<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE
SECURITIES EXCHANGE ACT OF 1934)
---------------------
CORT BUSINESS SERVICES CORPORATION
(NAME OF THE ISSUER)
CORT BUSINESS SERVICES CORPORATION
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
CBF HOLDING LLC
CBF MERGERCO, INC.
CITICORP VENTURE CAPITAL LTD.
PAUL N. ARNOLD
CHARLES M. EGAN
STEVEN D. JOBES
FRANCES ANN ZIEMNIAK
BRUCE C. BRUCKMANN
MICHAEL A. DELANEY
JAMES A. URRY
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
220493-10-0
(CUSIP NUMBER OF CLASS OF SECURITIES)
DANIEL O'DONNELL, ESQ. LANCE C. BALK, ESQ.
DECHERT PRICE & RHOADS KIRKLAND & ELLIS
BELL ATLANTIC TOWER CITICORP CENTER
1717 ARCH STREET 153 EAST 53RD STREET
PHILADELPHIA, PENNSYLVANIA 19103 NEW YORK, NEW YORK 10022
(215) 994-4000 (212) 446-4800
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) 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, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. / / The filing of a registration statement under the Securities Act of
1933.
c. / / A tender offer.
d. / / None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: /X/
CALCULATION OF FILING FEE
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TRANSACTION VALUATION(*) AMOUNT OF FILING FEE
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$362,959,500 $62,500
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(*) Calculated as provided by Rule 0-11(a)(2).
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
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AMOUNT PREVIOUSLY PAID: $10.100 FILING PARTY: CORT BUSINESS SERVICES CORPORATION
FORM OR REGISTRATION NO.: PRELIMINARY PROXY STATEMENT/ DATE FILED: MAY 14, 1999
PROSPECTUS
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INTRODUCTION
This Rule 13E-3 Transaction Statement on Schedule 13E-3 is being
filed with the Securities and Exchange Commission (the "Commission") on behalf
of CORT Business Services Corporation, a Delaware corporation (the "Company"),
CBF Holding LLC, a Delaware limited liability company ("CBF"), CBF Mergerco,
Inc., a Delaware corporation ("CBF Sub"), Bruckmann, Rosser, Sherrill & Co.,
L.P. Citicorp Venture Capital Ltd., Paul N. Arnold, Charles M. Egan,
Steven D. Jobes, Frances Ann Ziemniak, Bruce C. Bruckmann, Michael A. Delaney
and James A. Urry, with respect to a proposed merger pursuant to which CBF Sub
will be merged with and into the Company (the "Merger") and the Company will be
the surviving corporation in the Merger. Mr. Paul Arnold is the President, Chief
Executive Officer and Director of the Company.
The following cross-reference sheet is being supplied pursuant to
General Instruction F to Schedule 13E-3 and shows the location of the
information required by Schedule 13E-3 in the preliminary Proxy
Statement/Prospectus of the Company attached hereto as Exhibit (d)(3) and filed
with the Commission concurrently herewith. The information set forth in the
preliminary Proxy Statement/Prospectus, including all annexes, schedules and
exhibits thereto, is hereby expressly incorporated by reference as set forth in
the following cross-reference sheet and in the responses to each item of this
Schedule 13E-3, and such responses are qualified in their entirety by the
provisions of the preliminary Proxy Statement/Prospectus. The cross-reference
sheet indicates the caption in the preliminary Proxy Statement/Prospectus under
which the responses are incorporated herein by reference. If any such item is
inapplicable or the answer thereto is in the negative and is omitted from the
preliminary Proxy Statement/Prospectus, it is so indicated in the
cross-reference sheet.
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CROSS REFERENCE SHEET
PURSUANT TO GENERAL INSTRUCTION F TO SCHEDULE 13E-3
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ALL REFERENCES ARE TO PORTIONS OF THE
SCHEDULE 13E-3 ITEM PROXY STATEMENT/PROSPECTUS WHICH ARE
NUMBER AND CAPTION INCORPORATED HEREIN BY REFERENCE
------------------ -------------------------------------
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1. Issuer and Class of Security Subject to the
Transaction
(a)............................................. Outside Front Cover Page; "INTRODUCTION."
(b)............................................. Outside Front Cover Page; "SUMMARY--Eligibility to Vote
and Required Vote;" "INTRODUCTION--Voting at the Special
Meeting."
(c)............................................. "SUMMARY--Market Information;" "MARKET PRICES AND
DIVIDENDS ON THE SHARES."
(d)............................................. "MARKET PRICES AND DIVIDENDS ON THE SHARES."
(e)............................................. "MARKET PRICES AND DIVIDENDS ON THE SHARES."
(f)............................................. "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
DIRECTORS AND OFFICERS;" Schedule I to the Proxy
Statement/Prospectus.
2. Identity and Background
(a)-(d)......................................... "CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND
AFFILIATES;" "CERTAIN INFORMATION REGARDING THE DIRECTORS
AND EXECUTIVE OFFICERS OF THE COMPANY FOLLOWING THE
MERGER AND CBF."
(e)-(f)......................................... None.
(g)............................................. "CERTAIN INFORMATION REGARDING THE DIRECTORS AND
EXECUTIVE OFFICERS OF THE COMPANY FOLLOWING THE MERGER
AND CBF."
3. Past Contacts, Transactions or Negotiations
(a)(1).......................................... "SUMMARY--The Merger;" "SPECIAL FACTORS--Interests of
Certain Persons in the Merger; Conflicts of Interest;"
"THE MERGER--
</TABLE>
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<TABLE>
<CAPTION>
ALL REFERENCES ARE TO PORTIONS OF THE
SCHEDULE 13E-3 ITEM PROXY STATEMENT/PROSPECTUS WHICH ARE
NUMBER AND CAPTION INCORPORATED HEREIN BY REFERENCE
------------------ -------------------------------------
<S> <C> <C>
Indemnification of Directors and Officers;"
"CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND
AFFILIATES."
(a)(2).......................................... "SUMMARY--The Merger;" "--Interests of Certain Persons in
the Merger; Conflicts of Interest;" "--Conditions to
Completion of the Merger;" "--Expenses;"
"--Financing of the Merger;" "SPECIAL FACTORS--Background
of the Merger;" "--Contacts with Third Parties;"
"--Fairness of the Merger; Recommendation of the Board of
Directors; Position of CBF;" "--Purpose of the Merger;"
"--Interests of Certain Persons in the Merger; Conflicts
of Interest;" "--Certain Effects of the Merger;" "THE
MERGER;" "FINANCING OF THE MERGER."
(b)............................................. "SUMMARY--The Merger;" "--Interests of Certain Persons in
the Merger; Conflicts of Interest;" "--Conditions to
Completion of the Merger;" "--Expenses;"
"--Financing of the Merger;" "SPECIAL FACTORS--Background
of the Merger;" "--Contacts with Third Parties;"
"--Fairness of the Merger; Recommendation of the Board of
Directors; Position of CBF;" "--Purpose of the Merger;"
"--Interests of Certain Persons in the Merger; Conflicts
of Interest;" "--Certain Effects of the Merger;" "THE
MERGER;" "FINANCING OF THE MERGER."
4. Terms of the Transaction
(a)............................................. "SUMMARY;" "INTRODUCTION;" "SPECIAL FACTORS--Fairness of
the Merger; Recommendation of the Board of Directors;
Position of CBF;" "--Purpose of the Merger;" "--Interests
of Certain Persons in the Merger; Conflicts of Interest;"
"--Certain Effects of the Merger;" "--Risk that the Merger
Will Not be Consummated;" "--Certain Risks in the Event of
Bankruptcy;" "THE MERGER;" "FINANCING OF THE MERGER;"
"APPRAISAL RIGHTS."
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<TABLE>
<CAPTION>
ALL REFERENCES ARE TO PORTIONS OF THE
SCHEDULE 13E-3 ITEM PROXY STATEMENT/PROSPECTUS WHICH ARE
NUMBER AND CAPTION INCORPORATED HEREIN BY REFERENCE
------------------ -------------------------------------
<S> <C> <C>
(b)............................................. "SUMMARY;" "INTRODUCTION;" "SPECIAL FACTORS--Purpose of
the Merger;" "--Interests of Certain Persons in the
Merger; Conflicts of Interest;" "--Certain Effects of the
Merger;" "THE MERGER;" "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES."
5. Plans or Proposals of the Issuer or Affiliate
(a)-(b)......................................... "SPECIAL FACTORS--Background of the Merger;" "--Fairness of
the Merger; Recommendation of the Board of Directors;
Position of CBF;" "--Certain Effects of the Merger;"
"--Plans for the Company After the Merger;" "FINANCING OF
THE MERGER;" "BUSINESS OF THE COMPANY."
(c)............................................. "SUMMARY--Interests of Certain Persons in the Merger;"
"SPECIAL FACTORS--Interests of Certain Persons in the
Merger; Conflicts of Interest;" "--Certain Effects of the
Merger;" "THE MERGER--Effective Time of the Merger;"
"CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND
AFFILIATES;" "CERTAIN INFORMATION REGARDING THE DIRECTORS
AND EXECUTIVE OFFICERS OF THE COMPANY FOLLOWING THE
MERGER AND CBF."
(d)-(e)......................................... "SUMMARY--Interests of Certain Persons in the Merger;
Conflicts of Interest;" "--Expenses;" "--Financing of the
Merger;" "SPECIAL FACTORS--Purpose of the Merger;"
"--Interests of Certain Persons in the Merger; Conflicts
of Interest;" "--Certain Effects of the Merger;" "--Plans
for the Company After the Merger;" "--Certain Risks in the
Event of Bankruptcy;" "THE MERGER;" "FINANCING OF THE
MERGER;" "MARKET PRICES AND DIVIDENDS ON THE SHARES;"
"SECURITY OWNERSHIP OF THE SURVIVING COMPANY."
(f)-(g)......................................... "SPECIAL FACTORS--Certain Effects of the Merger;"
"ADDITIONAL AVAILABLE INFORMATION."
6. Source and Amounts of Funds or Other Consideration
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<TABLE>
<CAPTION>
ALL REFERENCES ARE TO PORTIONS OF THE
SCHEDULE 13E-3 ITEM PROXY STATEMENT/PROSPECTUS WHICH ARE
NUMBER AND CAPTION INCORPORATED HEREIN BY REFERENCE
------------------ -------------------------------------
<S> <C> <C>
(a).............................................
"SUMMARY--Financing of the Merger;" "FINANCING OF THE
MERGER."
(b)............................................. "THE MERGER--Expenses;" "FINANCING OF THE MERGER."
(c)............................................. "SUMMARY--Financing of the Merger;" "FINANCING OF THE
MERGER."
(d)............................................. Not applicable.
7. Purpose(s), Alternatives, Reasons and Effects
(a)-(c)......................................... "SUMMARY;" "SPECIAL FACTORS--Background of the Merger;" "--Contacts
with Third Parties;""--Fairness of the Merger; Recommendation of the
Board of Directors; Position of CBF;" "--Purpose of the Merger;"
"--Interests of CertaiN Persons in the Merger; Conflicts of
Interest;" "--Certain Effects of the Merger;" "CERTAIN INFORMATION
CONCERNING CBF, CBF SUB AND AFFILIATES."
(d)............................................. "SUMMARY;" "INTRODUCTION--Voting at the Special Meeting;"
"--Proxies;" "SPECIAL FACTORS--Fairness of the Merger;
Recommendation of the Board of Directors; Position of
CBF;" "--Opinion of Financial Advisor;"
"--Purpose of the Merger;" "--Interests of Certain Persons
in the Merger; Conflicts of Interest;" "--Certain Effects
of the Merger;" "--Plans for the Company After the
Merger;" "--Certain Litigation;" "THE MERGER;" "FINANCING
OF THE MERGER;" "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES;" "APPRAISAL RIGHTS;" "CERTAIN INFORMATION
CONCERNING CBF, CBF SUB AND AFFILIATES."
8. Fairness of the Transaction
(a)-(b)......................................... "SUMMARY--Recommendation of the Board of Directors;"
"--Opinion of Financial Advisor;" "SPECIAL
FACTORS--Background of the Merger;" "--Contacts with Third
Parties;""--Fairness of the Merger; Recommendation of the
Board of Directors; Position of CBF;" "--Opinion of
</TABLE>
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<TABLE>
<CAPTION>
ALL REFERENCES ARE TO PORTIONS OF THE
SCHEDULE 13E-3 ITEM PROXY STATEMENT/PROSPECTUS WHICH ARE
NUMBER AND CAPTION INCORPORATED HEREIN BY REFERENCE
------------------ -------------------------------------
<S> <C> <C>
Financial Advisor;" "--Interests of Certain Persons in the
Merger; Conflicts of Interest."
(c)............................................. "SUMMARY--Eligibility to Vote and Required Vote;
"INTRODUCTION--Voting at the Special Meeting;" "--Proxies;"
"SPECIAL FACTORS--Fairness of the Merger; Recommendation
of the Board of Directors; Position of CBF;" "THE
MERGER--Stockholder Adoption of the Merger Agreement;"
"--Conditions to Consummation of the Merger."
(d)............................................. "SPECIAL FACTORS--Fairness of the Merger; Recommendation
of the Board of Directors; Position of CBF."
(e)............................................. "SUMMARY--Interests of Certain Persons in the Merger;
Conflicts of Interest;" "SPECIAL FACTORS--Background of
the Merger;" "--Fairness of the Merger; Recommendation of
the Board of Directors; Position of CBF;" "--Interests of
Certain Persons in the Merger; Conflicts of Interest."
(f)............................................. "SPECIAL FACTORS--Background of the Merger;" "--Contacts
with Third Parties;" "--Fairness of the Merger;
Recommendation of the Board of Directors; Position of
CBF."
9. Reports, Opinions, Appraisals and Certain
Negotiations
(a)-(c)......................................... "SUMMARY "--Opinion of Financial Advisor;" "SPECIAL
FACTORS--Background of the Merger;" "--Fairness of the
Merger; Recommendation of the Board of Directors;
Position of CBF;" "--Opinion of Financial Advisor;"
"ADDITIONAL AVAILABLE INFORMATION;" "Annex B to the Proxy
Statement/Prospectus."
10. Interest in Securities of the Issuer
(a)-(b)......................................... "SUMMARY--Interests of Certain Persons in the Merger;
Conflicts of Interest;" "INTRODUCTION--Voting at the
Special Meeting;" "SPECIAL FACTORS--Purpose of the
Merger;" "--Interests of Certain Persons in the Merger;
Conflicts of Interest;" "CERTAIN INFORMATION CONCERNING
CBF, CBF SUB AND AFFILIATES;" "CERTAIN
</TABLE>
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<TABLE>
<CAPTION>
ALL REFERENCES ARE TO PORTIONS OF THE
SCHEDULE 13E-3 ITEM PROXY STATEMENT/PROSPECTUS WHICH ARE
NUMBER AND CAPTION INCORPORATED HEREIN BY REFERENCE
------------------ -------------------------------------
<S> <C> <C>
TRANSACTIONS IN THE COMMON STOCK;" "SECURITY OWNERSHIP OF THE
SURVIVING COMPANY."
11. Contracts, Arrangements or Understandings with
Respect to the Issuer's Securities.............. "SUMMARY;" "SPECIAL FACTORS--Background of the Merger;"
"--Purpose of the Merger;" "--Interests of Certain Persons
in the Merger; Conflicts of Interest;" "--Certain Effects
of the Merger;" "THE MERGER;" "FINANCING OF THE MERGER;"
"CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND
AFFILIATES;" "SECURITY OWNERSHIP OF THE SURVIVING
COMPANY."
12. Present Intention and Recommendation of Certain
Persons with Regard to the Transaction
(a)-(b)......................................... "INTRODUCTION--Voting at the Special Meeting;" "--Proxies;" "SPECIAL
FACTORS--Fairness of the Merger; Recommendation of the Board of
Directors; Position of CBF;" "--Purpose of the Merger."
13. Other Provisions of the Transaction
(a)............................................. "SUMMARY--Appraisal Rights;" "APPRAISAL RIGHTS;" "Annex C
to the Proxy Statement/Prospectus."
(b)............................................. Not applicable.
(c)............................................. Not applicable.
14. Financial Information
(a)-(b)......................................... "SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL
DATA;" "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS."
15. Persons and Assets Employed, Retained or Utilized
(a)............................................. "SUMMARY--Interests of Certain Persons in the Merger; Conflicts of
Interest;" "--Financing of the Merger;" "INTRODUCTION--Voting at the
Special Meeting;" "--Proxies;" "SPECIAL FACTORS--Background of the
Merger;" "--Opinion of Financial Advisor;" "--Interests of Certain
Persons in the Merger; Conflicts of Interest;" "FINANCING OF THE
MERGER;" "CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND
AFFILIATES."
</TABLE>
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<TABLE>
<CAPTION>
ALL REFERENCES ARE TO PORTIONS OF THE
SCHEDULE 13E-3 ITEM PROXY STATEMENT/PROSPECTUS WHICH ARE
NUMBER AND CAPTION INCORPORATED HEREIN BY REFERENCE
------------------ -------------------------------------
<S> <C> <C>
(b)............................................. "INTRODUCTION--Voting at the Special Meeting;" "--Proxies."
16. Additional Information.......................... Proxy Statement/Prospectus.
17. Material to be Filed as Exhibits
(a)-(f)......................................... Not applicable.
</TABLE>
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Item 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information concerning the Issuer and its principal
executive office set forth on the cover page to the Proxy Statement/Prospectus
and in the section entitled "INTRODUCTION," is incorporated herein by reference.
(b) The information concerning the shares of Common Stock, par
value $.01 per share, of the Issuer (the "Shares") set forth on the cover page
to the Proxy Statement/Prospectus and in the sections entitled "SUMMARY--
Eligibility to Vote and Required Vote;" "INTRODUCTION--Voting at the Special
Meeting" is incorporated herein by reference.
(c) The information concerning the principal market in which the
Shares are traded set forth in the sections entitled "SUMMARY-- Market
Information" and "MARKET PRICES AND DIVIDENDS ON THE SHARES" is incorporated
herein by reference.
(d) The information set forth in the section entitled "MARKET
PRICES AND DIVIDENDS ON THE SHARES" is incorporated herein by reference.
(e) The information set forth in the section entitled "MARKET
PRICES AND DIVIDENDS ON THE SHARES" is incorporated herein by reference.
(f) The information concerning purchases of Shares by the Company
set forth in the section entitled "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND DIRECTORS AND OFFICERS" and Schedule I to the Proxy
Statement/Prospectus is incorporated herein by reference.
Item 2. IDENTITY AND BACKGROUND.
(a), (b), (e) and (f) The persons filing this Statement are CORT
Business Services Corporation (the issuer of the class of equity securities that
is the subject of the Rule 13e-3 transaction, the "Company"), CBF Holding LLC, a
Delaware limited liability company ("CBF"), CBF Mergerco Inc., a Delaware
corporation and a wholly owned subsidiary of CBF ("CBF Sub"), Bruckmann, Rosser,
Sherrill & Co., L.P. ("BRS"), a Delaware limited partnership, Citicorp Venture
Capital Ltd., a New York corporation ("CVC"), Paul N. Arnold, President and
Chief Executive Officer of the Company, Charles M. Egan, Chairman of the
Company, Steven D. Jobes, Executive Vice President & Chief Marketing Officer of
the Company, Frances Ann Ziemniak, Executive Vice President, Chief Financial
Officer and Secretary of the Company, and Bruce C. Bruckmann, Michael A. Delaney
and James A. Urry, each directors of the Company.
CBF and CBF Sub are newly formed entities organized by BRS and
certain of its affiliates for the purpose of effecting the 13E-3 transaction
described herein. BRS is an equity investment firm. Each of BRS, CBF and CBF Sub
has an address of 126 East 56th Street, 29th floor, New York, NY 10022. CVC's
address is 399 Park Avenue, 14th Floor-Zone 4, New York, New York 10043. Paul N.
Arnold, Charles M. Egan, Steven D. Jobes and Frances Ann Ziemniak each have a
business address of CORT Business Services Corporation, 4401 Fair Lakes Court,
Fairfax, Virginia 22033. Bruce C. Bruckmann has a business address of 126 East
56th Street, 29th floor, New York, NY 10022. Michael A. Delaney and James A.
