval and
subject to the following terms and conditions:
1. Subject to the approval of the Court, for
the purpose of settlement:
(a) the Action shall be maintained
as a class action pursuant to
Court of Chancery Rules
23(a), (b)(l) and (b)(2);
(b) plaintiffs shall serve
as representatives of a class
consisting of all persons who held
the Company's common stock on or
after December 18, 1992, other than
the
defendants and officers and
directors of the Company
or subsidiaries of the Company
(the "Class"); and
(c) plaintiffs' attorneys shall
be Class counsel.
2. The Reverse Split proposal will be amended
(the "Amended Reverse Split") to (i) increase the reverse
split ratio from 300 to one to 600 to one; (ii) increase
the consideration to be paid for fractional shares to
$2.25 per pre-split share; (iii) permit any stockholder
of the Company to purchase such number of
additional pre-split shares (on a first come, first
served basis limited in the aggregate to the total number
of shares that will be converted into the right to
receive $2.25), at $2.25 per such share, sufficient to
make that person's direct or indirect stock holding as
of the date of announcement of the Settlement in the
aggregate evenly divisible by 600; and (iv)
provide the opportunity for
stockholders who continue to hold whole shares of common
stock after the split is effected to receive $2.25 for
each pre-split share if they prefer to receive cash in
lieu of the whole shares of post-split common stock.
3. Counsel for the plaintiffs shall have
the
right
to review and reasonably comment upon the proxy or
information statement that HHCI distributes to its
stockholders in connection with the Amended Reverse
Split.
4. As soon as practicable after the
execution
of
this Stipulation, the parties shall jointly apply to
the Court for approval of the Stipulation and the terms
of the Settlement, and for entry of an order (the
"Hearing Order") scheduling a hearing on the proposed
Settlement and the request by plaintiffs' counsel for an
award of fees and expenses (the "Hearing").
The Hearing Order will certify the Action as a class
action for purposes of
settlement and provide that notice of the proposed
settlement and fee and expense requests in a form
approved by the Court (the "Notice") be sent to all
common stockholders of record of HHCI on December 18,
1992 or at any time thereafter up to and including all
common stockholders of record of HHCI on a date which is
five days prior to the date of the Hearing Order.
HHCI shall be responsible for the printing and mailing
of the Notice, the costs of which shall be paid by HHCI.
5. If the Settlement (including any
modification
made thereto with the consent of the parties as
provide or herein) shall be approved by the Court
following the Hearing, the
parties shall jointly request the Court to enter an
Order and Final Judgment, in substantially the form
attached hereto as Exhibit A.
6. The Settlement shall become effective
only
upon
satisfaction of each and all of the following conditions,
unless one or more such conditions is waived or modified
in writing by plaintiffs' counsel and counsel for
defendants:
(a) execution of this
Stipulation of Settlement by
counsel to all the parties to the
Action;
(b) entry of the Hearing Order;
(c) entry of a judgment
substantially in the form
annexed hereto as Exhibit A; and,
(d) the judgment referred
to in paragraph 5 of this
Stipulation shall have become a
Final Judgment,
as defined in paragraph 7.
7. For the purpose of this Stipulation,
a Final
Judgment means a Judgment that has become final in
that, by virtue of its affirmance by a Court of last
resort, or by lapse of time to seek review by
any higher
Court, or
otherwise (including, without limitation, no person's
having a right to appeal), it is no longer subject to
direct appeal or direct review.
8. If the Court approves the terms
of
this
Stipulation, plaintiffs' counsel will apply to the Court
for an award of counsel fees not to exceed $75,000
and of expenses actually and reasonably incurred in
connection with the Action not to exceed
$5,000, all to be paid by the Company. The
defendants will take no position either for or
against such application; provided, however, that no
other application be made to the Court by any member
of the Class or attorney or representative for any
member of the Class for an award of additional
attorneys' fees and/or expenses. The application will be
made, at the option of plaintiffs' counsel, at or
subsequent to the Hearing. Within three business days
after the Order and
Final Judgment becomes a Final Judgment, within the meaning
of paragraph 7, the defendants shall pay to Rosenthal,
Monhait,
Gross & Goddess, P.A. such fees and expenses as the
Court allows to plaintiffs' counsel. Payment made in
accordance with this paragraph will satisfy any and all
claims against defendants in the Action for attorneys'
fees and expenses. If for any reason, the Order and
Final Judgment does not become a Final Judgment within
the meaning of paragraph 7, defendants shall have no
obligation to pay plaintiffs' counsel fees or expenses.