Urry each have a business address of 399 Park Avenue, 14th Floor-Zone 4, New
York, New York 10043. None of the Company, CBF, CBF Sub, BRS, CVC and any
executive officer, director or person controlling CBF, CBF Sub, BRS or CVC (i)
during the last five
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years, has been convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors), or (ii) during the last five years, was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining further violations of, or prohibiting activities, subject
to, federal or state securities laws or finding any violation of such laws.
(c), (d) and (g) The information concerning CBF, CBF Sub, BRS,
CVC, Paul N. Arnold, Charles M. Egan, Steven D. Jobes, Frances Ann Ziemniak,
Bruce C. Bruckmann, Michael A. Delaney, and James A. Urry set forth in the
sections entitled "CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES"
and "CERTAIN INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY FOLLOWING THE MERGER AND CBF" is incorporated herein by reference.
Item 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth in the sections entitled
"SUMMARY--The Merger," "SPECIAL FACTORS--Interests of Certain Persons in the
Merger; Conflicts of Interest," "THE MERGER--Indemnification of Directors and
Officers" and "CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES" is
incorporated herein by reference.
(a)(2) The information set forth in the sections entitled
"SUMMARY--The Merger," "--Interests of Certain Persons in the Merger; Conflicts
of Interest," "--Conditions to Completion of the Merger," "--Expenses,"
"--Financing of the Merger," "SPECIAL FACTORS--Background of the Merger," "-
Contacts with Third Parties;" "--Fairness of the Merger; Recommendation of the
Board of Directors; Position of CBF," "--Purpose of the Merger," "--Interests of
Certain Persons in the Merger; Conflicts of Interest," "--Certain Effects of the
Merger," "THE MERGER" and "FINANCING OF THE MERGER" is incorporated herein by
reference.
(b) The information set forth in the sections entitled
"SUMMARY--The Merger," "--Interests of Certain Persons in the Merger; Conflicts
of Interest," "--Conditions to Completion of the Merger," "--Expenses,"
"--Financing of the Merger," "SPECIAL FACTORS--Background of the Merger;"
"--Contacts with Third Parties;" "--Fairness of the Merger; Recommendation of
the Board of Directors; Position of CBF," "--Purpose of the Merger,"
"--Interests of Certain Persons in the Merger; Conflicts of Interest,"
"--Certain Effects of the Merger," "THE MERGER" and "FINANCING OF THE MERGER" is
incorporated herein by reference.
Item 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the sections entitled "SUMMARY,"
"INTRODUCTION," "SPECIAL FACTORS--Fairness of the Merger; Recommendation of the
Board of Directors; Position of CBF," "--Purpose of the Merger," "--Interests of
Certain Persons in the Merger; Conflicts of Interest," "--Certain Effects of the
Merger," "--Risk that the Merger Will Not be Consummated," "--Certain Risks in
the Event of Bankruptcy," "THE MERGER," "FINANCING OF THE MERGER" and "APPRAISAL
RIGHTS" is incorporated herein by reference.
(b) The information set forth in the sections entitled "SUMMARY,"
"INTRODUCTION," "SPECIAL FACTORS-- Purpose of the Merger," "-- Interests of
Certain Persons in the Merger; Conflicts of Interest," "--Certain Effects of the
Merger," "THE MERGER" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" is
incorporated herein by reference.
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Item 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(b) The information set forth in the sections entitled
"SPECIAL FACTORS--Background of the Merger," "--Fairness of the Merger;
Recommendation of the Board of Directors; Position of CBF," "--Certain Effects
of the Merger," "--Plans for the Company After the Merger," "FINANCING OF THE
MERGER" and "BUSINESS OF THE COMPANY" is incorporated herein by reference.
(c) The information set forth in the sections entitled
"SUMMARY--Interests of Certain Persons in the Merger; Conflicts of Interest,"
"SPECIAL FACTORS--Interests of Certain Persons in the Merger; Conflicts of
Interest,""--Certain Effects of the Merger," "THE MERGER--Effective Time of the
Merger," "CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES" and
"CERTAIN INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY FOLLOWING THE MERGER AND CBF" is incorporated herein by reference.
(d)-(e) The information set forth in the sections
"SUMMARY--Interests of Certain Persons in the Merger; Conflicts of Interest,"
"--Expenses," "--Financing of the Merger," "SPECIAL FACTORS--Purpose of the
Merger," "--Interests of Certain Persons in the Merger; Conflicts of Interest,"
"--Certain Effects of the Merger,""--Plans for the Company After the Merger,"
"--Certain Risks in the Event of Bankruptcy," "THE MERGER," "FINANCING OF THE
MERGER," "MARKET PRICES AND DIVIDENDS ON THE SHARES" and "SECURITY OWNERSHIP OF
THE SURVIVING COMPANY" is incorporated herein by reference.
(f)-(g) The information set forth in the sections "SPECIAL
FACTORS--Certain Effects of the Merger" and "ADDITIONAL AVAILABLE INFORMATION"
is incorporated herein by reference.
Item 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in the sections entitled
"SUMMARY--Financing of the Merger" and "FINANCING OF THE MERGER" is incorporated
herein by reference.
(b) The information set forth in the sections entitled "THE
MERGER--Expenses" and "FINANCING OF THE MERGER" is incorporated herein by
reference.
(c) The information set forth in the sections entitled
"SUMMARY--Financing of the Merger" and "FINANCING OF THE MERGER" is incorporated
herein by reference.
(d) Not applicable.
Item 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth in the sections entitled
"SUMMARY," "SPECIAL FACTORS--Background of the Merger," "--Contacts with Third
Parties;" "--Fairness of the Merger; Recommendation of the Board of Directors;
Position of CBF," "--Purpose of the Merger," "--Interests of Certain Persons in
the Merger; Conflicts of Interest," "--Certain Effects of the Merger" and
"CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES" is incorporated
herein by reference.
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(d) The information set forth in the sections entitled "SUMMARY,"
"INTRODUCTION--Voting at the Special Meeting," "--Proxies," "SPECIAL
FACTORS--Fairness of the Merger; Recommendation of the Board of Directors;
Position of CBF," "--Opinion of Financial Advisor," "--Purpose of the Merger,"
"--Interests of Certain Persons in the Merger; Conflicts of Interest,"
"--Certain Effects of the Merger," "--Plans for the Company After the Merger,"
"--Certain Litigation," "THE MERGER," "FINANCING OF THE MERGER," "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES," "APPRAISAL RIGHTS" and "CERTAIN INFORMATION
CONCERNING CBF, CBF SUB AND AFFILIATES" is incorporated herein by reference.
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Item 8. FAIRNESS OF THE TRANSACTION.
(a) - (b) The information set forth in the sections entitled
"SUMMARY--Recommendation of the Board of Directors," "--Opinion of Financial
Advisor," "SPECIAL FACTORS--Background of the Merger," "--Contacts with Third
Parties," "--Fairness of the Merger; Recommendation of the Board of Directors;
Position of CBF,""--Opinion of Financial Advisor" and "--Interests of Certain
Persons in the Merger; Conflicts of Interest" is incorporated herein by
reference.
(c) The information set forth in the sections entitled
"SUMMARY--Eligibility to Vote and Required Vote," "INTRODUCTION--Voting at the
Special Meeting," "--Proxies," "SPECIAL FACTORS--Fairness of the Merger;
Recommendation of the Board of Directors; Position of CBF," "THE
MERGER--Stockholder Adoption of the Merger Agreement" and "--Conditions to
Consummation of the Merger" is incorporated herein by reference.
(d) The information set forth in the section entitled "SPECIAL
FACTORS--Fairness of the Merger; Recommendation of the Board of Directors;
Position of CBF" is incorporated herein by reference.
(e) The information set forth in the sections entitled
"SUMMARY--Interests of Certain Persons in the Merger; Conflicts of Interest,"
"SPECIAL FACTORS--Background of the Merger," "--Fairness of the Merger;
Recommendation of the Board of Directors; Position of CBF" and "--Interests of
Certain Persons in the Merger; Conflicts of Interest" is incorporated herein by
reference.
(f) The information set forth in the sections entitled "SPECIAL
FACTORS--Background of the Merger," "--Contacts with Third Parties" and
"--Fairness of the Merger; Recommendation of the Board of Directors; Position of
CBF" is incorporated herein by reference.
Item 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) - (c) The information set forth in the sections entitled
"SUMMARY--Opinion of Financial Advisor," "SPECIAL FACTORS--Background of the
Merger," "--Fairness of the Merger; Recommendation of the Board of Directors;
Position of CBF," "--Opinion of Financial Advisor" and "ADDITIONAL AVAILABLE
INFORMATION" and in Annex B to the Proxy Statement/Prospectus is incorporated
herein by reference.
Item 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) - (b) The information set forth in the sections entitled
"SUMMARY--Interests of Certain Persons in the Merger; Conflicts of Interest,"
"INTRODUCTION--Voting at the Special Meeting," "SPECIAL FACTORS--Purpose of the
Merger," "--Interests of Certain Persons in the Merger; Conflicts of Interest,"
"CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES," "CERTAIN
TRANSACTIONS IN THE COMMON STOCK" and "SECURITY OWNERSHIP OF THE SURVIVING
COMPANY" is incorporated herein by reference.
xiii
<PAGE>
Item 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth in the sections entitled "SUMMARY,"
"SPECIAL FACTORS--Background of the Merger," "--Purpose of the Merger,"
"--Interests of Certain Persons in the Merger; Conflicts of Interest,"
"--Certain Effects of the Merger," "THE MERGER," "FINANCING OF THE MERGER,"
"CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES" and "SECURITY
OWNERSHIP OF THE SURVIVING COMPANY" is incorporated herein by reference.
Item 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION.
(a) - (b) The information set forth in the sections entitled
"INTRODUCTION--Voting at the Special Meeting," "--Proxies," "SPECIAL
FACTORS--Fairness of the Merger; Recommendation of the Board of Directors;
Position of CBF" and "--Purpose of the Merger" is incorporated herein by
reference.
Item 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the sections entitled
"SUMMARY--Appraisal Rights" and "APPRAISAL RIGHTS" and Annex C to the Proxy
Statement/Prospectus is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
Item 14. FINANCIAL INFORMATION.
(a) - (b) The information set forth in the section entitled
"SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA OF THE COMPANY"
and "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS" is incorporated
hereby by reference.
Item 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in the sections entitled
"SUMMARY--Interests of Certain Persons in the Merger; Conflicts of Interest,"
"--Financing of the Merger," "INTRODUCTION--Voting at the Special Meeting,"
"--Proxies," "SPECIAL FACTORS--Background of the Merger," "--Opinion of
Financial Advisor," "--Interests of Certain Persons in the Merger; Conflicts of
Interest," "FINANCING OF THE MERGER" and "CERTAIN INFORMATION CONCERNING CBF,
CBF SUB AND AFFILIATES" is incorporated herein by reference.
(b) The information set forth in the sections entitled
"INTRODUCTION--Voting at the Special Meeting" and "--Proxies" is incorporated
herein by reference.
Item 16. ADDITIONAL INFORMATION.
xiv
<PAGE>
The information set forth in the Proxy Statement/Prospectus is
incorporated herein by reference.
xv
<PAGE>
Item 17. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Financing Letter dated as of April 21, 1999 from
NationsBank, N.A. to CBF Holding LLC.
(a)(2) Financing Letter dated as of April 21, 1999 from Credit
Suisse First Boston Corporation to CBF Holding LLC.
(b)(1) Opinion of SunTrust Equitable Securities Corporation dated
March 25, 1999.
(b)(2) Valuation materials prepared for CORT Business Services
Corporation by SunTrust Equitable Securities Corporation
dated March 25, 1999.
(c)(1) Agreement and Plan of Merger dated as of March 25, 1999,
among the Company, CBF and the CBF Sub.
(c)(2) Commitment Letter dated as of March 25, 1999 from
Bruckmann, Rosser, Sherrill & Co., L.P. to CBF Mergerco
Inc.
(c)(3) Commitment Letter dated as of March 25, 1999 from Citicorp
Venture Capital Ltd. to CBF Mergerco Inc.
(d)(1) Preliminary copy of Letter to Stockholders.
(d)(2) Preliminary copy of Notice of Special Meeting of
Stockholders.
(d)(3) Preliminary Proxy Statement/Prospectus.
(d)(4) Form of Proxy.
(d)(5) Press Release by CORT Business Services Corporation dated
as of March 26, 1999.
(d)(6) Press Release by CORT Business Services Corporation dated
as of April 21, 1999.
(e) Section 262 of the General Corporation Law of the State of
Delaware (included as Annex C to the preliminary Proxy
Statement/Prospectus, which is filed herewith as
Exhibit (d)(3)).
(f) Not applicable.
xvi
<PAGE>
SIGNATURES
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.
CORT BUSINESS SERVICES CORPORATION
By: PAUL N. ARNOLD
-----------------------------------
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
Dated: May 14, 1999
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.
CBF HOLDING LLC.
By: BRUCE C. BRUCKMANN
-----------------------------------
Dated: May 14, 1999
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.
CBF MERGERCO INC.
By: BRUCE C. BRUCKMANN
-----------------------------------
Dated: May 14, 1999
xvii
<PAGE>
SIGNATURES
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.
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
By: BRUCE C. BRUCKMANN
-----------------------------------
Dated: May 14, 1999
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.
CITICORP VENTURE CAPITAL LTD.
By: BYRON KNIEF
-----------------------------------
Dated: May 14, 1999
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.
PAUL N. ARNOLD
-----------------------------------
Paul N. Arnold
Dated: May 14, 1999
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.
CHARLES M. EGAN
-----------------------------------
Charles M. Egan
Dated: May 14, 1999
xviii
<PAGE>
SIGNATURES
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.
STEVEN D. JOBES
-----------------------------------
Steven D. Jobes
Dated: May 14, 1999
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.
FRANCES ANN ZIEMNIAK
-----------------------------------
Frances Ann Ziemniak
Dated: May 14, 1999
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.
BRUCE C. BRUCKMANN
-----------------------------------
Bruce C. Bruckmann
Dated: May 14, 1999
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.
MICHAEL A. DELANEY
-----------------------------------
Michael A. Delaney
Dated: May 14, 1999
xix
<PAGE>
SIGNATURES
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.
JAMES A. URRY
-----------------------------------
James A. Urry
Dated: May 14, 1999
xx
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
<S> <C> <C>
(a)(1) ---Financing Letter dated as of April 21, 1999 from NationsBank,
N.A. to CBF Holding LLC.
(a)(2) ---Financing Letter dated as of April 21, 1999 from Credit
Suisse First Boston Corporation to CBF Holding LLC.
(b)(1) --Opinion of SunTrust Equitable Securities Corporation dated Included as Annex B to the
March 25, 1999. preliminary Proxy
Statement/Prospectus,
attached hereto as Exhibit
(d)(3)
(b)(2) --Valuation materials prepared for CORT Business Services
Corporation by SunTrust Equitable Securities Corporation
dated March 25, 1999.
(c)(1) --Agreement and Plan of Merger, dated as of March 25, 1999, Included as Annex A to
by Included as Annex A to the and among CBF Holding LLC, a the preliminary Proxy
Delaware limited liability preliminary Proxy company ("CBF"), Statement/Prospectus,
CBF Mergerco Inc., a Delaware corporation attached hereto as
Statement/Prospectus, and a wholly-owned subsidiary of CBF, Exhibit (d)(3)
and CORT Business Services Corporation
(c)(2) ---Commitment Letter, dated as of March 25, 1999 from Bruckmann, Included as an exhibit to
Rosser, Sherrill & Co., L.P. to CBF Mergerco Inc. Annex A to the preliminary
Proxy Statement/Prospectus,
attached hereto as Exhibit
(d)(3)
(c)(3) --- Commitment Letter dated as of March 25, 1999 from Citicorp Included as an exhibit to
Venture Capital Ltd. to CBF Mergerco Inc. Annex A to the preliminary
Proxy Statement/Prospectus,
attached hereto as Exhibit
(d)(3)
(d)(1) --Preliminary copy of Letter to Stockholders.
(d)(2) --Preliminary copy of Notice of Special Meeting of Stockholders.
(d)(3) --Preliminary Proxy Statement/Prospectus.
(d)(4) --Form of Proxy. To be filed by amendment.
</TABLE>
xxi
<PAGE>
<TABLE>
<S> <C> <C>
(d)(5) --Press Release by CORT Business Services Corporation, dated as
of March 26, 1999.
(d)(6) ---Press Release by CORT Business Services Corporation, dated as
of April 21, 1999
(e) --Section 262 of the Delaware General Corporation Law, as amended. Included as Annex C to the
preliminary Proxy
Statement/Prospectus,
attached hereto as Exhibit
(d)(3)
</TABLE>
xxii
<PAGE>
Exhibit(a)(1)
NATIONSBANK, N.A.
NATIONSBANK CORPORATE CENTER
100 NORTH TRYON STREET
CHARLOTTE, NORTH CAROLINA 28255
NATIONSBANC MONTGOMERY SECURITIES LLC
NATIONSBANK CORPORATE CENTER
100 NORTH TRYON STREET
CHARLOTTE, NORTH CAROLINA 28255
April 21, 1999
Mr. Bruce Bruckmann
CBF Holding, L.L.C.
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street
New York, New York 10022
Re: $225 million Senior Secured Bank Acquisition Credit Facilities
in respect of CORT FURNITURE RENTAL CORPORATION
Ladies and Gentlemen:
CBF Holding LLC ("HOLDCO") has advised us that it has entered into an Agreement
and Plan of Merger pursuant to which its wholly-owned subsidiary CBF Mergerco
Inc. (the "INITIAL BORROWER") will be merged with and into Cort Business
Services Corporation (the "ACQUIRED COMPANY") as a result of which Holdco and
Citicorp Venture Capital, Ltd. (collectively, the "SPONSORS") together with
certain other individuals and entities will acquire the Acquired Company for
approximately $453 million (including assumed indebtedness) (hereafter the
transactions contemplated in connection with the foregoing merger may be
referred to as the "ACQUISITION"). The Acquisition will be structured as a
cash-out merger transaction. You have advised us that $225 million in senior
bank financing will be required in order to effect the Acquisition, to pay the
costs and expenses related to the Acquisition and to provide for ongoing general
corporate purposes after completion of the Acquisition and that no external
financing other than the financing described herein and the $250 million
subordinated debt financing described in the term sheet attached hereto (the
"SUBORDINATED DEBT") will be required in connection with the Acquisition. The
Sponsors will provide evidence of equity capitalization in the Acquired Company
of at least $105 million prior to or concurrently with the Acquisition.
In connection with the foregoing, (i) NationsBank, N.A. ("NATIONSBANK" or the
"AGENT") is pleased to advise you of its commitment to act as Administrative
Agent for the Credit Facility and to provide the full principal amount of the
senior bank credit facilities (the "CREDIT
<PAGE>
Mr. Bruce Bruckmann
April 21, 1999
Page 2
FACILITIES") described in the Term Sheet, and (ii) NationsBanc Montgomery
Securities LLC ("NMS") is pleased to advise you that it is willing to act as
Sole Lead Arranger and Sole Book Manager for the Credit Facilities and to form a
syndicate of financial institutions (the "LENDERS") reasonably acceptable to NMS
and you for the Credit Facilities. No additional agents will be appointed
without the prior approval of NationsBank and NMS. All capitalized terms used
and not otherwise defined herein shall have the meanings set forth in the Term
Sheet.
The commitments of NationsBank and NMS hereunder are subject to the satisfaction
of each of the following conditions precedent in a manner acceptable to
NationsBank and NMS in their sole discretion:
(a) each of the terms and conditions set forth herein;
(b) each of the terms and conditions set forth in the Term
Sheet;
(c) execution of the fee letter dated the date hereof among
the Sponsors, the Borrower, NationsBank and NMS (the "FEE LETTER")
prior to or concurrently with the acceptance by the Sponsors and the
Borrower of this letter; and
(d) there not having occurred and being continuing since the
date hereof a material adverse change in the market for syndicated bank
credit facilities or a material disruption of, or a material adverse
change in, financial, banking or capital market conditions, in each
case as determined by NationsBank and NMS in their sole discretion.
Furthermore, the commitments of NationsBank and NMS hereunder are based upon the
financial and other information regarding the Borrower, the Acquired Company and
their respective subsidiaries previously provided to NationsBank and NMS and are
subject to the condition, among others, that there shall not have occurred after
the date of such information, in the opinion of NationsBank and NMS, any
material adverse change in the business, assets, liabilities (actual or
contingent), operations, condition (financial or otherwise) or prospects of the
Borrower, the Acquired Company and their subsidiaries taken as a whole.
NMS intends to commence syndication efforts promptly following your acceptance
of this commitment, and you agree to use commercially reasonable efforts to
actively assist, and to cause the Acquired Company to assist, NMS in achieving a
syndication of the Credit Facilities that is satisfactory to it. Such assistance
by you and the Acquired Company shall include using commercially reasonable
efforts to (a) provide and cause your advisors to provide NationsBank and NMS
and the other Lenders upon request with all information reasonably deemed
necessary by NationsBank and NMS to complete syndication, including but not
limited to information and evaluations prepared by the Sponsors, the Borrower or
the Acquired Company or their advisors, or on its behalf, relating to the
Transactions, (b) assist NationsBank and NMS upon their reasonable request in
the preparation of an Information Memorandum to be used in connection with the
syndication of the Credit Facilities and (c) otherwise assist NationsBank and
NMS in their syndication efforts, including by making available mutually agreed
upon officers and advisors
<PAGE>
Mr. Bruce Bruckmann
April 21, 1999
Page 3
of the Parent, the Borrower and the Acquired Company and its subsidiaries from
time to time to attend and make presentations regarding the business and
prospects of the Acquired Company and its subsidiaries at a meeting or meetings
of prospective Lenders. You further agree to refrain from engaging in any
additional financings for the Transactions (except as described in this letter
and except for the Subordinated Debt financing) during such syndication process
unless otherwise agreed to by NationsBank and NMS.
It is understood and agreed that NationsBank and NMS, after consultation with
you, will manage and control all aspects of the syndication of the Credit
Facilities, including decisions as to the selection of proposed Lenders and any
titles offered to proposed Lenders, when commitments will be accepted and the
final allocations of the commitments among the Lenders. It is understood that no
Lender participating in the Credit Facilities will receive compensation from you
outside the terms contained herein and in the Term Sheet in order to obtain its
commitment. It is also understood and agreed that the amount and distribution of
the fees among the Lenders will be at the sole discretion of NationsBank and NMS
and that any syndication pursuant to written commitments prior to execution of
definitive documentation will reduce the commitment of NationsBank by the amount
of such commitments.
It shall be a condition to NationsBank's commitment hereunder and NMS's
agreement to provide the services contemplated hereby that (i) all information,
other than Projections (as defined below), which has been or is hereafter made
available to NationsBank and NMS or the Lenders by you or any of your
representatives in connection with the transactions contemplated hereby
("INFORMATION") is and will be complete and correct in all material respects and
does not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained therein not
misleading and (ii) all financial projections concerning the Borrower and the
Acquired Company that have been or are hereafter made available to NationsBank
and NMS or the Lenders by you or any of your representatives (the "PROJECTIONS")
have been or will be prepared in good faith based upon reasonable assumptions.
You agree to furnish us with such Information and Projections as we may
reasonably request and to use commercially reasonable efforts to supplement the
Information and the Projections from time to time until the closing of the
Credit Facilities ("CLOSING") so that the condition in the preceding sentence is
correct on such date. In arranging and syndicating the Credit Facilities,
NationsBank and NMS will be using and relying on the Information and the
Projections without independent verification thereof.
By executing this letter agreement, you agree to reimburse NationsBank and NMS
from time to time on demand for all reasonable out-of-pocket fees and expenses
(including, but not limited to, the reasonable fees, disbursements and other
charges of Moore & Van Allen, PLLC, as counsel to NationsBank and the other
Lenders) incurred in connection with the Credit Facilities and the preparation
of the definitive documentation for the Credit Facilities and the other
transactions contemplated hereby.
The Sponsors also agree to indemnify and hold harmless NationsBank, NMS and
their affiliates and their respective directors, officers, employees and agents
(the "INDEMNIFIED PARTIES") from and
<PAGE>
Mr. Bruce Bruckmann
April 21, 1999
Page 4
against any and all losses, claims, damages and liabilities, joint or several,
related to or arising out of any matters contemplated by this letter, unless and
only to the extent that it shall be finally judicially determined that such
losses, claims, damages or liabilities resulted primarily from the gross
negligence or willful misconduct of NationsBank or NMS or such other Indemnified
Parties.
The provisions of the immediately preceding two paragraphs shall remain in full
force and effect regardless of whether definitive financing documentation shall
be executed and delivered and notwithstanding the termination of this letter
agreement or the commitment of NationsBank and NMS hereunder, PROVIDED, HOWEVER,
that the Sponsors shall be deemed released of all obligations under the
immediately preceding two paragraphs upon the execution of definitive financing
documentation for the Credit Facilities.
As described herein and in the Term Sheet, NMS will act as Arranger and
Syndication Agent for the Credit Facilities. NationsBank reserves the right to
allocate, in whole or in part, to NMS certain fees payable to NationsBank in
such manner as NationsBank and NMS agree in their sole discretion. You
acknowledge and agree that NationsBank may share with any of its affiliates
(including specifically NMS) any information relating to the Credit Facilities,
the Borrower, the Acquired Company, the Sponsors and their subsidiaries and
affiliates, subject to the terms of the Confidentiality Agreement dated March
26, 1999.
This letter agreement may not be assigned by the Sponsors without the prior
written consent of NationsBank and NMS.
If you are in agreement with the foregoing, please execute and return the
enclosed copy of this letter agreement no later than 5:00 p.m., Wednesday,
June 30, 1999. This letter agreement will become effective upon your delivery
to us of executed counterparts of this letter agreement and the Fee Letter
and, without limiting the more specific terms hereof and of the Term Sheet,
you agree upon acceptance of this commitment to pay the fees set forth in the
Term Sheet and in the Fee Letter. This commitment shall terminate if not so
accepted by you prior to that time. Following acceptance by you, this
commitment will terminate on Friday, October 29, 1999, unless the Credit
Facilities are closed by such time.
Except as required by applicable law, this letter and the Fee Letter and the
contents hereof and thereof shall not be disclosed by you to any third party
(other than the Acquired Company) without the prior consent of NationsBank and
NMS, other than to your attorneys, financial advisors and accountants, in each
case to the extent necessary in your reasonable judgment; PROVIDED, HOWEVER, it
is understood and agreed that, you may disclose the terms of this letter to the
Acquired Company and its attorneys, agents and advisors in connection with the
Transaction.
This letter may be executed in counterparts which, taken together, shall
constitute an original. This letter, together with the Term Sheet and the Fee
Letter, embodies the entire agreement and understanding among NationsBank, NMS,
the Sponsors and the Borrower with respect to the specific matters set forth
herein and supersedes all prior agreements and understandings relating to the
subject matter hereof. No party has been authorized by NationsBank or NMS to
make any
<PAGE>
Mr. Bruce Bruckmann
April 21, 1999
Page 5
oral or written statements inconsistent with this letter. THIS LETTER SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.
Very truly yours,
NATIONSBANK, N.A.
By:
------------------------------------
Title:
---------------------------------
NationsBanc Montgomery
Securities LLC
By:
------------------------------------
Title:
---------------------------------
ACCEPTED AND AGREED TO:
CBF HOLDING LLC
By:
-----------------------------------
Title:
Date:
CBF MERGERCO INC.
By:
-----------------------------------
Title:
Date:
CITICORP VENTURE CAPITAL, LTD.
By:
-----------------------------------
Title:
Date:
<PAGE>
ANNEX I
CORT FURNITURE RENTAL CORPORATION
SUMMARY OF TERMS & CONDITIONS
APRIL 21, 1999
BORROWER: CBF Mergerco Inc. ("CBFMI") a newly formed company
will acquire (the "ACQUISITION") the outstanding
stock or assets of and be merged with and into CORT
Business Services Corporation, a Delaware corporation
(the "ACQUIRED COMPANY" or "CBSC"). CBFMI is or will
be a subsidiary of CBF Holding LLC, a holding company
(the "PARENT"), also newly formed and with no
business other than holding the stock of CBFMI and
other subsidiaries. CBSC is the parent holding
company of CORT Furniture Rental Corporation, a
Delaware corporation and an operating company
("CFRC"). CBFMI will be the initial Borrower to the
extent necessary to accomplish the Acquisition and
Merger, whereupon CFRC will assume the indebtedness
and obligations under the Credit Agreement, and
become the Borrower thereunder, from CBSC (being the
survivor to CBFMI in the Merger) which will thereupon
be released from its obligations as the Initial
Borrower, but will become a Guarantor, under the
Credit Agreement. As used herein and in the
Commitment Letter, the "BORROWER" shall refer to
CBFMI prior to completion of the Acquisition, Merger
and assumption by CFRC of the loans and obligations
under the Credit Agreement, and thereafter, to CFRC.
GUARANTORS: The Credit Facilities shall be guaranteed by CBSC and
all existing and hereafter acquired direct and
indirect domestic subsidiaries of CBSC other than the
Borrower (the "GUARANTORS") upon consummation of the
Acquisition. All guarantees shall be guarantees of
payment and not of collection.
AGENT: NationsBank, N.A. (the "AGENT" or "NATIONSBANK") will
act as sole and exclusive administrative and
collateral agent. As such, NationsBank will negotiate
with the Borrower, act as the primary contact for the
Borrower and perform all other duties associated with
the role of exclusive administrative agent. No other
agents or co-agents may be appointed without the
prior written consent of NationsBank and NMS.
SOLE LEAD ARRANGER &
SOLE BOOK MANAGER: NationsBanc Montgomery Securities LLC ("NMS").
LENDERS: A syndicate of financial institutions (including
NationsBank) arranged by NMS, which institutions
shall be acceptable to the Borrower and the Agent
(collectively, the "LENDERS").
<PAGE>
CREDIT
FACILITIES: An aggregate principal amount of up to $225 million
will be available at Closing under the conditions
hereinafter set forth:
REVOLVING CREDIT FACILITY: $225 million revolving
credit facility, which will include a $10 million
sublimit for the issuance of standby and commercial
letters of credit (each a "LETTER OF CREDIT") and a
$10 million sublimit for the making of swingline
loans (the "SWINGLINE LOANS"). Letters of Credit will
be issued by NationsBank (in such capacity, the
"FRONTING BANK"), and each Lender will purchase an
irrevocable and unconditional participation in each
Letter of Credit. Swingline Loans will be made by
NationsBank, and each Lender will purchase an
irrevocable and unconditional participation in each
Swingline Loan.
EXPANDABILITY PROVISION. The Revolving Credit
Facility will include an expandability clause
providing for additional commitments of up to $100
million available after the Borrower's election,
subject to the Borrower's obtaining the requested
commitments from existing Lenders or from other
lenders which constitute eligible assignees (to be
defined objectively).
PURPOSE: The proceeds of the Credit Facilities shall be used:
(i) to refinance the outstanding principal balance of
existing indebtedness of the Acquired Company and its
subsidiaries; (ii) to pay the cash portion of the
purchase price for the Acquired Company pursuant to
the Purchase Agreement (as defined below); (iii) to
pay fees and expenses incurred in connection with the
Acquisition; and (iv) to provide for working capital
and general corporate purposes of the Borrower and
its subsidiaries, including acquisitions (subject to
minimum Revolving Credit Facility availability
requirements to be determined).
INTEREST RATES: The Revolving Credit Facility shall bear interest as
set forth on Addendum I hereto.
MATURITY: The Revolving Credit Facility shall terminate and all
amounts outstanding thereunder shall be due and
payable in full 6 years from Closing.
AVAILABILITY: Loans under the Revolving Credit Facility ("REVOLVING
CREDIT LOANS" or the "LOANS") may be made, and
Letters of Credit may be issued subject to
availability under the aggregate committed amount for
the Revolving Credit Facility.
SECURITY: Concurrently with the Acquisition, the Agent (on
behalf of the Lenders) shall receive a first priority
perfected security interest in (i) 100% of the issued
and outstanding capital stock of the Borrower, (ii)
100% of the issued and outstanding capital stock of
each of the direct and indirect domestic subsidiaries
of the Borrower and (iii) 65% of the issued and
outstanding voting capital stock and 100% of the
issued and outstanding non-voting capital stock of
each direct foreign subsidiary of the Parent or any
of its domestic subsidiaries (or such greater or
lesser percentage
2
<PAGE>
allowable which would not result in a material tax
liability under U.S. law), which capital stock shall
not be subject to any other lien or encumbrance. The
Agent (on behalf of the Lenders) shall also receive a
first priority perfected security interest in all
other present and future personal property of the
Borrower and its subsidiaries (including, without
limitation, accounts receivable, inventory,
machinery, equipment, contracts, trademarks,
copyrights, patents, license agreements, and general
intangibles).
The foregoing security shall ratably secure the
Credit Facilities and any interest rate swap/foreign
currency swap or similar agreements with a Lender (or
an affiliate of a Lender) under the Credit
Facilities.
MANDATORY
PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Credit Facilities will be prepaid by an amount
equal to (a) 100% of the net cash proceeds of all
asset sales (excluding rental assets sold in the
normal course of business) by the Parent, the
Borrower or any subsidiary of the Borrower (including
stock of subsidiaries), subject to de minimus baskets
and reinvestment provisions and such other exceptions
as shall be mutually agreed; (b) 100% of the net cash
proceeds from the issuance of any debt (excluding
certain permitted debt and such other exceptions as
shall be mutually agreed) by the Parent, the Borrower
or any subsidiary; and (c) 50% of the net cash
proceeds from the issuance of equity by the CBSC, the
Borrower or any subsidiary. Prepayments shall serve
to permanently reduce the commitments under the
Revolving Credit Facility.
OPTIONAL
PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Borrower may prepay the Credit Facilities in
whole or in part at any time without penalty, subject
to reimbursement of the Lenders' breakage and
redeployment costs in the case of prepayment of LIBOR
borrowings prior to the end of the applicable
interest period.
CONDITIONS
PRECEDENT
TO CLOSING: Usual and customary for financing transactions of
this type and for the particular financing
transaction contemplated hereby, including but not
limited to the following:
(a) The negotiation, execution and delivery of
definitive documentation with respect to the
Credit Facilities satisfactory to NMS, the
Agent and the Lenders.
(b) A certified copy of the purchase agreement
(including all amendments, supplements,
schedules and exhibits thereto) regarding
the Acquisition (the "PURCHASE AGREEMENT")
which shall
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<PAGE>
provide for an aggregate purchase price not
in excess of $453 million (including assumed
indebtedness).
(c) The corporate capital and ownership
structure (including articles of
incorporation and by-laws), equityholder
agreements and management of CBSC, the
Borrower and its subsidiaries (after giving
effect to the Acquisition), including
without limitation employment contracts,
equity ownership interests and key man life
insurance with key executives, shall be
satisfactory to the Agent. Without limiting
the generality of the above, the Agent shall
be reasonably satisfied that (i) CBSC will
have at least $140 million in equity
capitalization, (ii) CFRC or any parent
company shall have issued and be in receipt
of the net proceeds of at least $250 million
in subordinated debt (the "SUBORDINATED
DEBT") on terms and conditions consistent
with existing market standards, and (iii)
the amount of the initial advance under the
Credit Facilities needed to accomplish the
Acquisition and Merger (including fees and
expenses relating thereto) will not exceed
$86 million. Notwithstanding the foregoing,
if market conditions permit the syndication
of the Credit Facilities on terms and
conditions, satisfactory to NMS and
NationsBank, at the discretion of the Agent,
the initial advance may be increased to an
amount not to exceed $121 million and the
equity contribution provided by the Sponsors
may be reduced accordingly.
(d) There shall not have occurred a material
adverse change since December 31, 1998 in
the business, assets, operations, condition
(financial or otherwise) or prospects of the
Acquired Company and its subsidiaries or in
the facts and information regarding such
entities as represented to date.
(e) The Agent shall have received a certificate
of solvency from a responsible officer of
the Borrower and the Guarantors (after
giving effect to the Acquisition and the
incurrence of indebtedness related thereto)
in form and substance reasonably
satisfactory to the Agent and the Required
Lenders.
(f) The Agent shall have received (a) reasonably
satisfactory opinions of counsel to the
Borrower and the Guarantors (which shall
cover, among other things, authority,
legality, validity, binding effect and
enforceability of the documents for the
Credit Facilities) and such resolutions,
certificates and other documents as the
Agent shall reasonably require and (b)
reasonably satisfactory evidence that the
Agent (on behalf of the Lenders) holds a
perfected, first priority lien in all
collateral for the Credit Facilities,
subject to no other liens except for
permitted liens to be determined.
(g) Receipt of all governmental, equityholder
and third party consents (including
Hart-Scott-Rodino clearance and the consent,
if
4
<PAGE>
necessary, of any existing lenders, lessors
and/or bondholders of the Acquired Company
to the extent that such indebtedness is to
remain in place after the Acquisition) and
approvals necessary or, in the reasonable
opinion of the Agent, desirable in
connection with the Acquisition and the
related financings and other transactions
contemplated hereby and expiration of all
applicable waiting periods without any
action being taken by any authority that
could restrain, prevent or impose any
material adverse conditions on the Acquired
Company or any of its subsidiaries or such
related financings or other transactions
contemplated hereby or that could seek or
threaten any of the foregoing, and no law or
regulation shall be applicable which in the
reasonable judgment of the Agent could have
such effect.
(h) The absence of any action, suit,
investigation or proceeding pending or
threatened in any court or before any
arbitrator or governmental authority that
purports to affect the Acquired Company or
any of its subsidiaries or the financings
and other transaction contemplated hereby,
or that could have a material adverse effect
on the Acquired Company or its subsidiaries
or such financings or other transaction
contemplated hereby or on the ability of the
Borrower and the Guarantors to perform their
respective obligations under the documents
to be executed in connection with the Credit
Facilities.
(i) CBSC and its subsidiaries, including the
Borrower, shall be in compliance with all
existing financial obligations (after giving
effect to the Acquisition).
(j) Receipt and review, with results reasonably
satisfactory to the Agent and its counsel,
of legal due diligence and information
regarding litigation, tax, accounting,
labor, insurance, pension liabilities
(actual or contingent), real estate leases,
material contracts, debt agreements,
property ownership, and contingent
liabilities of the Acquired Company and its
subsidiaries.
(k) The Borrower shall have paid to the Lenders
and the Agent all fees and expenses due and
payable at Closing.
REPRESENTATIONS
& WARRANTIES: Usual and customary for financing transactions of
this type and for the particular financing
transaction contemplated hereby, including but not
limited to the following: (i) corporate status; (ii)
corporate power and authority/enforceability; (iii)
no violation of law or contracts or organizational
documents; (iv) no material litigation; (v)
correctness of specified financial statements and no
material adverse change; (vi) no required
governmental or third party approvals; (vii) use of
proceeds/compliance with margin regulations; (viii)
status under Investment Company Act; (ix) ERISA; (x)
environmental matters; (xi)
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<PAGE>
perfected liens and security interests; (xii) payment
of taxes; and (xiii) Year 2000 preparedness.
COVENANTS: Usual and customary for financing transactions of
this type and for the particular financing
transaction contemplated hereby, including but not
limited to the following: (i) delivery of financial
statements and other reports; (ii) delivery of
compliance certificates: (iii) delivery of notices of
default, material litigation and material
governmental and environmental proceedings; (iv)
compliance with laws; (v) payment of taxes; (vi)
maintenance of insurance; (vii) limitation on liens
and negative pledges; (viii) limitations on mergers,
consolidations and sales of assets (subject, in the
case of asset sales and dispositions, to de minimum
baskets and reinvestment provisions); (ix)
limitations on incurrence of debt (subject to
expansion of the Credit Facilities as provided
herein); (x) limitations on dividends and stock
redemptions and the redemption and/or prepayment of
other debt; (xi) limitations on investments and
acquisitions (subject, in the case of acquisitions,
to the limitations provided below); (xii) ERISA;
(xiii) limitation on transactions with affiliates;
and (xiv) Year 2000 compliance and in each case
subject to agreed upon exceptions.
Financial covenants to be measured quarterly and to
include (without limitation):
(a) Maintenance on a rolling four quarter basis
of a Maximum Total Leverage Ratio (total
funded debt/EBITDA), of 4.75:1.0.
(b) Maintenance on a rolling four quarter basis
of a Maximum Senior Leverage Ratio (senior
funded debt/EBITDA), of 2.25:1.0.
(c) Maintenance on a rolling four quarter basis
of a Minimum Interest Coverage Ratio
(EBITDA/interest expense), of 2.0:1.0.