9. In the event that (a) the Court
declines to
enter the Order and Final Judgment or any part
thereof as provided for in paragraph 5 and any of the
parties hereto fails to consent to the entry of another
form of order in lieu thereof; (b) the Court
disapproves this Stipulation, including
any amendments hereto, and its
disapproval becomes a Final Judgment; (c) the
Court approves this
Stipulation but such
judgment of approval is finally reversed on appeal; or (d)
the Stipulation and the Settlement shall not become
effective for any reason whatsoever, this Stipulation
and the Judgment to be entered
pursuant to paragraph 5 shall be of
no force or effect and the Settlement shall be null
and
void, except that no one shall be liable to
reimburse defendants for any costs incurred pursuant to
paragraph 4.
10. Defendants have denied and continue
to
deny
that they have committed or have threatened to
commit any violations of law or breaches of duty owed to
plaintiffs or the members of the Class or to HHCI.
Defendants are entering
into the Stipulation to prevent the distraction, burden,
and
expense of further litigation and to eliminate
uncertainty regarding the Reverse Split, which result they
believe to be in the best interest of HHCI, and all of
its stockholders.
11. It is expressly understood and agreed
that
this
Stipulation and any negotiations, papers, and proceedings
related
to it are not, and shall not, be construed as or deemed
to be, evidence, an admission or a concession (i) by, or
on the part of, any of the defendants of any liability
or wrongdoing whatsoever, and defendants expressly deny
and disclaim any such liability or wrongdoing, or (ii)
by, or on the part of the plaintiffs of any lack of
merit in the Action. Neither the Stipulation, nor the
fact of its existence, nor any of its provisions or
terms, nor any negotiations or proceedings in pursuance
of the compromise and settlement herein shall be
offered or received in evidence, or in any way referred
to, in any action or proceeding in any court,
administrative agency, or other tribunal for any purpose
whatsoever except to enforce the terms and provisions
of this Stipulation or any orders or judgments entered
pursuant hereto.
12. With or without further Order of the
Court,
the parties may agree to reasonable extensions of time
to carry out any of the provisions of this Stipulation.
The Stipulation may be amended or any of its provisions
waived by a writing signed by the signatories hereto,
subject to the approval of the Court.
ROSENTHAL, MONTIAIT,
GROSS & GODDESS, P.A.
By:
First Federal
Plaza, Suite 214
P.O. Box 1070
Wilmington, DE
198991070
(302)656-4433
Attorneys for
Plaintiffs
OF COUNSEL:
Daniel Berger, Esquire
BERNSTEIN LITOWITZ BERGER & GROSSMAN
1285 Avenue of the Americas
New York, NY 10019
ASHBY & GEDDES
By:
Stephen E.
Jenkins
One Rodney
Square P.O.
Box 1150
Wilmington,
DE 19899
(302)6541888
Counsel for
Defendants
OF COUNSEL:
CADWALADER, WICKERSHAM & TAFT
100 Maiden Lane
New York, NY 10038
DATED: January 28, 1994
--
--
IN THE COURT OF CHANCERY OF THE STATE OF
DELAWARE IN AND FOR NEW CASTLE
COUNTY
- --------------------------------x
IN RE HART HOLDING COMPANY :
Consolidated Civil
SHAREHOLDERS LITIGATION : Action
No.
12830
- --------------------------------x
Affidavit of Arthur S. Ainsberg
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
Arthur S. Ainsberg, duly sworn according to
law, hereby deposes and says:
1. I am a partner in the firm of Richard A.
Eisner
& Company, C.P.A.s, in the litigation support department ,
with specific expertise and responsibilities in business
valuations, damage analyses, corporate finance
activities and forensic accounting matters. I have a
twenty-five year accounting and finance background.
Following the receipt of my CPA certificate in 1971, I have
held significant accounting/financial positions culminating
in my being named the Chief Financial Officer of two
investment banking organizations, Odyssey Partners and
Marcus Schloss & Company. My role at these
organizations involved significant corporate finance duties.
In addition, I have been retained in over 30 matters
during the past seven years as an expert consultant and/or
witness concerning the valuation aspects of significant
publicly announced corporate merger transactions. My resume
is attached hereto as Exhibit 1.
2. I have been retained by Plaintiffs'
Counsel in
this matter to express my opinion on the fairness of the
proposal by Hart Holding Company Inc. ("Hart") to undertake
a 1-for-600 reverse stock split which will result in
the repurchase of fractional shares at $2.25 per pre-split
share. In connection with the preparation of this
affidavit I have looked at the
following documents:
. Certain public filings by Hart:
. 10-K for the year ended December
31,
1991.
. 10-Q for the quarter ended September
27,
1992.
. Preliminary schedule 13E-3, in
connection
with the proposed stock split,
dated December 15, 1992.
. 10-Q for the quarter ended September
26,
1993.
. 10-K for the year ended December
31,
1993.
. Certain public filings by Reeves
Industries,
Inc. ("Reeves"), the principal
operating subsidiary of Hart:
. 10-K for the year ended December
31,
1991.
. Prospectus dated May 29, 1992.
. 10-Q for the quarter ended June 28,
1992.
. 10-Q for the quarter ended September
27,
1992.
. 8-K, in connection with the
repurchase of
Reeves shares from Drexel Burnham
Lambert and affiliates, dated
November 10, 1992.
. 10-Q for the quarter ended September
26,
1993.
. Draft S-1 registration statement
dated
March 31, 1994.
. Various non-public discovery
materials
provided by the defendants and
their advisors.
. Research report on Reeves prepared
by
First Boston, dated March 10, 1993.
. Memorandum of an interview by
Plaintiffs'
Counsel of Louis J. Bevilacqua,
counsel for Hart.
. Complaint dated December 26, 1992.
3. Hart originally proposed a reverse stock
split
of 1-for-300, with any fractional shares remaining
outstanding after the reverse split to be repurchased by
the company at a price of $.50 in cash per pre-split
share. As a result of negotiations between Plaintiffs'
Counsel and Hart, the company
agreed to increase the consideration to be paid for
fractional shares to $2.25 per pre-split share, to
increase the reverse split ratio to 1-for-600, and to
permit any shareholder of the company to purchase such
number of additional pre-split shares at $2.25 per share
sufficient to make the person's shareholdings evenly
divisible by 600, subject to a maximum number of pre-split
shares equal to the total number of shares converted into
the right to receive $2.25. I believe the revised $2.25
per share price for fractional shares is within the range of
fair value to the public shareholders of Hart for the
reasons set forth below.
4. Presently the public shareholders of
the
company not affiliated with the Hart family own
approximately
590,000 shares of common stock or 4.6% of the shares
outstanding. The common stock is not quoted on any stock
exchange or NASDAQ. It trades infrequently in the over-the-
counter market with a very wide spread between bid and asked
prices and very low liquidity. As a practical matter, this
spread ($1 bid, $4 asked) means that the stock does not
trade. The current quoted price, which has not changed
during at least the past two months, is not
necessarily reflective of the underlying value of the
common stock because an efficient market in the shares of
Hart does not exist.
5. There is little prospect for any dividends
to
be paid on Hart common stock, and the company, should
the
proposed reverse stock split not be implemented, has
little incentive to repurchase the remaining shares in
open market transactions. Public shareholders are therefore
unlikely to see any return on their investment in the
foreseeable future should the reverse split not be
implemented.