(d) Maintenance as of the end of each fiscal
quarter of a Maximum Loan to Value Ratio of
1.0:1.0. The denominator will consist of an
amount equal to the sum of (i) 100% of the
net book value of accounts receivable, (ii)
100% of the net book value of plant,
property and equipment and (iii) 100% of the
net book value of rental furniture.
The financial covenants will give pro forma effect
for acquisitions and dispositions, where appropriate.
CBSC shall have agreed that it will not engage in any
business, activity or operation other than owning and
holding the capital stock of the Borrower,
guaranteeing the Credit Facility and pledging its
assets (including the capital stock of the Borrower)
as security therefor, and activities directly related
thereto. The Parent shall not be permitted to merge
with or into any other person other than the
Borrower.
PERMITTED
6
<PAGE>
ACQUISITIONS: Acquisitions will be permitted provided that (i) the
acquisition is in the furniture equipment rental or
related or ancillary business, and (ii) no default or
event of default would exist after giving effect to
the acquisition on a pro forma basis.
EVENTS OF DEFAULT: Usual and customary for financing transactions of
this type and for the particular financing
transaction contemplated hereby, including but not
limited to the following and including grace and cure
periods where appropriate: (i) nonpayment of
principal, interest, fees or other amounts; (ii)
violation of covenants; (iii) inaccuracy of
representations and warranties; (iv) cross-default to
other material agreements and indebtedness; (v)
bankruptcy or insolvency; (vi) material judgments;
(vii) ERISA; (viii) actual or asserted invalidity of
any loan documents or security interests; or (ix)
Change in Control (to be agreed upon in a mutually
agreeable manner).
ASSIGNMENTS/
PARTICIPATIONS: Each Lender will be permitted to make assignments in
minimum principal amounts of $5 million to other
financial institutions approved by the Borrower and
the Agent, which approval shall not be unreasonably
withheld. Lenders will be permitted to sell
participations with voting rights limited to
significant matters such as changes in amount, rate,
and maturity date. An assignment fee of $3,500 is
payable by the Lender to the Agent upon any such
assignment occurring (including, but not limited to
an assignment by a Lender to another Lender).
WAIVERS &
AMENDMENTS: Amendments and waivers of the provisions of the loan
agreement and other definitive credit documentation
will require the approval of Lenders holding loans
and commitments representing more than 50% of the
aggregate amount of loans and commitments under the
Credit Facilities, except that the consent of all the
Lenders affected thereby shall be required with
respect to (i) increases in commitment amounts (other
than expansion of the Credit Facilities as provided
herein), (ii) reductions of principal, interest, or
fees, (iii) extensions of final maturities, (iv)
releases of all or substantially all collateral and
(v) releases of all or substantially all guarantors.
INDEMNIFICATION: The Borrower shall indemnify the Lenders from and
against all losses, liabilities, claims, damages or
expenses relating to their loans, the Borrower's use
of loan proceeds or the commitments, including but
not limited to reasonable attorneys' fees and
settlement costs. This indemnification shall survive
and continue for the benefit of the Lenders at all
times after the Borrower's acceptance of the Lenders'
commitment for the Credit Facilities, notwithstanding
any failure of the Credit Facilities to close.
GOVERNING LAW: New York.
7
<PAGE>
FEES/EXPENSES: As outlined in ADDENDUM I.
OTHER: This term sheet is intended as an outline only and
does not purport to summarize all the conditions,
covenants, representations, warranties and other
provisions which would be contained in definitive
legal documentation for the Credit Facilities
contemplated hereby. Each of the Borrower and the
Guarantors shall waive its right to a trial by jury.
8
<PAGE>
ADDENDUM I
FEES AND EXPENSES
COMMITMENT FEE: A 50 basis points per annum (calculated on the basis
of actual number of days elapsed in a year of 360
days) on the unused portion of the Credit Facilities
shall commence to accrue upon acceptance by the
Borrower of the commitment letter to which this term
sheet is attached and shall be paid upon execution of
a definitive credit agreement and thereafter
quarterly in arrears.
INTEREST RATES: The Revolving Credit Facility shall bear interest
at a rate equal to LIBOR plus 200 bps (calculated
on the basis of actual number of days elapsed in a
year of 360 days) or the Alternate Base Rate
(defined as the higher of (i) the NationsBank
prime rate and (ii) the Federal Funds rate
plus 1/2%) plus 75 bps (calculated on the basis of
actual number of days elapsed in a year of 365/366
days); PROVIDED, that if during the 180 day period
following the Closing, any breakage costs, charges
or fees are incurred with respect to LIBOR loans
on account of the syndication of the Credit
Facilities, the Borrower shall immediately
reimburse the Agent for any such costs, charges or
fees. Such right of reimbursement to be in
addition to and not in limitation of customary
cost and yield protection.
The Borrower may select interest periods of 1, 2, 3
or 6 months for LIBOR loans, subject to availability.
A penalty rate shall apply on all amounts outstanding
under the Credit Facilities (including Letters of
Credit) upon the occurrence of an Event of Default at
a rate per annum of 2% above the applicable interest
rate or letter of credit fee (without duplication).
PERFORMANCE
PRICING: The LIBOR and Alternate Base Rate margins (and the
letter of credit fees) for the Revolving Credit
Facility will be subject to performance pricing
step-downs commencing six (6) months from Closing,
based upon the Borrower's Total Leverage Ratio, as
outlined in the table below:
<TABLE>
<CAPTION>
Applicable
Total Funded Debt/ Applicable Base Rate
LEVEL EBITDA LIBOR MARGIN MARGIN
<S> <C> <C> <C>
I LESS THAN 2.50x 1.25% 0.00%
II GREATER THAN EQUAL TO 2.50x but LESS THAN 3.00x 1.50% 0.00%
III GREATER THAN EQUAL TO 3.00x but LESS THAN 3.50x 1.75% 0.50%
IV GREATER THAN EQUAL TO 3.50x but LESS THAN 4.00x 2.00% 0.75%
V GREATER THAN 4.00x 2.25% 1.00%
</TABLE>
COST AND YIELD
9
<PAGE>
PROTECTION: The usual for transactions and facilities of this
type, including, without limitation, in respect of
prepayments, changes in capital adequacy and capital
requirements or their interpretation, illegality,
unavailability, reserves without proration or offset.
LETTER OF CREDIT FEES: The Borrower shall pay a per annum letter of credit
fee (calculated on the basis of actual number of
days elapsed in a year of 360 days) on the
outstanding amount of all Letters of Credit. The
applicable letter of credit fee shall be (i) for
standby letters of credit, the percentage over LIBOR
(the "LIBOR MARGIN") applicable from time to time
for LIBOR based loans outstanding under the
Revolving Credit Facility and (ii) for trade letters
of credit, 50% of the LIBOR Margin. The letter of
credit fee shall be due quarterly in arrears and
shared proportionately by the Lenders.
In addition, the Borrower shall pay the Agent for its
own account a per annum facing fee of 1/8%
(calculated on the basis of actual number of days
elapsed in a year of 360 days) on the outstanding
amount of all Letters of Credit. The letter of credit
facing fee shall be due quarterly in arrears.
EXPENSES: Borrower will pay all reasonable costs and expenses
associated with the preparation, due diligence,
administration, syndication and enforcement of all
documents executed in connection with the Credit
Facilities, including without limitation, the
reasonable legal fees of the Agent's counsel
regardless of whether or not the Credit Facilities
are closed.
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Exhibit (a)(2)
CREDIT SUISSE FIRST BOSTON CORPORATION
Eleven Madison Avenue
New York, New York 10010
April 21, 1999
CBF Holding LLC
c/o Bruckmann, Rosser, Sherrill & Co.
126 East 56th Street, 29th Floor
New York, New York 10022
Attn: Bruce Bruckmann
Re: SENIOR SUBORDINATED NOTES
Dear Ladies and Gentlemen:
You have advised Credit Suisse First Boston ("CSFB") that
Bruckmann, Rosser, Sherrill & Co. ("BRS") has formed CBF Holding LLC ("HOLDINGS"
or "YOU" ) that together with Citicorp Venture Capital, Ltd. will (i) acquire
(the "ACQUISITION") all of the outstanding common stock of CORT Business
Services Corporation ("CORT") pursuant to a merger of a wholly owned subsidiary
of Holdings, CBF Mergerco, Inc., with and into CORT and (ii) refinance (the
"REFINANCING"), in connection with the Acquisition, certain of CORT's
indebtedness. References to the "COMPANY" mean CORT after giving effect to the
Acquisition and Refinancing.
You have further advised us that, in connection with such
Acquisition and Refinancing, you intend to have CBF Mergerco, Inc. issue senior
subordinated notes (the "SECURITIES") in the aggregate principal amount of
$250.0 million.
We are pleased to inform you that, assuming satisfactory
market conditions at the time of the proposed issuance, we are highly confident
of our ability to sell or place the Securities. The structure, covenants and
terms of the Securities will be as determined by Credit Suisse First Boston
Corporation in consultation with you based on market conditions at the time of
the offering or placement.
Our view as to our ability to consummate the offering or
placement of the Securities is subject to (i) there being at the time of such
offering or placement no material adverse change in the financial condition,
results of operations, business or prospects of the Company and its
subsidiaries, taken as a whole, since March 31, 1999, (ii) there being at the
<PAGE>
time of such offering or placement satisfactory market conditions for high-yield
securities comparable in terms, structure and credit rating to the Securities,
(iii) the delivery of audited and unaudited historical financial statements of
the Company as would be required by the Securities Act of 1933, as amended, and
the rules and regulations promulgated pursuant thereto for a registration
statement filed thereunder with respect to the Securities, (iv) our being
satisfied with the consolidated pro forma capitalization of the Company after
giving effect to the issuance of the Securities with respect to any changes from
the capitalization contemplated on the date hereof, (v) our completion of our
due diligence investigation of the Company and its business as a result of which
no information having come to our attention since the date hereof which we
reasonably believe would have a material adverse effect on the business,
condition (financial or otherwise), prospects or results of operations of the
Company and its subsidiaries taken as a whole, and (vi) the execution of a
customary underwriting, purchase or placement agreement and the satisfaction of
the conditions stated therein in all material respects, and of a customary
indenture, registration rights agreement, if applicable, and other customary
documentation, in each case with respect to the Securities, in form and
substance reasonably satisfactory to Credit Suisse First Boston Corporation.
The letter is solely for use by you and the Company and may
not be disclosed, except to representatives of the Company, without our prior
written consent. This letter does not reflect a commitment to underwrite or
place the Securities and shall be effective upon the date hereof and shall
expire on October 31, 1999.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ Mark W. Kennelley
---------------------------------
Name: Mark W. Kennelley
Title: Managing Director
By: /s/ Jeffrey Howe
---------------------------------
Name: Jeffrey Howe
Title: Director
<PAGE>
Exhibit (b)(2)
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MATERIALS PREPARED FOR THE
BOARD OF DIRECTORS OF:
CORT BUSINESS SERVICES CORP.
MARCH 25, 1999
------------------------------------------------------
THE FOLLOWING INFORMATION IS CONFIDENTIAL AND PROPRIETARY TO SUNTRUST
EQUITABLE SECURITIES CORPORATION. THE INFORMATION HAS BEEN PREPARED SOLELY FOR
THE BENEFIT OF THE BOARD OF DIRECTORS AND IS PROVIDED UPON THE UNDERSTANDING
THAT ANY PERSON ACCEPTING IT WILL NOT, WITHOUT THE PRIOR PERMISSION OF SUNTRUST
EQUITABLE SECURITIES, UTILIZE THE INFORMATION FOR ANY PURPOSE OTHER THAN AS
DESCRIBED HEREIN.
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<PAGE>
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THE FOLLOWING MATERIALS ARE BASED UPON SUNTRUST EQUITABLE SECURITIES
CORPORATION'S ANALYSIS OF THE TRANSACTION AS DESCRIBED IN THE DRAFT AGREEMENT
AND PLAN OF MERGER DATED MARCH 23, 1999. IN THE EVENT OF MATERIAL CHANGES TO
THIS DOCUMENT WHICH ARE NOT REFLECTED IN THESE MATERIALS, THE ENCLOSED ANALYSIS
AND OUR CONCLUSIONS MAY BE AFFECTED.
CERTAIN PORTIONS OF THE ENCLOSED ANALYSIS ARE BASED UPON PROJECTED FINANCIAL
RESULTS. ANY PROJECTED FINANCIAL RESULTS ARE BASED UPON MANAGEMENT PROJECTIONS,
ANALYST FORECASTS, INTERNAL PROJECTIONS AND DISCUSSIONS WITH MANAGEMENT. A
NUMBER OF FACTORS, INCLUDING INDUSTRY CONDITIONS, CHANGES IN COSTS, LABOR ISSUES
AND OTHER FACTORS WHICH ARE BEYOND THE SCOPE OF THESE PROJECTIONS AND OUT OF THE
CONTROL OF THE COMPANY AND SUNTRUST EQUITABLE MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THESE PROJECTIONS.
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<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Tab PAGE
- --- ----
<S> <C>
1. EXECUTIVE SUMMARY..........................................................1
2. HISTORICAL STOCK PRICE ANALYSIS............................................6
3. VALUATION ANALYSIS.........................................................8
A. COMPARABLE PUBLIC COMPANIES ANALYSIS.................................10
B. DISCOUNTED CASH FLOW ANALYSIS........................................26
C. LEVERAGED BUYOUT ANALYSIS............................................28
D. RECENT TRANSACTIONS IN THE RENTAL INDUSTRY...........................41
4. PREMIUMS PAID ANALYSIS....................................................44
</TABLE>
EXHIBIT
A. FORM OF STES OPINION LETTER
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EXECUTIVE SUMMARY
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<PAGE>
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EXECUTIVE SUMMARY
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- - We understand that an investor group that includes certain affiliates of
Bruckmann, Rosser, Sherrill & Co. ("BRS") and members of management
(collectively, the "Affiliated Shareholders") has offered to pay $24.00 in
cash and $2.50 liquidation value in preferred stock for each share of CORT
Business Services Corporation ("CORT" or the "Company") other than shares
to be contributed by the Affiliated Shareholders (the "Proposed
Transaction").
- - We have been informed that a newly-formed company to be known as
Acquisition Holdings, LLC ("Newco") will establish a wholly-owned
subsidiary, Acquisition Merger Sub, Inc. ("Sub"), which will be merged with
and into CORT, with CORT being the surviving entity. As a result, CORT will
become a wholly-owned subsidiary of Newco.
- - SunTrust Equitable Securities Corporation ("STES") has been retained by the
Company to render an opinion as investment bankers (the "Opinion") as to
the fairness, from a financial point of view, of the consideration to be
paid to the Company's shareholders other than those shareholders affiliated
with the acquiring entity (the "Non-Affiliated Shareholders") under the
terms of the Proposed Transaction.
- - We understand that the Board of Directors of Acquisition Holdings, LLC,
Acquisition Merger Sub, Inc. and the Company have deemed it advisable and
in the best interest of the respective companies and stockholders to
consummate the merger of Sub with and into the Company.
- - Furthermore, we understand that the Affiliated Shareholders have expressed
their intention to vote their shares in favor of the Proposed Transaction
only if the holders of a majority of the shares held by the Non-Affiliated
Shareholders that are voted at the special stockholder's meeting, vote to
approve the Proposed Transaction.
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PAGE 1 SUNTRUST EQUITABLE SECURITIES
<PAGE>
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EXECUTIVE SUMMARY (CONTINUED)
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SCOPE OF ENGAGEMENT
- - In connection with our engagement, STES has, among other things:
- reviewed a draft of the merger agreement (without exhibits) dated
March 23, 1999;
- reviewed certain historical and projected financial information
regarding CORT;
- reviewed certain information relating to comparable acquisition
transactions;
- reviewed certain financial and other information with respect to
certain other rental companies;
- compared certain financial positions and operating results of the
Company; and
- conducted such other financial studies, analyses and investigations
and reviewed such other factors as we deemed appropriate.
- - We held discussions with senior management of the Company concerning the
historical and current operations of the business, its financial condition
and prospects, as well as the present strategic and operating issues facing
the Company.
- - We have assumed (i) the accuracy of the Company's audited historical
financial statements as prepared by CORT's management and subject to audit
by KPMG Peat Marwick LLP, (ii) the accuracy of the Company's unaudited
interim historical financial statements as prepared by CORT's management
and (iii) the financial forecasts which we examined were reasonably
prepared on bases reflecting the best currently available estimates and
good faith judgments of the management of CORT.
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PAGE 2 SUNTRUST EQUITABLE SECURITIES
<PAGE>
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EXECUTIVE SUMMARY (CONTINUED)
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SCOPE OF ENGAGEMENT (CONTINUED)
- - We have also assumed that all material assets and liabilities (contingent
or otherwise) of the Company are as set forth in the financial statements
of the Company or as otherwise disclosed by CORT.
- - For purposes of our analysis, we have assumed, with guidance from
Company management and the Company's auditors that the transaction
will be accounted for utilizing recapitalization accounting for
business combinations and that the transaction will be taxable to the
selling shareholders.
- - Our methodologies included:
- A review and comparison of trading multiples for comparable
publicly-traded companies of other companies in the rental industry
including consumer rental companies and equipment rental companies;
- A review of recently completed and announced precedent transaction
multiples for merger and acquisition transactions in the rental
industry (i.e., multiples of revenues, book value, EBITDA, EBIT, net
income and book value);
- A review of the premiums paid relative to recent public market trading
prices for cash transactions within a value range of $200 to $500
million since January 1, 1998;
- A review of the premiums paid relative to recent public market trading
prices for companies that had experienced a decline in stock price one
year prior to announcement;
- Performing a discounted cash-flow analysis of the Company including
sensitivity analyses utilizing a range of assumptions; and
- Performing a stand-alone leveraged buyout analysis of the Company,
employing capitalization assumptions consistent with the proposal
received from the proposed buyer including sensitivity analyses
utilizing a range of assumptions.
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PAGE 3 SUNTRUST EQUITABLE SECURITIES
<PAGE>
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EXECUTIVE SUMMARY (CONTINUED)
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TERMS AND CONDITIONS
PROPOSAL
- Newco will acquire, through a cash merger,
all of the issued and outstanding shares of
CORT other than shares to be contributed by
the Affiliated Shareholders in a taxable
transaction which will be accounted for
utilizing recapitalization accounting for
business combinations
CONDITIONS TO CLOSING - Negotiation of a definitive merger agreement
- Approval of the Proposed Transaction or the
expiration of any applicable waiting periods
under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976
- Receipt of debt financing commitments by
Newco
- Receipt of shareholder approvals
DATE OF CLOSING - On or about June 30, 1999
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PAGE 4 SUNTRUST EQUITABLE SECURITIES
<PAGE>
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EXECUTIVE SUMMARY (CONTINUED)
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NON-CASH CONSIDERATION
- - The terms of the Proposed Transaction include the issuance of $2.50
liquidation value preferred stock. The preferred stock has a 12% dividend
that is paid-in-kind for the first five years of the 12 year life.
- - Several factors may affect the value at which this security trades relative
to par, including: (i) trading market liquidity, (ii) credit rating of the
issuer and (iii) market conditions and acceptance of the PIK structure.
- - Due to the uncertainty surrounding the Company's capital structure, credit
rating and other factors following the Proposed Transaction, STES has not
attempted to formally value the security. However, based upon discussions
with STES equity capital markets professionals, we believe that the
security may trade at a yield in excess of its stated coupon rate.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 5 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
------------------------------------------------------
HISTORICAL STOCK PRICE ANALYSIS
------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HISTORICAL STOCK PRICE ANALYSIS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HISTORICAL PRICE VOLUME GRAPH - CORT BUSINESS SERVICES
WEEKLY SINCE JANUARY 1996
[GRAPHIC]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 6 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HISTORICAL STOCK PRICE ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROFILE OF COMPANY'S OWNERSHIP
TOTAL DILUTED SHARES OUTSTANDING -- 13,696,585 (1)
TOP 10 INSTITUTIONAL INVESTORS (2)
<TABLE>
<CAPTION>
Latest
Shares Held Change Date
----------- ------ ----
<S> <C> <C> <C>
Citicorp 5,779,000 0 12/98
T. Rowe Price 1,268,000 0 2/99
Edgemont Asset Management 500,000 (1.2MM) 12/98
Kalmar Investments 469,400 59,800 12/98
Fiduciary Trust 416,600 (41,200) 12/98
Fidelity Management 397,200 292,500 12/98
Citigroup 314,552 85,576 12/98
Palisade Capital Management 286,500 (10,800) 12/98
Loomis Sayles & Company 282,200 (4,700) 12/98
Massachusetts Mutual 250,500 50,400 12/98
Other 2,486,048
---------
TOTAL INSTITUTIONAL 12,450,000
----------
PERCENT HELD 90.9%
</TABLE>
- ------------
(1) Assumes a $26.50 stock price.