6. In November 1992, Reeves repurchased a
block of its own stock in an arms'-length transaction with
non-affiliated third parties pursuant to a court-approved
settlement. The
repurchase price was $0.56 per share of Reeves, which
is
equivalent to approximately $1.23 per Hart share as of that
date. The earnings of the company have grown approximately
13% from 1992 to 1993. The impact of this growth on the
value of Hart should be well below the 80% increase
represented by the $2.25 reverse split price as compared to
the $1.23 repurchase price.
7. Defendants' Counsel, Mr. Bevilacqua,
stated in
a letter to Plaintiffs' Counsel that, "the company does
not produce projections in a way that provides meaningful
forwardlooking information for the marketplace and therefore
the company does not discuss or disclose with analysts or
otherwise its internal working forecasts". Mr. Bevilacqua's
letter also stated that, "during the last several years, the
company has missed its forecast by very substantial
margins". Defendants provided only of 1993 year-end
results for Reeves. Using the actual financial statements of
Hart for 1993, I have estimated the range of fair value for
the shares of Hart.
8. The most appropriate measurement of value
in my
opinion is a multiple of Hart's earnings before interest,
taxes and amortization of goodwill (EBITA). The 1993 EBITA
of Hart was $31,370,000, before a one-time restructuring
charge. Based on my experience in the sale of industrial
companies of this size and my reading of company reports,
analyst reports, and information provided by Defendants, I
believe an appropriate multiple of EBITA to use in valuing
Hart should range between five and six. Applying a multiple
of five to six to the EBITA of Hart, I have calculated its
"enterprise value" (the value of the Company on an
unleveraged basis) to range from $156.9 million to
$188.2 million. In order to calculate the range of value of
the equity of Hart, the debt balance at December 31, 1993
of $132.7 million must be subtracted. The resulting equity
value of $24.2 million to $55.5 million divided by the 12.9
million outstanding shares at December 31, 1993 yields a
range of value between $1.87 and $4.31 per share. Hart's
cash balance increased from $4.3 million
at December 31, 1992 to $12.1 million at December 31,
1993. Defendants' Counsel informed me that the $8 million
increase represents a temporary cash buildup which will be
depleted in 1994 with Hart's planned significant increase
in working capital borrowing levels (from an average of $1
million during 1993 to an average of $9 million during 1994)
and capital spending (a total of $140 million between
1994 and 1997). This temporary cash buildup does not
represent any additional value to Hart shareholders
beyond the enterprise value of the company.
9. The preceding analysis can be summarized
as follows:
<TABLE>
<CAPTION> Low High
<S> <C> <C>
1993 earnings before interest,
taxes and goodwill amortization $31,370,000 $31,370,000
EBITA multiple 5 6
Enterprise value 156,850,000 188,220,000
Less: Debt at December 31, 1993 (132,677,000) (132,677,000)
Equity value 24,173,000 55,543,000
Shares outstanding
at December 31, 1993 12,895,100 12,895,100
12,895,100
Fair value per share $1.87 $4.31
</TABLE>
10. The company is highly leveraged with a debt-
toequity ratio of more than 6.5 to 1 at December 31, 1993.
The company's outstanding bonds are not callable until 1997
at the earliest. In addition, Reeves has filed with the SEC
to sell an additional $100 million in debentures, only 11%
of which will be used to repay other debt. The high
degree of leverage creates significant financial risk to
shareholders in the event of a cyclical downturn in earnings.
11. There exist significant contingencies
affecting the business of the company, including
environmental cleanup exposure, litigation, increasing
competition in some of the company's main product areas
and potential technical obsolescence of some of the
company's key products. This provides additional support
for the range of valuation I have arrived at and the
price fairness of the $2.25 per share proposal.
12. For all the reasons set forth above, I
believe the modified $2.25 per fractional share price is
within the range of fair value to the public shareholders of
the company from a financial point of view. In light of
the contingencies facing the Company and its substantial
future financing needs, I believe it is appropriate to
value Hart toward the lower end of the indicated range.
Arthur S. Ainsberg
Sworn and Subscribed
before me, this ____
day of April 1994.
Notary