(2) Based upon data from Bloomberg.
(3) Based upon the Company's proxy statement stated March 31, 1998.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT (3)
<TABLE>
<CAPTION>
DIRECTORS SHARES HELD PERCENT
----------- -------
<S> <C> <C>
Paul N. Arnold 181,662 1.3%
Bruce C. Bruckmann 161,239 1.2%
Keith E. Alessi 47,993 *
Gregory B. Maffei 38,526 *
Charles M. Egan 24,265 *
James A. Urry 10,267 *
Michael A. Delaney 4,334 *
CERTAIN EXECUTIVE OFFICERS
Lloyd Lenson 108,954 *
Kenneth W. Hemm 81,716 *
Steven D. Jobes 64,763 *
Frances Ann Ziemniak 57,608 *
All Executive Officers and Directors 887,995 6.5%
------- ----
------- ----
</TABLE>
* Less than 1% ownership
[GRAPHIC]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 7 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
------------------------------------------------------
VALUATION MATRIX
------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUATION MATRIX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
PRICE PER SHARE $24.50 $25.50 $26.50 $27.50 $28.50
- ------------------------------
IMPLIED PREMIUM $ 15.63 3/23/99 56.8% 63.2% 69.6% 76.0% 82.4%
(000S) EXCEPT PER SHARE DATA
SHARES OUTSTANDING 13,095 $320,817 $333,912 $347,007 $360,101 $373,196
WARRANTS $0 $0 $0 $0 $0
OPTIONS $12,784 $14,480 $16,462 $18,498 $20,569
EQUITY PURCHASE PRICE $333,601 $348,392 $363,468 $378,599 $393,765
DEBT ASSUMED $90,800 $90,800 $90,800 $90,800 $90,800
- ---------------------------------------------------------------------------------------------------------------------------
IMPLIED FIRM VALUE $424,401 $439,192 $454,268 $469,399 $484,565
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
FIRM VALUE/TOTAL REVENUE
Trailing Twelve Months $308,352 1.4x 1.4x 1.5x 1.5x 1.6x
1998 (1) $318,964 1.3 1.4 1.4 1.5 1.5
Projected 1999 (2) $359,191 1.2 1.2 1.3 1.3 1.3
- ---------------------------------------------------------------------------------------------------------------------------
FIRM VALUE/EBITDA
Trailing Twelve Months $59,514 7.1x 7.4x 7.6x 7.9x 8.1x
1998 (1) $60,793 7.0 7.2 7.5 7.7 8.0
Projected 1999 (2) $67,151 6.3 6.5 6.8 7.0 7.2
- ---------------------------------------------------------------------------------------------------------------------------
FIRM VALUE/EBIT
Trailing Twelve Months $51,861 8.2x 8.5x 8.8x 9.1x 9.3x
1998 (1) $52,645 8.1 8.3 8.6 8.9 9.2
Projected 1999 (2) $57,954 7.3 7.6 7.8 8.1 8.4
- ---------------------------------------------------------------------------------------------------------------------------
EQUITY PRICE/EPS
Trailing Twelve Months $1.89 13.0x 13.5x 14.0x 14.6x 15.1x
1998 (1) $1.92 12.8 13.3 13.8 14.3 14.8
Projected 1999 (2) $2.19 11.2 11.6 12.1 12.5 13.0
- ---------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE/BOOK EQUITY
Trailing Twelve Months $169,189 2.0x 2.1x 2.1x 2.2x 2.3x
1998 (1) $175,663 1.9 2.0 2.1 2.2 2.2
Projected 1999 (2) N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1998 FINANCIALS REFLECT UNAUDITED RESULTS.
(2) PROJECTION SOURCE: COMPANY PROJECTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 8 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUATION MATRIX (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORT PROJECTED EPS ANALYSIS
<TABLE>
<CAPTION>
P/E MULTIPLE AS CORT 1999 EPS
P/E PERCENTAGE OF ---------------------------------------------------------------------------------------
MULTIPLE 1999 EPS GROWTH $ 1.992 $ 2.092 $ 2.192 (1) $ 2.292 $ 2.392
---------------- -------------------- --------------- ---------------- ----------------- ----------------- --------------
---------------- -------------------- --------------- ---------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
8.0x 56.7% $ 15.94 $ 16.74 $ 17.54 $ 18.34 $ 19.14
9.0x 63.8% $ 17.93 $ 18.83 $ 19.73 $ 20.63 $ 21.53
10.0x 70.9% $ 19.92 $ 20.92 $ 21.92 $ 22.92 $ 23.92
11.0x 78.0% $ 21.91 $ 23.01 $ 24.11 $ 25.21 $ 26.31
12.0x 85.1% $ 23.90 $ 25.10 $ 26.30 $ 27.50 $ 28.70
</TABLE>
- ------------
(1) Management's estimate.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 9 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
------------------------------------------------------
COMPARABLE PUBLIC COMPANIES ANALYSIS
------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARABLE PUBLIC COMPANIES ANALYSIS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- - We have examined the trading and valuation characteristics of a group of
publicly-traded companies engaged in the rental industry. None of these
companies are identical to CORT. We have classified these companies into
two groups (i) consumer rental and (ii) equipment rental.
- - The consumer rental companies operate in three distinct business segments:
(i) rent-to-rent, (ii) rental-purchase and (iii) interim housing services.
The companies examined were:
- Aaron Rents
- Globe Business Resources
- Rainbow Rentals
- Rent-A-Center
- Rent-Way
- - The equipment rental companies provide rental services for a wide range of
products, including heavy equipment, tools and small equipment, modular
structures, test equipment and computer hardware. The equipment rental
companies examined were:
- Electro Rent
- McGrath Rentcorp
- National Equipment Services
- NEFF Corp.
- Rental Service Corp.
- United Rentals
- - Due to the lack of comparability of these companies to CORT, we do not
believe that a mathematical application of broad averages or other
statistics derived from this group is meaningful in the determination of a
value for CORT. Each company's valuation must be analyzed in context with
its business focus and trading history relative to CORT. The schedules on
the following pages present an assessment of each company's business,
industry sector and trading history relative to CORT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 10 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARABLE PUBLIC COMPANIES ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DESCRIPTION OF COMPARABLE COMPANIES (CONSUMER RENTAL)
AARON RENTS (RNT-NYSE) - Aaron Rents, Inc. rents and sells office and
residential furniture, household appliances and consumer electronics. The
Company also manufactures its furniture rental products through five furniture
manufacturing plants and four bedding manufacturing facilities. Aaron currently
operates or franchises 417 stores in 32 states.
GLOBE BUSINESS RESOURCES (GLBE-NASDAQ) - Globe Business Resources, Inc. operates
a rent-to-rent business, as well as providing corporate housing. The Company
rents furniture to corporate and individual customers, and provides short-term
leased housing to corporate personnel, government agency employees and other
individuals.
RAINBOW RENTALS (RBOW-NASDAQ) - Rainbow Rentals, Inc. operates 67
rental-purchase stores in eight states. The Company offers home electronics,
furniture, appliances and computers. Rainbow rents merchandise to individuals
under agreements that allow the customers to own the merchandise after a
specified number of rental payments.
RENT-A-CENTER (RCII-NASDAQ) - Rent-A-Center, Inc. operates 2,450
rental-purchase stores. The Company products include consumer electronics,
appliances, furniture and accessories. Rent-A-Center markets its products to
customers under rental purchase arrangements that allow customers to obtain
ownership of the merchandise at the conclusion of an agreed-upon rental period.
RENT-WAY (RWY-NYSE) - Rent-Way, Inc. operates 865 rental-purchase stores in the
United States. The Company's stores offer brand name entertainment equipment,
furniture, appliances and jewelry. Rent-Way operates in 32 states.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 11 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARABLE PUBLIC COMPANIES ANALYSIS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DESCRIPTION OF COMPARABLE COMPANIES (EQUIPMENT RENTAL)
ELECTRO RENT (ELRC-NASDAQ) - Electro Rent Corporation offers short-term rental
of electronic equipment. The Company's equipment consists primarily of general
purpose test and measurement instruments and microprocessor development systems.
Electro also leases personal computers and workstations, and services its
customers through a network of equipment calibration and service centers in the
U.S. and Canada.
McGRATH RENTCORP (MGRC-NASDAQ) - McGrath Rentcorp rents and sells relocatable
modular offices. The Company's offices are used as temporary offices adjacent to
existing facilities and as sales offices, construction field offices, classrooms
and for a variety of other purposes. McGrath also rents electronic test and
measurement instruments. The Company operates two branch offices located in
California and one in Texas.
NATIONAL EQUIPMENT SERVICES (NSV-NYSE) - National Equipment Services, Inc. rents
general equipment to industrial and construction end-users. The Company rents
more than 750 different types of machinery and equipment, as well as distributes
new equipment for original equipment manufacturers.
NEFF CORPORATION (NFF-NYSE) - Neff Corporation is an equipment rental company.
The Company operates 70 rental locations in 15 states. Neff rents backhoes, air
compressors, loaders, lifts, and compaction equipment to construction and
industrial customers. The Company also sells used equipment, spare parts, and
merchandise and provides ongoing repair and maintenance services.
RENTAL SERVICE CORPORATION (RSV-NYSE) - Rental Service Corporation is a
consolidator in the equipment rental industry. The Company serves the
industrial, manufacturing and construction markets. Rental Service operates more
than 235 rental locations throughout the U.S. and Canada.
UNITED RENTALS (URI-NYSE) - United Rentals, Inc. is an equipment rental company
operating a network of locations in the United States, Canada and Mexico. The
Company serves the construction industry, industrial and commercial concerns,
homeowners and other individuals.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 12 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARABLE PUBLIC COMPANIES ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSESSMENT OF COMPARABLE COMPANIES RELATIVE TO CORT
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY GROWTH &
SIMILARITY OF TRADING HISTORICAL EXPECTED INDUSTRY CONSOLIDATION
COMPANY BUSINESS RELATIONSHIP GROWTH GROWTH SIZE OPPORTUNITIES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aaron Rents High (50%) Consistent Lower Higher Same + RP segment Greater
Low (50%)
- -----------------------------------------------------------------------------------------------------------------------------------
Globe Bus. Res. High (60%) Moderately consistent Lower Higher Same + Interim Greater
Low (40%) housing segment
- -----------------------------------------------------------------------------------------------------------------------------------
Rainbow Rentals Low Limited history Higher Higher Significantly larger Greater
- -----------------------------------------------------------------------------------------------------------------------------------
Rent-A-Center Low Inconsistent Higher Higher Significantly larger Greater
- -----------------------------------------------------------------------------------------------------------------------------------
Rent-Way Low Inconsistent Higher Higher Significantly larger Greater
- -----------------------------------------------------------------------------------------------------------------------------------
Electro Rent Moderate Moderately consistent Similar N/A Larger Greater
- -----------------------------------------------------------------------------------------------------------------------------------
McGrath Rentcorp Moderate Moderately consistent Similar Higher N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Nat. Equip. Svc. Moderate Limited history N/A Higher Significantly larger Greater
- -----------------------------------------------------------------------------------------------------------------------------------
NEFF Corp. Moderate Limited history Higher Higher Significantly larger Greater
- -----------------------------------------------------------------------------------------------------------------------------------
Rental Svc. Corp. Moderate Inconsistent Higher Higher Significantly larger Greater
- -----------------------------------------------------------------------------------------------------------------------------------
United Rentals Moderate Limited history Higher Higher Significantly larger Greater
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 13 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARABLE PUBLIC COMPANIES ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HISTORICAL P/E GRAPHS - CORT VS. OTHER RENTAL-RELATED COMPANIES WEEKLY SINCE
JANUARY 1996
(EXCLUDES COMPANIES WITH LESS THAN TWO YEARS OF QUARTERLY EPS HISTORY)
AARON RENTS GLOBE BUSINESS RESOURCES
[GRAPHIC] [GRAPHIC]
RENT-A-CENTER (1) RENT-WAY (2)
[GRAPHIC] [GRAPHIC]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 14 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARABLE PUBLIC COMPANIES ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HISTORICAL P/E GRAPHS - CORT VS. OTHER RENTAL-RELATED COMPANIES
WEEKLY SINCE JANUARY 1996
(EXCLUDES COMPANIES WITH LESS THAN TWO YEARS OF QUARTERLY EPS HISTORY)
ELECTRO RENT McGRATH RENTCORP
[GRAPHIC] [GRAPHIC]
RENTAL SERVICE CORPORATION
[GRAPHIC]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 15 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARABLE PUBLIC COMPANIES ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARABLE STOCK PERFORMANCE GRAPHS
DAILY SINCE MARCH 23, 1998
[GRAPHIC] [GRAPHIC]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 16 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARABLE PUBLIC COMPANIES ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARABLE STOCK PERFORMANCE GRAPHS
DAILY SINCE MARCH 23, 1998
[GRAPHIC] [GRAPHIC]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 17 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSUMER RENTAL SECTOR OVERVIEW
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE)
SUMMARY OF FINANCIAL AND STATISTICAL DATA
<TABLE>
<CAPTION> TOTAL MARKET CAP AS A
MULTIPLE OF TR12:
----------------------------- 1999 P/E
3/23/99 EQUITY TOTAL AS A % OF
CLOSING MARKET MARKET NET TR12 EPS CY1998 CY1999 BOOK TRENDLINE
COMPANY NAME PRICE VALUE CAPITAL REVENUES EBITDA EBIT P/E P/E (1) P/E (1) VALUE GROWTH (1)
- --------------------------------- ----------------------------- ------------------ -------------------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CORT BUSINESS SERVICES $15.63 $204,342 $303,642 $308,352 $59,514 $51,861 $1.89 $1.92 $2.20 $169,189 16.0%
1.0x 5.1x 5.9x 8.3x 8.1x 7.1x 1.2x 44.4%
- -----------------------------------------------------------------------------------------------------------------------------------
AARON RENTS 14.94 306,601 358,553 363,091 45,621 37,379 1.00 1.04 1.15 169,936 16.7%
1.0x 7.9x 9.6x 14.9x 14.4x 13.0x 1.8x 77.8%
GLOBE BUSINESS RESOURCES 12.63 58,850 120,599 139,355 15,126 11,261 0.93 1.06 1.25 38,935 18.3%
0.9x 8.0x 10.7x 13.6x 11.9x 10.1x 1.5x 55.3%
RAINBOW RENTALS 9.75 57,776 57,982 61,220 8,697 6,938 0.70 0.70 0.77 25,777 18.0%
0.9x 6.7x 8.4x 13.9x 13.9x 12.7x 2.2x 70.3%
RENT-A-CENTER 26.00 625,943 1,061,451 551,721 94,244 72,927 1.20 1.23 1.53 148,879 24.1%
1.9x 11.3x 14.6x 21.7x 21.1x 17.0x 4.2x 70.4%
RENT-WAY 24.00 507,827 715,989 470,954 26,671 21,329 0.34 1.12 1.39 238,383 27.4%
1.5x 26.8x 33.6x N/M 21.5x 17.3x 2.1x 63.0%
- -----------------------------------------------------------------------------------------------------------------------------------
MINIMUM MULTIPLE EXCLUDING CORT 0.9x 6.7x 8.4x 13.6x 11.9x 10.1x 1.5x 55.3%
MAXIMUM MULTIPLE EXCLUDING CORT 1.9x 26.8x 33.6x 21.7x 21.5x 17.3x 4.2x 77.8%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Earnings and trendline growth estimates are provided by I/B/E/S and Zack's.
Calendarized where appropriate.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 18 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSUMER RENTAL SECTOR OVERVIEW (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Dollar amounts in thousands except per share)
SUMMARY OPERATIONAL RESULTS
<TABLE>
<CAPTION>
NET REVENUES EBITDA MARGIN (1) NET INCOME
------------------------------------------------------------ DEBT/TOTAL --------------------------
TR12 CAGR (2) TR12 AVG. (3) CAPITALIZATION TR12 CAGR (2)
-------------- ----------- -------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CORT BUSINESS SERVICES $308,352 26.6% 19.3% 18.1% 37.0% $25,419 89.5%
AARON RENTS 363,091 14.3% 12.6% 10.2% 23.4% 20,392 18.0%
GLOBE BUSINESS 139,355 43.7% 10.9% 13.3% 61.3% 4,340 22.2%
RESOURCES
RAINBOW 61,220 14.0% 14.2% 14.2% 0.8% 3,120 48.0%
RENTALS
RENT-A-CENTER 551,721 57.7% 17.1% 17.4% 30.1% 29,928 55.4%
RENT-WAY 470,954 57.5% 5.7% 5.8% 46.6% 6,829 (10.1%)
- ------------------------------------------------------------------------------------------------------------------------------------
CORT'S RANK ---- 4 1 1 4 ---- 1
AVERAGE $317,268 37.5% 12.1% 12.2% 32.5% $12,922 26.7%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RETURN ON
AVG.
EBIT EBIT MARGIN RETURN ON AVG. EQUITY ASSETS
---------------------------- -------------------------- --------------------------- ---------------------
TR12 CAGR (2) TR12 AVG. (3) TR12 AVG. (3) TR12 AVG. (3)
-------------- ----------- ------------ ----------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CORT BUSINESS SERVICES $51,861 31.6% 16.8% 15.7% 16.0% 16.0% 8.3% 8.1%
AARON RENTS 37,379 19.1% 10.3% 9.5% 12.5% 14.0% 8.0% 8.3%
GLOBE BUSINESS 11,261 12.5% 8.1% 11.2% 11.7% 12.8% 4.0% 5.1%
RESOURCES
RAINBOW 6,938 38.2% 11.3% 10.3% 21.6% 26.0% 9.8% 9.3%
RENTALS
RENT-A-CENTER 72,927 52.3% 13.2% 13.7% 19.8% 18.2% 3.2% 9.3%
RENT-WAY 21,329 (0.4%) 4.5% 4.2% 2.8% 6.0% 1.4% 2.9%
- ------------------------------------------------------------------------------------------------------------------------------------
CORT'S RANK ---- 3 1 1 3 3 2 4
AVERAGE $29,967 24.3% 9.5% 9.8% 13.7% 15.4% 5.3% 7.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) EBITDA excludes rental merchandise depreciation.
(2) Computed over the previous three fiscal years.
(3) Average margin for the previous three fiscal years and the trailing 12
months.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 19 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSUMER RENTAL SECTOR OVERVIEW (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HISTORICAL STOCK PRICE PERFORMANCE
<TABLE>
<CAPTION>
CLOSING STOCK PRICE
-------------------------------- AVERAGE DAILY DOLLAR PERCENTAGE
COMPANY TICKER 3/23/98 3/23/99 VOLUME VARIANCE VARIANCE
- ---------------------------- -------------- -------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CORT BUSINESS SERVICES CBZ/NYSE $44.44 $15.63 43,015 (28.81) (64.8%)
AARON RENTS (1) RNT/NYSE 23.44 14.94 39,018 (8.50) (36.3%)
GLOBE BUSINESS RESOURCES GLBE/Nasdaq 13.38 12.63 5,638 (0.75) (5.6%)
RAINBOW RENTALS (2) RBOW/Nasdaq 10.00 9.75 6,256 (0.25) (2.5%)
RENT-A-CENTER RCII/Nasdaq 25.25 26.00 108,589 0.75 3.0%
RENT-WAY (3) RWY/NYSE 23.25 24.00 94,887 0.75 3.2%
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE (7.6%)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Aaron Rents completed a secondary offering of 2.5 million shares on April
28, 1998, priced at $20.13 per share.
(2) Rainbow Rentals completed an initial public offering of 2.25 million shares
on June 4, 1998, priced at $10.00 per share.
(3) Rent-Way issued approximately 10.0 million shares in the acquisition of
Home Choice Holdings.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 20 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSUMER RENTAL SECTOR OVERVIEW (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HISTORICAL MARKET CAPITALIZATION
<TABLE>
<CAPTION>
MARKET VALUE (000'S)
CLOSING STOCK PRICE --------------------------------------------------------
------------------------- DOLLAR PERCENTAGE
COMPANY TICKER 3/23/98 3/23/99 3/23/98 3/23/99 VARIANCE VARIANCE
- --------------------------- ------------ ------------ ---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CORT BUSINESS SERVICES CBZ/NYSE $44.44 $15.63 $577,623 $204,342 ($373,281) (64.6%)
AARON RENTS (1) RNT/NYSE 23.44 14.94 445,005 306,601 (138,404) (31.1%)
GLOBE BUSINESS RESOURCES GLBE/Nasdaq 13.38 12.63 60,835 58,850 (1,985) (3.3%)
RAINBOW RENTALS (2) RBOW/Nasdaq 10.00 9.75 59,257 57,776 (1,481) (2.5%)
RENT-A-CENTER RCII/Nasdaq 25.25 26.00 629,422 625,943 (3,479) (0.6%)
RENT-WAY (3) RWY/NYSE 23.25 24.00 253,063 507,827 254,765 100.7%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL/AVERAGE $1,447,582 $1,556,997 $109,415 7.6%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Aaron Rents completed a secondary offering of 2.5 million shares on April
28, 1998, priced at $20.13 per share.
(2) Rainbow Rentals completed an initial public offering of 2.25 million shares
on June 4, 1998, priced at $10.00 per share.
(3) Rent-Way issued approximately 10.0 million shares in the acquisition of
Home Choice Holdings.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 21 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EQUIPMENT RENTAL SECTOR OVERVIEW
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE)
SUMMARY FINANCIAL AND STATISTICAL MARKET DATA
<TABLE>
<CAPTION>
TOTAL FIRM VALUE AS A 1999 P/E
MULTIPLE OF TR12: EQUITY VALUE AS A MULTIPLE OF: AS A %
3/23/99 TOTAL EQUITY ----------------------------- ------------------------------------- OF
CLOSING FIRM MARKET NET TR12 CY1998 CY1999 BOOK TRENDLINE
COMPANY NAME PRICE VALUE VALUE REVENUES EBITDA EBIT P/E P/E (1) P/E (1) VALUE GROWTH
(1)
- ---------------------- -------------------- ---------------------------------------- --------- ----------------- --------- ---------
CORT BUSINESS SERVICES $15.63 $303,642 $204,342 $308,352 $59,514 $51,861 $1.89 $1.92 $2.20 $169,189 16.0%
1.0x 5.1x 5.9x 8.3x 8.1x 7.1x 1.2x 44.4%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ELECTRO RENT 10.00 421,542 244,542 307,706 68,461 63,811 1.13 N/A N/A 182,354 N/A
1.4x 6.2x 6.6x 8.8x N/A N/A 1.3x N/A
McGRATH RENTCORP 18.25 355,516 255,516 134,627 48,116 46,251 1.60 1.67 1.97 101,049 20.0%
2.6x 7.4x 7.7x 11.4x 10.9x 9.3x 1.2x 46.3%
NATIONAL EQUIPMENT 9.13 679,686 220,112 330,487 79,027 65,484 0.75 0.68 0.85 131,839 22.0%
SERVICES 2.1x 8.6x 10.4x 12.2x 13.4x 10.7x 1.7x 48.8%
NEFF CORP. 5.56 531,032 117,732 385,861 57,928 46,917 0.68 (0.23) 0.63 96,772 25.8%
1.4x 9.2x 11.3x 8.2x N/M 8.8x 1.2x 34.2%
RENTAL SERVICE CORP. (2) 16.00 1,194,686 385,974 578,474 122,077 101,500 1.32 1.32 1.58 417,485 22.8%
2.1x 9.8x 11.8x 12.1x 12.1x 10.1x 0.9x 44.4%
UNITED RENTALS 26.63 3,197,641 1,883,672 1,600,486 291,237 243,211 1.24 1.24 1.58 1,078,010 28.6%
2.0x 11.0x 13.1x 21.5x 21.5x 16.9x 1.7x 58.9%
- -----------------------------------------------------------------------------------------------------------------------------------
MINIMUM MULTIPLE EXCLUDING CORT 1.4x 6.2x 6.6x 8.2x 10.9x 8.8x 0.9x 34.2%
MAXIMUM MULTIPLE EXCLUDING CORT 2.6x 11.0x 13.1x 21.5x 21.5x 16.9x 1.7x 58.9%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Earnings and trendline growth estimates provided by I/B/E/S and Zack's.
Calendarized where appropriate.
(2) Pending acquisition of NationsRent, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 22 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EQUIPMENT RENTAL SECTOR OVERVIEW (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(dollar amounts in thousands except per share data)
SUMMARY OPERATIONAL RESULTS
<TABLE>
<CAPTION>
NET REVENUES EBITDA EBITDA MARGINS (1) EBIT
------------------------- --------------------------- ------------------------ -------------------------
TR12 CAGR (2) TR12 CAGR (2) TR12 AVG. (3) TR12 CAGR (2)
------------- ----------- ------------- ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CORT BUSINESS SERVICES $308,352 26.6% $59,514 31.8% 19.3% 18.1% $51,861 31.6%
ELECTRO RENT 307,706 34.5% 68,461 29.6% 22.2% 26.4% 63,811 28.9%
MCGRATH RENTCORP 134,627 37.6% 48,116 31.4% 35.7% 35.5% 46,251 31.8%
NATIONAL EQUIPMENT 330,487 N/A 79,027 N/A 23.9% 23.1% 65,484 N/A
SERVICES
NEFF CORP. 385,861 95.0% 57,928 113.5% 15.0% 11.3% 46,917 104.8%
RENTAL SERVICE CORP. 578,474 112.3% 122,077 153.6% 21.1% 18.8% 101,500 171.5%
UNITED 1,600,486 112.5% 291,237 123.5% 18.2% 17.2% 243,211 123.0%
RENTALS
- ------------------------------------------------------------------------------------------------------------------------------------
CORT'S RANK ---- 6 ---- 4 5 5 ---- 5
AVERAGE $520,856 69.7% $103,766 80.6% 22.2% 21.5% $88,434 81.9%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EBIT MARGINS RETURN ON AVG. EQUITY RETURN ON AVG. ASSETS
------------------------- -------------------------- DEBT / TOTAL --------------------------
TR12 AVG. (3) TR12 AVG. (3) CAPITALIZATION TR12 AVG. (3)
------------- ----------- -------------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CORT BUSINESS SERVICES 16.8% 15.7% 16.0% 16.0% 37.0% 8.3% 8.1%
ELECTRO RENT 20.7% 25.3% 16.1% 18.6% 49.3% 6.5% 10.0%
MCGRATH RENTCORP 34.4% 34.2% 23.4% 22.3% 49.7% 8.9% 9.3%
NATIONAL EQUIPMENT SERVICES 19.8% 18.8% 19.7% 24.4% 77.7% 4.0% 5.0%
NEFF CORP. 12.2% 9.2% (4.0%) 20.4% 78.6% (0.3%) (1.5%)
RENTAL SERVICE CORP. 17.5% 15.1% 7.0% 7.4% 66.0% 2.2% 2.6%
UNITED 15.2% 14.4% 7.7% 7.5% 42.4% 3.1% 4.4%
RENTALS
- ------------------------------------------------------------------------------------------------------------------------
CORT'S RANK 5 4 4 5 1 2 3
AVERAGE 19.5% 19.0% 12.3% 16.7% 57.2% 4.7% 5.4%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) EBITDA excludes rental merchandise depreciation.
(2) Computed over the previous three fiscal years.
(3) Average margin for the previous three fiscal years and the trailing 12
months.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 23 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EQUIPMENT RENTAL SECTOR OVERVIEW (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HISTORICAL STOCK PRICE PERFORMANCE
<TABLE>
<CAPTION>
CLOSING STOCK
PRICE AVG DAILY
------------------------------- DOLLAR PERCENTAGE TRADING
COMPANY TICKER 3/23/98 3/23/99 CHANGE CHANGE VOLUME
- -------------------------------- -------------- --------------- --------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
CORT BUSINESS SERVICES CBZ/NYSE $44.44 $15.63 ($28.81) (64.8%) 43,015
ELECTRO RENT (1) ELRC/NASDAQ 22.00 10.00 (12.00) (54.5%) 33,167
McGRATH RENTCORP MGRC/NASDAQ 19.94 18.25 (1.69) (8.5%) 18,795
NATIONAL EQUIPMENT SERVICES (2) NSV/NYSE 13.50 9.13 (4.38) (32.4%) 36,357
NEFF CORP. (3) NFF/NYSE 14.00 5.56 (8.44) (60.3%) 52,925
RENTAL SERVICE CORP. (4) RSV/NYSE 21.63 16.00 (5.63) (26.0%) 121,175
UNITED RENTALS (5) URI/AMEX 21.94 26.63 4.69 21.4% 282,834
- ---------------------------------------------------------------------------------------------------------------
AVERAGE (32.2%)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Electro Rent completed a 2-for-1 stock split on May 13, 1998.
(2) National Equipment Services completed an initial public offering on July
14, 1998, priced at $13.50 per share.
(3) Neff Corp. completed an initial public offering on May 22, 1998, priced at
$14.00 per share.
(4) Rental Service Corp. completed a secondary offering of 2.75 million shares
on August 13, 1998, priced at $27.31 per share.
(5) United Rentals completed a secondary offering of 8.0 million shares on
March 4, 1999, priced at $30.00 per share. In addition, the Company has
continually used its stock as currency for numerous acquisitions over the
last year.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 24 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EQUIPMENT RENTAL SECTOR OVERVIEW (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HISTORICAL MARKET VALUE
<TABLE>
<CAPTION>
CLOSING STOCK PRICE MARKET VALUE (000S)
---------------------- ---------------------------------------------------------------
DOLLAR PERCENTAGE
COMPANY TICKER 3/23/98 3/23/99 3/23/98 3/23/99 CHANGE CHANGE
- --------------------------- ----------- ---------- ---------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CORT BUSINESS SERVICES CBZ/NYSE $44.44 $15.63 $577,623 $204,342 ($373,281) (64.6%)
ELECTRO RENT (1) ELRC/NASDAQ 22.00 10.00 530,643 244,542 (286,100) (53.9%)
MCGRATH RENTCORP MGRC/NASDAQ 19.94 18.25 281,276 255,516 (25,760) (9.2%)
NATIONAL EQUIPMENT SERVICES NSV/NYSE 13.50 9.13 316,554 220,112 (96,441) (30.5%)
(2)
NEFF CORP. (3) NFF/NYSE 14.00 5.56 296,315 117,732 (178,583) (60.3%)
RENTAL SERVICE CORP. (4) RSV/NYSE 21.63 16.00 439,277 385,974 (53,302) (12.1%)
UNITED RENTALS (5) URI/AMEX 21.94 26.63 731,480 1,883,672 1,152,192 157.5%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL/AVERAGE $3,173,167 $3,311,891 ($138,724) (10.4%)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Electro Rent completed a 2-for-1 stock split on May 13, 1998.
(2) National Equipment Services completed an initial public offering on July
14, 1998, priced at $13.50 per share.
(3) Neff Corp. completed an initial public offering on May 22, 1998, priced at
$14.00 per share.
(4) Rental Service Corp. completed a secondary offering of 2.75 million shares
on August 13, 1998, priced at $27.31 per share.
(5) United Rentals completed a secondary offering of 8.0 million shares on
March 4, 1999, priced at $30.00 per share. In addition, the Company has
continually used its stock as currency for numerous acquisitions over the
last year.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 25 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- - The discounted cash flow analysis presents a valuation for the equity of
the Company based upon projected cash flows. The analysis seeks to evaluate
the intrinsic value of a business without considering a sale or other
transaction with the Company.
- - The analysis is presented using projections provided by the Company for the
next five years.
- - The final year of projections is utilized to calculate the "terminal
value," an estimate of the value of the Company at the end of the
projection period. This value is estimated by using a range of EBITDA
multiples. The range is based upon current and recent trading multiples for
the Company.
- - The projections are utilized to calculate free cash flow that is discounted
to the present time utilizing discount rates ranging from 9.3% to 11.3%.
The discount rates reflect the uncertainty of the projections and are
estimated from the Company's theoretical cost of capital.
- - Inherent in any discounted cash flow analysis are the use of a number of
assumptions, including the accuracy of projections, and the subjective
determination of an appropriate terminal value and discount rate to apply
to the projected cash flows of the entity under examination. Variations in
any of these assumptions or judgments could significantly alter the results
of a discounted cash flow analysis.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 26 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings Before Interest & Taxes $58,200 $63,900 $70,400 $75,900 $81,800
Income Tax Effect 42.2% 42.2% 42.2% 42.2% 42.2%
------- ------- ------- ------- -------
Net Operating Earnings Less Taxes 33,640 36,934 40,691 43,870 47,280
Plus Depreciation & Amortization (3) 9,100 9,600 10,200 10,800 11,500
------- ------- ------- ------- -------
Cash Flow From Operations 42,740 46,534 50,891 54,670 58,780
Net Change in Other Assets and (3,052) 1,000 (2,200) (3,000) (3,200)
Liab (4)
Capital Expenditures (10,100) (10,900) (11,700) (12,700) (13,700)
------- ------- ------- ------- -------
Free Cash Flow $29,588 $36,634 $36,991 $38,970 $ 41,880
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
TERMINAL VALUE AS A MULTIPLE OF EBITDA (1)
<TABLE>
<CAPTION>
5.1 X 5.7 X 6.3 X 6.9 X 7.5 X
----- ----- ----- ----- -----
<S> <C> <C> <C> <C>
$475,830 $531,810 $ 587,790 $ 643,770 $699,750
Net Obligations (2) $90,800
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRESENT VALUE OF EQUITY (5)
DISCOUNT TERMINAL VALUE MULTIPLE
RATE (6) 5.1 X 5.7 X 6.3 X 6.9 X 7.5 X
-------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
9.3% 354,206 390,069 425,933 461,796 497,660
10.3% 336,905 371,172 405,439 439,706 473,974
11.3% 320,475 353,230 385,986 418,741 451,497
9.3% 25.86 28.48 31.10 33.72 36.33
10.3% 24.60 27.10 29.60 32.10 34.61
11.3% 23.40 25.79 28.18 30.57 32.96
</TABLE>
- --------------------------------------------------------------------------------
(1) STES estimate.
(2) Includes long-term debt as of 12/31/98.
(3) Non-rental depreciation.
(4) Net of rental depreciation.
(5) Adjusted to deduct outstanding obligations.
(6) Based on estimated cost of capital.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 27 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEVERAGED BUYOUT ANALYSIS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEVERAGED BUYOUT ANALYSIS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- - The leveraged buyout model presents an analysis of the going private value
of CORT. The analysis focuses upon the price that could be paid for CORT's
equity in a leveraged transaction while achieving an adequate internal rate
of return to the capital providers.
- - The analysis is presented utilizing the operating assumptions from the
projections provided by CORT's management. The transaction is assumed to be
structured as a recapitalization with no creation of goodwill.
- - The capital structure assumptions are based upon our understanding of the
capital structure assumed by the Affiliated Shareholders. Existing
shareholders receive $2.50 of Senior Preferred stock for each share of
common. The equity sponsors invest in a Junior Preferred stock and receive
80% of the fully-diluted equity of the Company. Management invests in
common stock and receives 20% of the fully-diluted equity of the Company.
- - The senior and subordinated debt are assumed to require coupon rates of
8.5% and 11.0%, respectively. The senior preferred stock issued to existing
shareholders is assumed to receive a 12% payment-in-kind dividend. The
junior preferred stock is assumed to have a blended 12.73% payment-in-kind
dividend.
- - The return levels are calculated over a five-year time period with an
assumed exit valuation ranging from 7.0x to 8.0x EBITDA, a range that
approximates the assumed acquisition valuation multiple. This analysis
suggests that the equity provided by the Affiliated Shareholders would
receive an internal rate of return between 27.1% and 33.1%. Based upon
STES's judgment that the returns implied by this transaction are in line
with the return requirements expected by equity investors in leveraged
transactions of this type.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 28 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEVERAGED BUYOUT ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LBO SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
TOTAL BLENDED
EQUITY IRR
--------------------
SCENARIO ASSUMPTIONS 7.0 X 8.0 X
----------------------- ------------------------------------------------------------------------ --------- --------
<S> <C> <C> <C>
BASE CASE Management Estimates. 27.1% 33.1%
REVENUE GROWTH CASE
AGGRESSIVE Furniture rental revenue and furniture sales revenue growth are 10% 28.7% 34.7%
higher than Management Estimates in FY00 - FY03.
CONSERVATIVE Furniture rental revenue and furniture sales revenue growth are 10% 25.5% 31.7%
lower than Management Estimates in FY00 - FY03.
GROSS MARGIN CASE
AGGRESSIVE Gross margins are 1.0% better than Management Estimates in FY00 - FY03. 30.1% 36.0%
CONSERVATIVE Gross margins are 1.0% worse than Management Estimates in FY00 - FY03. 23.7% 30.1%
CONSOLIDATED CASES
AGGRESSIVE Both Aggressive Cases above are assumed. 31.7% 37.4%
CONSERVATIVE Both Conservative Cases above are assumed. 22.1% 28.6%
FINANCING CASE Senior Term Debt is assumed to have an 8.0% interest rate and Senior 27.7% 33.6%
Subordinated Debt 10.0%.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 29 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BASE CASE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXIT IRR
USES OF FUNDS SOURCES OF FUNDS % 7.0 x 8.0 x
- -------------------------------------- -------------------------------------------------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Purchase Price (1) $362,960 WC Revolver $ 0 0.0%
Debt Retired 90,800 Debt Assumed 0 0.0%
Debt Assumed 0 Senior Term Debt 85,260 17.9% 8.5% 8.5%
Cash Infusion 0 Senior Subordinated Debt 250,000 52.6% 11.0% 11.0%
Transaction Costs 21,500 Seller Note 0 0.0%
-------- Senior Preferred PIK 70,000 14.7% 12.0% 12.0%
TOTAL USES $475,260 Junior Preferred PIK 65,000 13.7% 31.5% 38.4%
======== Common Equity:
Sponsors 0 0.0%
New Equity 5,000 1.1% 46.9% 60.3%
Other Equity 0 0.0%
Offer Price per Share $ 26.50 Excess Cash on Balance Sheet 0 0.0%
Shares Outstanding 13,095 -------- -----
Net Value of Options $ 15,953 TOTAL SOURCES $475,260 100.0%
Market Price as of 03/23/99 $ 15.63
Implied Premium to Market 69.6%
Blended Equity 107,264 22.6% 27.1% 33.1%
</TABLE>
<TABLE>
<CAPTION>
Un- Fully-
ACQUISITION MULTIPLES (2) EQUITY ALLOCATION Diluted Diluted
- ------------------------------------ ------------------------- -------- -------
<S> <C> <C> <C> <C>
1998 EBITDA 7.5 x Senior Subordinated Debt * 0.0%
Est.1999 EBITDA 6.7 x Junior Preferred * 80.0%
1998 P/E 14.0 x Seller Note * 0.0%
1999 P/E #N/A x Senior Preferred * 0.0%
To Closing Book 2.1 x Sponsors 0.0% 0.0%
- ------------------------------------ New Equity 100.0% 20.0%
EXIT YEAR 2003 Other Equity 0.0% 0.0%
----- ------
EXIT EBITDA MULTIPLE 7.0 x TOTAL ALLOCATION 100.0% 100.0%
EXIT EBITDA MULTIPLE 8.0 x ----- ------
----- ------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Use WC Revolver YES = 1, NO = 0 0 Years of PIK
Retire Existing Debt YES = 1, NO = 0: 1 ------------
Junior Preferred PIK YES = 1, NO = 0 1 5
Senior Preferred PIK YES = 1, NO = 0 1 5
</TABLE>
(1) Of the Net Purchase Price, approximately $32.7 million represents Senior
Preferred Stock issued to existing shareholders.
(2) Adjusted For Cash Reduction
- --------------------------------------------------------------------------------
PAGE 30 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BASE CASE
(Historical FYE December 31)
<TABLE>
<CAPTION>
Thousands of Dollars ---------------------------------------- ------------------------------------------
HISTORICAL PROJECTED
---------------------------------------- ------------------------------------------
INCOME STATEMENT ASSUMPTIONS 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Furniture Rental Growth -- -- -- -- 23.8% 12.1% 12.7% 7.0% 8.0% 8.0% 8.0%
Furniture Sales Growth -- -- -- -- 17.4% 6.2% 11.9% 7.9% 9.0% 9.0% 9.1%
---- --- --- ---- ---- ---- ---- ---- ---- ---- ----
Total Revenue Growth -- -- -- -- 22.7% 11.1% 12.6% 7.2% 8.2% 8.2% 8.2%
Furniture Rental Cost of Goods Sold -- -- -- 19.3% 19.2% 18.0% 18.5% 18.3% 18.2% 18.2% 18.2%
Furniture Sales Cost of Goods Sold -- -- -- 59.2% 60.5% 60.9% 60.9% 61.0% 60.9% 61.0% 61.0%
---- --- --- ---- ---- ---- ---- ---- ---- ---- ----
Total Cost of Goods Sold -- -- -- 26.5% 26.4% 25.1% 25.5% 25.4% 25.4% 25.4% 25.5%
---- --- --- ---- ---- ---- ---- ---- ---- ---- ----
GROSS MARGIN -- -- -- 73.5% 73.6% 74.9% 74.5% 74.6% 74.6% 74.6% 74.5%
Operating Expenses/Sales:
Selling, General and Administrative -- -- -- 56.3% 55.2% 55.8% 55.7% 55.5% 55.3% 55.3% 55.3%
PPE Depreciation and Amortization -- -- -- 2.0% 2.2% 2.6% 2.5% 2.5% 2.5% 2.4% 2.4%
---- --- --- ---- ---- ---- ---- ---- ---- ---- ----
OPERATING MARGIN -- -- -- 15.1% 16.1% 16.5% 16.2% 16.6% 16.9% 16.9% 16.8%
Interest (Coupon) Rates:
Existing Debt .. .. .. .. .. .. 8.00% 8.00% 8.00% 8.00% 8.00%
Overflow Debt .. .. .. .. .. .. 8.00% 8.00% 8.00% 8.00% 8.00%
Senior Term Debt .. .. .. .. .. .. 8.50% 8.50% 8.50% 8.50% 8.50%
WC Revolver .. .. .. .. .. .. 8.50% 8.50% 8.50% 8.50% 8.50%
Senior Subordinated Debt .. .. .. .. .. .. 11.00% 11.00% 11.00% 11.00% 11.00%
Junior Preferred .. .. .. .. .. .. 12.73% 12.73% 12.73% 12.73% 12.73%
Seller Note .. .. .. .. .. .. 0.00% 0.00% 0.00% 0.00% 0.00%
Senior Preferred .. .. .. .. .. .. 12.00% 12.00% 12.00% 12.00% 12.00%
Miscellaneous Income as a % of Sales .. .. .. .. .. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Taxes Rates:
Federal Tax Rate .. .. .. .. .. .. 42.20% 42.20% 42.20% 42.20% 42.20%
Effective Tax Rate .. .. .. 41.41% 41.15% 42.20% 47.71% 46.30% 45.33% 44.78% 44.37%
</TABLE>
PAGE 31 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BASE CASE
(Historical FYE December 31)
Thousands of Dollars
<TABLE>
<CAPTION>
------------------------------------------- -----------------------------------
HISTORICAL PROJECTED
------------------------------------------- -----------------------------------
BALANCE SHEET ASSUMPTIONS 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
- ------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Assets:
Accounts Receivable/Total
Revenue -- -- -- 4.70% 4.71% 4.57% 4.57% 4.57% 4.57% 4.58% 4.58%
Rental Furniture, net/Rental
Revenue -- -- -- 76.82% 69.27% 71.11% 64.99% 61.04% 57.89% 55.04% 52.48%
Prepaid Expenses/Total
Revenue -- -- -- 1.80% 1.44% 1.86% 1.87% 1.85% 1.85% 1.87% 1.85%
Other Receivables and
Assets/Total Revenue -- -- -- 1.63% 1.11% 1.35% 1.20% 1.12% 1.03% 0.96% 0.88%
Current Liabilities:
Accounts Payable/Total COGS -- -- -- 6.69% 7.31% 4.26% 3.60% 3.58% 3.60% 3.58% 3.54%
Accrued Expenses/Total COGS -- -- -- 44.22% 36.81% 26.27% 25.85% 26.00% 26.04% 25.94% 25.93%
Deferred Revenue and Security
Deposits/Rental Revenue -- -- -- 7.50% 7.26% 7.94% 7.94% 7.95% 7.97% 7.97% 7.97%
OTHER ASSUMPTIONS
Proceeds From Sale of Assets............................................... $0 $0 $0 $0 $0
Book Value of Fixed Assets................................................. 0 0 0 0 0
Net Accounts Receivable.................................................... 0 0 0 0 0
Inventory.................................................................. 0 0 0 0 0
Prepaid Expenses........................................................... 0 0 0 0 0
Other Current Assets #1.................................................... 0 0 0 0 0
Other Current Assets #2.................................................... 0 0 0 0 0
Accounts Payable........................................................... 0 0 0 0 0
Accrued Salaries........................................................... 0 0 0 0 0
Other Accrued Expenses..................................................... 0 0 0 0 0
Other Cur. Liab. #1........................................................ 0 0 0 0 0
Other Cur. Liab. #2........................................................ 0 0 0 0 0
Other Cur. Liab. #3........................................................ 0 0 0 0 0
------- ------- ------- ------- -------
Gain (Loss) on Sale of Assets.............................................. $0 $0 $0 $0 $0
Capital Expenditures.......................................................$10,100 $10,900 $11,700 $12,700 $13,700
Depreciation-Manual Input=1,
Model Calculation=0 1 $9,100 $9,600 $10,200 $10,800 $11,500
Deferred Taxes-Manual Input=1,
Model Calculation=0 1 $0 $0 $0 $0 $0
Working Capital Advance Rates: Receivables 0.0% Transaction Cost Amount @ 5 Years NOL's Existing $0
Inventory 0.0% Goodwill Amortization @ 15 Years
$Ceiling $0 (O=No Limit) Asset Write-Ups @ 5 Years
</TABLE>
PAGE 32 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BASE CASE
(Historical FYE December 31)
Thousands of Dollars
<TABLE>
<CAPTION>
--------------------------------------------- ----------------------------------------
HISTORICAL PROJECTED
--------------------------------------------- ----------------------------------------
INCOME STATEMENT 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
- ------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Furniture Rental Revenue -- -- -- $191,560 $237,212 $265,871 $299,600 $320,600 $346,200 $373,900 $403,800
Furniture Sales Revenue -- -- -- 42,589 50,006 53,093 59,400 64,100 69,900 76,200 83,100
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
Total Revenue -- -- -- $234,149 $287,218 $318,964 $359,000 $384,700 $416,100 $450,100 $486,900
Furniture Rental Cost of
Goods Sold -- -- -- 36,958 45,634 47,862 55,500 58,600 63,000 68,000 73,500
Furniture Sales Cost of
Goods Sold -- -- -- 25,207 30,257 32,354 36,200 39,100 42,600 46,500 50,700
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
Total Cost of Goods Sold -- -- -- 62,165 75,891 80,216 91,700 97,700 105,600 114,500 124,200
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
GROSS MARGIN -- -- -- $171,984 $211,327 $238,748 $267,300 $287,000 $310,500 $335,600 $362,700
Operating Expenses:
Selling, General and
Administrative -- -- -- $131,771 $158,602 $177,955 $200,000 $213,500 $229,900 $248,900 $269,400
PPE Depreciation and
Amortization(1) -- -- -- 4,765 6,417 8,148 9,100 9,600 10,200 10,800 11,500
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
OPERATING PROFIT -- -- -- $35,448 $46,308 $52,645 $58,200 $63,900 $70,400 $75,900 $81,800
EBITDA -- -- -- $40,213 $52,725 $60,793 $67,300 $73,500 $80,600 $86,700 $93,300
% MARGIN -- -- -- 17.2% 18.4% 19.1% 18.7% 19.1% 19.4% 19.3% 19.2%
Miscellaneous Income
(Expense) -- -- -- $0 $0 $0 $0 $0 $0 $0 $0
Gain (Loss) on Assets
Sales -- -- -- 0 0 0 0 0 0 0 0
Asset Write-Up Depreciation -- -- -- 0 0 0 0 0 0 0 0
Transaction Cost Amort. -- -- -- 0 0 0 (4,300) (4,300) (4,300) (4,300) (4,300)
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
EBIT -- -- -- $35,448 $46,308 $52,645 $53,900 $59,600 $66,100 $71,600 $77,500
Interest Expense:
Existing Debt -- -- -- $8,251 $8,374 $7,837 $0 $0 $0 $0 $0
Overflow Debt -- -- -- -- -- -- 0 0 0 0 0
Senior Term Debt -- -- -- -- -- -- 7,247 6,375 4,860 3,242 1,375
WC Revolver -- -- -- -- -- -- 0 0 0 0 0
Senior Subordinated Debt -- -- -- -- -- -- 27,500 27,500 27,500 27,500 27,500
Seller Note -- -- -- -- -- -- 0 0 0 0 0
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
TOTAL INTEREST EXPENSE -- -- -- $8,251 $8,374 $7,837 $34,747 $33,875 $32,360 $30,742 $28,875
E.B.T. -- -- -- $27,197 $37,934 $44,808 $19,153 $25,725 $33,740 $40,858 $48,625
Provision for Income Taxes -- -- -- 11,261 15,608 18,907 9,138 11,911 15,293 18,297 21,575
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
NET INCOME -- -- -- $15,936 $22,326 $25,901 $10,015 $13,814 $18,446 $22,561 $27,050
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
Senior Preferred Dividends -- -- -- 0 0 0 8,400 9,408 10,537 11,801 13,218
Junior Preferred Dividends -- -- -- 0 0 0 8,275 9,328 10,516 11,855 13,364
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
NET TO RETAINED EARNINGS -- -- -- $15,936 $22,326 $25,901 ($6,660) ($4,922)($2,607) ($1,095) $469
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
---- ---- ----- -------- ------- -------- -------- ------- -------- -------- --------
</TABLE>
- ----------
(1) Includes Goodwill Amortization.
PAGE 33 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BASE CASE
(Historical FYE December 31)
Thousands of Dollars
<TABLE>
<CAPTION>
--------------------------------------------- ----------------------------------------
HISTORICAL PROJECTED
--------------------------------------------- ----------------------------------------
CASH FLOW STATEMENT 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
- ------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET TO RETAINED EARNINGS -- -- -- $15,936 $22,326 $25,901 ($6,660) ($4,922) ($2,607) ($1,095) $469
Non-Cash Adjustments:
PPE Depreciation and
Amortization............................................................. $9,100 $9,600 $10,200 $10,800 $11,500
Asset Write-Up
Depreciation............................................................. 0 0 0 0 0
Transaction Cost Amort.................................................... 4,300 4,300 4,300 4,300 4,300
Deferred Taxes............................................................ 0 0 0 0 0
Accrued Junior Preferred
Dividends................................................................ 8,275 9,328 10,516 11,855 13,364
Accrued Senior Preferred
Dividends................................................................ 8,400 9,408 10,537 11,801 13,218
------- ------- ------- ------- -------
FUNDS FROM OPERATIONS...................................................... $23,415 $27,714 $32,946 $37,661 $42,850
Net Working Capital Requirements:
Accounts Receivable....................................................... ($1,815) ($1,200) ($1,400) ($1,600) ($1,700)
Rental Furniture, net..................................................... (5,641) (1,000) (4,700) (5,400) (6,100)
Prepaid Expenses.......................................................... (782) (400) (600) (700) (600)
Other Receivables and
Assets................................................................... 0 0 0 0 0
Other Cur. Assets #2...................................................... 0 0 0 0 0
Accounts Payable.......................................................... (117) 200 300 300 300
Accrued Expenses.......................................................... 2,625 1,700 2,100 2,200 2,500
Misc. Reserve............................................................. 0 0 0 0 0
Deferred Revenue and
Security Deposits........................................................ 2,678 1,700 2,100 2,200 2,400
Other..................................................................... 0 0 0 0 0
Other Current
Liabilities #3........................................................... 0 0 0 0 0
------- ------- ------- ------- -------
(INCREASE) IN NET WORKING
CAPITAL.................................................................. ($3,052) $1,000 ($2,200) ($3,000) ($3,200)
CASH FROM OPERATIONS...................................................... $20,363 $28,714 $30,746 $34,661 $39,650
Capital Expenditures.......................................................($10,100)($10,900)($11,700)($12,700)($13,700)
Increase/(Decrease) in WC
Revolver.................................................................. 0 0 0 0 0
Decrease/(Increase) in
Other Assets #1........................................................... 0 0 0 0 0
Decrease/(Increase) in
Other Assets #2........................................................... 0 0 0 0 0
Book Value of Assets Sold.................................................. 0 0 0 0 0
------- ------- ------- ------- -------
CASH AVAILABLE FOR
AMORTIZATION $10,263 $17,814 $19,046 $21,961 $25,950
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
PAGE 34 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BASE CASE
(Historical FYE December 31)
Thousands of Dollars
<TABLE>
<CAPTION>
---------------------------------------
PROJECTED
---------------------------------------
1999 2000 2001 2002 2003
DEBT AMORTIZATION SCHEDULE Year # 1 2 3 4 5
----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
CASH AVAILABLE FOR AMORTIZATION $10,263 $17,814 $19,046 $21,961 $25,950
Overflow Debt Addition.................................... 0 0 0 0 0
------- ------- ------- ------- -------
Cash For Retirement of Existing Debt...................... $10,263 $17,814 $19,046 $21,961 $25,950
Existing Debt Retired.................................... 0 0 0 0 0
------- ------- ------- ------- -------
Cash For Retirement of Overflow Debt...................... $10,263 $17,814 $19,046 $21,961 $25,950
Overflow Debt Retired.................................... 0 0 0 0 0
------- ------- ------- ------- -------
Cash For Retirement of Senior Term Debt................... $10,263 $17,814 $19,046 $21,961 $25,950
Senior Term Debt Retired................................. (10,263) (17,814) (19,046) (21,961) (16,174)
------- ------- ------- ------- -------
Cash For Retirement of Senior Subordinated Debt........... $0 $0 $0 $0 $9,776
Senior Subordinated Debt Retired......................... 0 0 0 0 (9,776)
------- ------- ------- ------- -------
Cash For Retirement of Junior Preferred................... $0 $0 $0 $0 $0
Junior Preferred Retired................................. 0 0 0 0 0
------- ------- ------- ------- -------
Cash For Retirement of Seller Note........................ $0 $0 $0 $0 $0
Seller Note Retired...................................... 0 0 0 0 0
------- ------- ------- ------- -------
Cash For Retirement of Senior Preferred................... $0 $0 $0 $0 $0
Senior Preferred Retired................................. 0 0 0 0 0
------- ------- ------- ------- -------
CHANGE IN CASH ACCOUNT.................................. $0 $0 $0 $0 $0
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
PAGE 35 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BASE CASE
(Historical FYE December 31)
Thousands of Dollars
<TABLE>
<CAPTION>
--------------------------------------------- ----------------------------------------
HISTORICAL PROJECTED
--------------------------------------------- ----------------------------------------
ASSETS 1993 1994 1995 1996 1997 1998 Adjust Closing 1999 2000 2001 2002 2003
- ------------------------ ---- ---- ---- ---- ---- ---- ------ ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash & Cash Equivalents -- -- -- $123 $0 $703 $0 $703 $703 $703 $703 $703 $703
Accounts Receivable -- -- -- 11,011 13,521 14,585 14,585 16,400 17,600 19,000 20,600 22,300
Rental Furniture, net -- -- -- 147,161 164,323 189,059 189,059 194,700 195,700 200,400 205,800 211,900
Prepaid Expenses -- -- -- 4,224 4,127 5,918 5,918 6,700 7,100 7,700 8,400 9,000
Other Receivables and
Assets -- -- -- 3,815 3,183 4,300 4,300 4,300 4,300 4,300 4,300 4,300
---- ---- ---- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL CURRENT ASSETS -- -- -- $166,334 $185,154 $214,565 $214,565 $222,803 $225,403 $232,103 $239,803 $248,203
Fixed Assets:
Net PPE -- -- -- $35,667 $38,777 $43,861 $43,861 $44,861 $46,161 $47,661 $49,561 $51,761
Asset Write-Ups -- -- -- 0 0 0 0 0 0 0 0 0 0
Transaction Costs -- -- -- 0 0 0 21,500 21,500 17,200 12,900 8,600 4,300 0
Goodwill -- -- -- 45,198 53,910 74,470 0 74,470 74,470 74,470 74,470 74,470 74,470
---- ---- ---- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL FIXED ASSETS -- -- -- $80,865 $92,687 $118,331 $139,831 $136,531 $133,531 $130,731 $128,331 $126,231
TOTAL ASSETS -- -- -- $247,199 $277,841 $332,896 $354,396 $359,334 $358,934 $362,834 $368,134 $374,434
---- ---- ---- -------- -------- -------- -------- -------- -------- -------- -------- --------
---- ---- ---- -------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
PAGE 36 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BASE CASE
(Historical FYE December 31)
Thousands of Dollars
<TABLE>
<CAPTION>
--------------------------------------------- ----------------------------------------
HISTORICAL PROJECTED
--------------------------------------------- ----------------------------------------
LIABILITIES & EQUITY 1993 1994 1995 1996 1997 1998 Adjust Closing 1999 2000 2001 2002 2003
- ------------------------ ---- ---- ---- ---- ---- ---- ------ ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Accounts Payable -- -- -- $4,157 $5,551 $3,417 $3,417 $3,300 $3,500 $3,800 $4,100 $4,400
Accrued Expenses -- -- -- 27,491 27,936 21,075 21,075 23,700 25,400 27,500 29,700 32,200
Deferred Revenue and
Security Deposits -- -- -- 14,358 17,217 21,122 21,122 23,800 25,500 27,600 29,800 32,200
---- ---- ---- ------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL CURRENT LIABILITIES -- -- -- $46,006 $50,704 $45,614 $45,614 $50,800 $54,400 $58,900 $63,600 $68,800
Deferred Taxes -- -- -- $10,441 $14,673 $20,819 $0 $20,819 $20,819 $20,819 $20,819 $20,819 $20,819
Long Term Debt:
Existing Debt -- -- -- $65,600 $63,132 $90,800 ($90,800) $0 $0 $0 $0 $0 $0
Overflow Debt -- -- -- 0 0 0 0 0 0 0 0 0
Senior Term Debt -- -- -- 0 0 0 85,260 85,260 74,996 57,182 38,135 16,174 0
WC Revolver -- -- -- 0 0 0 0 0 0 0 0 0 0
Senior Subordinated Debt -- -- -- 0 0 0 250,000 250,000 250,000 250,000 250,000 250,000 240,224
Seller Note -- -- -- 0 0 0 0 0 0 0 0 0
---- ---- ---- ------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL LONG TERM DEBT -- -- -- $65,600 $63,132 $90,800 $335,260 $324,996 $307,182 $288,135 $266,174 $240,224
TOTAL LIABILITIES -- -- -- $122,047 $128,509 $157,233 $401,693 $396,615 $382,401 $367,854 $350,593 $329,843
Net Worth:
Equity - Common -- -- -- $127 $129 $129 $4,871 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000
- Senior -- -- -- 0 0 0 70,000 70,000 78,400 87,808 98,345 110,146 123,364
Preferred
- Junior -- -- -- 0 0 0 65,000 65,000 73,275 82,603 93,120 104,974 118,338
Preferred
Retained Earnings -- -- -- 125,025 149,203 175,534 (362,831)(187,297)(193,956)(198,878)(201,485)(202,580)(202,111)
---- ---- ---- ------- -------- -------- -------- -------- -------- -------- -------- --------
NET WORTH -- -- -- $125,152 $149,332 $175,663 ($47,297)($37,281)($23,467) ($5,020) $17,541 $44,591
---- ---- ---- ------- -------- -------- -------- -------- -------- -------- -------- --------
LIABILITIES & NET WORTH -- -- -- $247,199 $277,841 $332,896 $354,396 $359,334 $358,934 $362,834 $368,134 $374,434
---- ---- ---- ------- -------- -------- -------- -------- -------- -------- -------- --------
---- ---- ---- ------- -------- -------- -------- -------- -------- -------- -------- --------
BALANCE SHEET CHECK => -- -- -- 0 0 0 0 0 0 0 0 0
0 0 0 0 0
</TABLE>
PAGE 37 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BASE CASE
(Historical FYE December 31)
Thousands of Dollars
<TABLE>
<CAPTION>
------------------------------- ----------------------------------------------------
HISTORICAL PROJECTED
------------------------------- ----------------------------------------------------
1993 1994 1995 1996 1997 1998 Closing 1999 2000 2001 2002 2003
Year # 0 1 2 3 4 5
---- ---- ---- ---- ---- ----- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITALIZATION SUMMARY
Existing Debt -- -- -- -- -- $90,800 $0 $0 $0 $0 $0 $0
Overflow Debt -- -- -- -- -- 0 0 0 0 0 0 0
Senior Term Debt -- -- -- -- -- 0 85,260 74,996 57,182 38,135 16,174 0
WC Revolver -- -- -- -- -- 0 0 0 0 0 0 0
Senior Subordinated Debt -- -- -- -- -- 0 250,000 250,000 250,000 250,000 250,000 240,224
Seller Note -- -- -- -- -- 0 0 0 0 0 0 0
Senior Preferred Equity -- -- -- -- -- 0 70,000 78,400 87,808 98,345 110,146 123,364
Junior Preferred Equity -- -- -- -- -- 0 65,000 73,275 82,603 93,120 104,974 118,338
Common Equity -- -- -- -- -- 175,663 (182,297) (188,956) (193,878)(196,485)(197,580)(197,111)
---- ---- ---- ---- ---- -------- -------- -------- -------- -------- -------- --------
BOOK CAPITALIZATION -- -- -- -- -- $266,463 $287,963 $287,715 $283,715 $283,115 $283,715 $284,815
TOTAL DEBT -- -- -- -- -- $90,800 $335,260 $324,996 $307,182 $288,135 $266,174 $240,224
BOOK EQUITY -- -- -- -- -- $175,663 ($47,297) ($37,281) ($23,467) ($5,020) $17,541 $44,591
RATIO ANALYSIS
Total Debt/Total Capitalization -- -- -- -- -- 34.1% 116.4% 113.0% 108.3% 101.8% 93.8% 84.3%
Senior Debt/Total Capitalization -- -- -- -- -- 34.1% 29.6% 26.1% 20.2% 13.5% 5.7% 0.0%
EBITDA/Interest -- -- -- -- -- -- 1.8 1.9 2.2 2.5 2.8 3.2
EBITDA/Senior Interest -- -- -- -- -- -- 8.8 9.3 11.5 16.6 26.7 67.9
Senior Debt/EBITDA -- -- -- -- -- -- 1.3 1.1 0.8 0.5 0.2 --
Senior Debt/EBIT -- -- -- -- -- -- 1.6 1.4 1.0 0.6 0.2 --
Senior Debt/Operating Cash Flow -- -- -- -- -- -- -- 3.7 2.0 1.2 0.5 --
Total Debt/EBITDA -- -- -- -- -- -- 5.2 4.8 4.2 3.6 3.1 2.6
Total Debt/EBIT -- -- -- -- -- -- 6.3 6.0 5.2 4.4 3.7 3.1
Total Debt/Operating Cash Flow -- -- -- -- -- -- -- 16.0 10.7 9.4 7.7 6.1
</TABLE>
PAGE 38 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RETURNS SECTION
BASE CASE Exit Year 2003
Thousands of Dollars
<TABLE>
<CAPTION>
Semi- Fully-
EQUITY ALLOCATION Investment % Diluted Diluted
- -------------------------------- ---------- ------ ------- -------
<S> <C> <C> <C> <C>
Sponsors $0 0.0% 0.0% 0.0%
New Equity 5,000 100.0% 20.0% 20.0%
Other Equity 0 0.0% 0.0% 0.0%
Senior Preferred 70,000 * 0.0% 0.0%
Seller Note 0 * 0.0% 0.0%
Senior Subordinated Debt Option 250,000 * 0.0% 0.0%
Junior Preferred 65,000 * 80.0% 80.0%
Management Performance Option * * * 0.0%
-------- ----- ----- -----
TOTAL EQUITY ALLOCATION $390,000 100.0% 100.0% 100.0%
Exit Year EBITDA $93,300
x EBITDA Multiple 7.0
--------
EXIT VALUATION $653,100
PLUS: Excess Cash $0
Conversion Costs 0
LESS: Total Remaining Debt (240,224)
Total Preferred (241,702)
--------
NET PROCEEDS TO ALLOCATE $171,174
- ------------------------------- --------
Sr. Subordinated Share $0
LESS: Conversion Costs 0
Net Subordinated Share $0
- ------------------------------- --------
Junior Preferred Share $136,939
LESS: Conversion Costs 0
Net Junior Preferred Share $136,939
- ------------------------------- --------
Seller Note Share $0
- ------------------------------- --------
Preferred Share $0
- ------------------------------- --------
Sponsor's Equity Share $0
- ------------------------------- --------
New Equity Share $34,235
- ------------------------------- --------
Other Equity Share $0
</TABLE>
<TABLE>
<CAPTION>
CLOSE 1999 2000 2001 2002 2003
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Senior Subordinated Returns
Investment ($250,000) $0 $0 $0 $0 $250,000
Interest 27,500 27,500 27,500 27,500 27,500
Participation 0 0 0 0 0 0
--------- ------- ------- ------- ------- --------
IRR = 11.00% ($250,000) $27,500 $27,500 $27,500 $27,500 $277,500
- ---------------------------- --------- ------- ------- ------- ------- --------
Junior Preferred Returns
Investment ($65,000) $0 $0 $0 $0 $118,338
Interest 0 0 0 0 0
Participation 0 0 0 0 136,939
--------- ------- ------- ------- ------- --------
IRR = 31.47% ($65,000) $0 $0 $0 $0 $255,277
- ---------------------------- --------- ------- ------- ------- ------- --------
Senior Preferred Returns
Investment ($70,000) $0 $0 $0 $0 $123,364
Dividends 0 0 0 0 0
Participation 0 0 0 0 0
--------- ------- ------- ------- ------- --------
IRR = 12.00% ($70,000) $0 $0 $0 $0 $123,364
- ---------------------------- --------- ------- ------- ------- ------- --------
Sponsor Equity Returns
Investment $0 $0 $0 $0 $0 $0
Participation 0 0 0 0 0
--------- ------- ------- ------- ------- --------
IRR = #N/A $0 $0 $0 $0 $0 $0
- ---------------------------- --------- ------- ------- ------- ------- --------
Management Returns
Investment ($5,000) $0 $0 $0 $0 $0
Participation 0 0 0 0 34,235
--------- ------- ------- ------- ------- --------
IRR = 46.93% ($5,000) $0 $0 $0 $0 $34,235
- ---------------------------- --------- ------- ------- ------- ------- --------
Other Equity Returns
Investment 0 $0 $0 $0 $0 $0
Participation 0 0 0 0 0
--------- ------- ------- ------- ------- --------
IRR = #N/A 0 0 0 0 0 0
- ---------------------------- --------- ------- ------- ------- ------- --------
Total Equity Returns
Investment ($107,264) $0 $0 $0 $0 $184,009
Interest $0 $0 $0 $0 $0
Participation $0 $0 $0 $0 $171,174
--------- ------- ------- ------- ------- --------
IRR = 27.06% ($107,264) $0 $0 $0 $0 $355,183
- ---------------------------- --------- ------- ------- ------- ------- --------
</TABLE>
PAGE 39 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RETURNS SECTION
BASE CASE Exit Year 2003
Thousands of Dollars
<TABLE>
<CAPTION>
Semi- Fully-
EQUITY ALLOCATION Investment % Diluted Diluted
- -------------------------------- ---------- ------ ------- -------
<S> <C> <C> <C> <C>
Sponsors $0 0.0% 0.0% 0.0%
New Equity 5,000 100.0% 20.0% 20.0%
Other Equity 0 0.0% 0.0% 0.0%
Senior Preferred 70,000 * 0.0% 0.0%
Seller Note 0 * 0.0% 0.0%
Senior Subordinated Debt Option 250,000 * 0.0% 0.0%
Junior Preferred 65,000 * 80.0% 80.0%
Management Performance Option * * * 0.0%
-------- ----- ----- -----
TOTAL EQUITY ALLOCATION $390,000 100.0% 100.0% 100.0%
- -------------------------------- -------- ----- ----- -----
Exit Year EBITDA $93,300
x EBITDA Multiple 8.0
--------
EXIT VALUATION $746,400
PLUS: Excess Cash $0
Conversion Costs 0
LESS: Total Remaining Debt (240,224)
Total Preferred (241,702)
--------
NET PROCEEDS TO ALLOCATE $264,474
- -------------------------------- --------
Sr. Subordinated Share $0
LESS: Conversion Costs 0
--------
Net Subordinated Share $0
- -------------------------------- --------
Junior Preferred Share $211,579
LESS: Conversion Costs 0
--------
Net Junior Preferred Share $211,579
- -------------------------------- --------
Seller Note Share $0
- -------------------------------- --------
Preferred Share $0
- -------------------------------- --------
Sponsor's Equity Share $0
- -------------------------------- --------
New Equity Share $52,895
- -------------------------------- --------
Other Equity Share $0
</TABLE>
<TABLE>
<CAPTION>
CLOSE 1999 2000 2001 2002 2003
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Senior Subordinated Returns
Investment ($250,000) $0 $0 $0 $0 $250,000
Interest 27,500 27,500 27,500 27,500 27,500
Participation 0 0 0 0 0
--------- ------- ------- ------- ------- --------
IRR = 11.00% ($250,000) $27,500 $27,500 $27,500 $27,500 $277,500
- ---------------------------- --------- ------- ------- ------- ------- --------
Junior Preferred Returns
Investment ($65,000) $0 $0 $0 $0 $118,338
Interest 0 0 0 0 0
Participation 0 0 0 0 211,579
--------- ------- ------- ------- ------- --------
IRR = 38.39% ($65,000) $0 $0 $0 $0 $329,917
- ---------------------------- --------- ------- ------- ------- ------- --------
Senior Preferred Returns
Investment ($70,000) $0 $0 $0 $0 $123,364
Dividends 0 0 0 0 0
Participation 0 0 0 0 0
--------- ------- ------- ------- ------- --------
IRR = 12.00% ($70,000) $0 $0 $0 $0 $123,364
- ---------------------------- --------- ------- ------- ------- ------- --------
Sponsor Equity Returns
Investment $0 $0 $0 $0 $0 $0
Participation 0 0 0 0 0
--------- ------- ------- ------- ------- --------
IRR = #N/A $0 $0 $0 $0 $0 $0
- ---------------------------- --------- ------- ------- ------- ------- --------
Management Returns
Investment ($5,000) $0 $0 $0 $0 $0
Participation 0 0 0 0 52,895
--------- ------- ------- ------- ------- --------
IRR = 60.28% ($5,000) $0 $0 $0 $0 $52,895
- ---------------------------- --------- ------- ------- ------- ------- --------
Other Equity Returns
Investment 0 $0 $0 $0 $0 $0
Participation 0 0 0 0 0
--------- ------- ------- ------- ------- --------
IRR = #N/A 0 $0 $0 $0 $0 $0
- ---------------------------- --------- ------- ------- ------- ------- --------
Total Equity Returns
Investment ($107,264) $0 $0 $0 $0 $184,009
Interest $0 $0 $0 $0 $0
Participation $0 $0 $0 $0 $264,474
--------- ------- ------- ------- ------- --------
IRR = 33.12% ($107,264) $0 $0 $0 $0 $448,483
- ---------------------------- --------- ------- ------- ------- ------- --------
</TABLE>
PAGE 40 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RECENT TRANSACTIONS IN THE RENTAL INDUSTRY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RECENT TRANSACTIONS IN THE RENTAL INDUSTRY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
o We reviewed and analyzed certain publicly-available financial and
structural information for selected merger and acquisition transactions
involving companies in the rental industry.
o We examined these transactions and calculated the multiples of revenues,
EBITDA, EBIT, net income and book value implied by the total transaction
value.
o No company or transaction is identical to CORT or the Proposed Transaction.
None of the transactions involved companies that focus on a rental sector
similar to CORT.
o In addition, several of the companies acquired in these transactions were
engaged in aggressive consolidation strategies prior to their acquisition
that may distort the suggested transaction valuation multiples.
o For these reasons, we do not believe that these transactions, averages or
other statistics derived from these transactions provide a meaningful basis
for determining a range of value for CORT.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Page 41 SunTrust Equitable Securities
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RECENT TRANSACTIONS IN THE RENTAL INDUSTRY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MERGER AND ACQUISITION TRANSACTIONS
<TABLE>
<CAPTION>
TRAILING 12 MONTHS FINANCIALS OF ACQUIRED (IN $MM)
ADJUSTED ---------------------------------------------------
DATE ACQUIROR TRANSACTION LT DEBT TRANSACTION NET BOOK
EFFECTIVE TARGET VALUE ASSUMED VALUE REVENUES EBITDA EBIT INCOME VALUE
- ---------- ------------------------- --------- -------- --------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/99 Rental Service Corp.
NationsRent Inc. $366.0 $389.9 $755.9 $236.4 $50.0 $42.7 $12.7 $282.0
12/98 Rent-Way, Inc.
Home Choice Holdings 238.4 48.2 286.6 251.9 7.6 (3.8) (6.3) 134.4
9/98 United Rentals Inc.
US Rentals Inc. 1,060.0 250.0 1,310.0 518.6 92.0 77.6 54.1 282.5
8/98 Renters Choice Inc.
Thorn Americas Inc. 977.2 714.7 1,691.9 913.8 111.5 54.7 0.9 239.8
5/98 EVI Inc.
Weatherford Enterra
Inc. 2,555.0 215.0 2,770.0 1,076.6 319.2 206.5 120.4 926.8
2/98 Alrenco, Inc.
RTO, Inc. 196.5 18.8 215.3 134.1 11.0 1.0 1.2 86.0
2/98 Rent-Way, Inc.
Champion Rentals 70.0 18.0 88.0 80.0 N/A N/A N/A N/A
1/98 Rent-Way, Inc.
Ace TV Rentals 25.0 0.0 25.0 22.0 N/A N/A N/A N/A
7/97 Atlas Copco North
America
Prime Service Inc. 900.0 260.0 1,160.0 340.3 64.0 56.9 13.1 237.4
6/97 TCF Financial Corp.
Winthrop Resources Corp. 340.0 0.0 340.0 78.7 42.4 41.8 15.7 84.8
</TABLE>
<TABLE>
<CAPTION>
ADJUSTED TRANSACTION VALUE TRANSACTION VALUE
AS A AS A
MULTIPLE OF MULTIPLE OF
----------------------------- -------------------
DATE ACQUIROR NET BOOK
EFFECTIVE TARGET REVENUES EBITDA EBIT INCOME VALUE
---------- ------------------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1/99 Rental Service Corp.
NationsRent Inc. 3.2x 15.1x 17.7x 28.9x 1.3x
12/98 Rent-Way, Inc.
Home Choice Holdings 1.1x 37.6x N/M N/M 1.8x
9/98 United Rentals Inc.
US Rentals Inc. 2.5x 14.2x 16.9x 19.6x 3.8x
8/98 Renters Choice Inc.
Thorn Americas Inc. 1.9x 15.2x 30.9x N/M 4.1x
5/98 EVI Inc.
Weatherford Enterra
Inc. 2.6x 8.7x 13.4x 21.2x 2.8x
2/98 Alrenco, Inc.
RTO, Inc. 1.6x 19.6x N/M N/M 2.3x
2/98 Rent-Way, Inc.
Champion Rentals 1.1x N/A N/A N/A N/A
1/98 Rent-Way, Inc.
Ace TV Rentals 1.1x N/A N/A N/A N/A
7/97 Atlas Copco North
America
Prime Service Inc. 3.4x 18.1x 20.4x 68.9x 3.8x
6/97 TCF Financial Corp.
Winthrop Resources Corp. 4.3x 8.0x 8.1x 21.7x 4.0x
- -------------------------------------------------------------------------------
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PAGE 42 SUNTRUST EQUITABLE SECURITIES
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RECENT TRANSACTIONS IN THE RENTAL INDUSTRY (CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MERGER AND ACQUISITION TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
TRAILING 12 MONTHS FINANCIALS OF ACQUIRED (IN $MM)
ADJUSTED ---------------------------------------------------
DATE ACQUIROR TRANSACTION LT DEBT TRANSACTION NET BOOK
EFFECTIVE TARGET VALUE ASSUMED VALUE REVENUES EBITDA EBIT INCOME VALUE
- ---------- ------------------------- --------- -------- --------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/96 Medical Resources Inc.
NMR of America Inc. $40.4 $0.0 $40.4 $26.3 $8.6 $5.4 $2.1 $21.6
8/96 RTO, Inc.
Action TV & Appl. Ren. 45.3 17.8 63.1 57.8 8.7 7.2 6.1 14.4
1/96 Thorn EMI Unit
Advantage Companies 78.5 (4.8) 73.7 73.5 10.6 7.8 5.1 29.8
</TABLE>
<TABLE>
<CAPTION>
ADJUSTED TRANSACTION VALUE TRANSACTION VALUE
AS A AS A
MULTIPLE OF MULTIPLE OF
---------------------------- -------------------
DATE ACQUIROR NET BOOK
EFFECTIVE TARGET REVENUES EBITDA EBIT INCOME VALUE
- ---------- ------------------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
9/96 Medical Resources Inc.
NMR of America Inc. 1.5x 4.7x 7.5x 19.0x 1.9x
8/96 RTO, Inc.
Action TV & Appl. Ren. 1.1x 7.3x 8.8x 7.4x 3.1x
1/96 Thorn EMI Unit
Advantage Companies 1.0x 7.0x 9.4x 15.4x 2.6x
- -------------------------------------------------------------------------------------------
MINIMUM 1.0X 4.7X 7.5X 7.4X 1.3X
MAXIMUM 4.3X 37.6X 30.9X 68.9X 4.1X
- -------------------------------------------------------------------------------------------
</TABLE>
SOURCE: SECURITIES DATA CORPORATION AND COMPANY DOCUMENTS.
- -------------------------------------------------------------------------------
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PAGE 43 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PREMIUMS PAID ANALYSIS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PREMIUMS PAID ANALYSIS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREMIUMS OFFERED IN $200MM TO $500MM CASH TRANSACTIONS SINCE 1/1/98 (1)
PREMIUM PRIOR TO ANNOUNCEMENT
------------------------------------------------------------------------------------------
1 DAY 1 WEEK 4 WEEKS 6 MONTHS 1 YEAR
------------ --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
MAXIMUM 126.4% 111.6% 121.2% 231.1% 425.4%
MINIMUM (10.7%) (1.1%) (7.2%) (70.1%) (80.8%)
MEDIAN 25.4% 31.4% 37.7% 36.0% 57.3%
AVERAGE 29.9% 35.4% 41.0% 43.8% 59.9%
AVERAGE EXCLUDING HIGH AND LOW 29.0% 34.8% 40.5% 42.7% 56.6%
- ------------------------------------------------------------------------------------------------------------------------------
CORT PREMIUM 69.5% 62.5% 62.5% (3.8%) (41.1%)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PREMIUMS OFFERED IN $200MM TO $500MM CASH TRANSACTIONS SINCE 1/1/98
WHEN THE TARGET COMPANY'S STOCK PRICE DECLINES DURING THE YEAR PRIOR TO THE TRANSACTION (2)
PREMIUM 1 DAY PRIOR TO
LTM STOCK PRICE PERFORMANCE ANNOUNCEMENT
-------------------------------------- -----------------------------------------
<S> <C> <C>
MAXIMUM (78.5%) 126.4%
MINIMUM (5.4%) (10.7%)
MEDIAN (25.1%) 35.6%
AVERAGE (32.0%) 41.3%
AVERAGE EXCLUDING HIGH AND LOW (31.0%) 39.7%
- ------------------------------------------------------------------------------------------------------------------------------
CORT PREMIUM (64.8%) 69.5%
- --------------------------------------------------------------------------- ----- -----------------------------------------
</TABLE>
(1) 77 transactions.
(2) 24 transactions.
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PAGE 44 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PREMIUMS PAID ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ONE YEAR DECLINE VS. PREMIUM OFFERED
$200MM to $500MM Cash Transactions Since 1/1/98
[GRAPHIC]
- -------------------------------------------------------------------------------
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PAGE 45 SUNTRUST EQUITABLE SECURITIES
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PREMIUMS PAID ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$200MM TO $500MM CASH TRANSACTIONS SINCE 1/1/98
<TABLE>
<CAPTION>
DATE TRANSACTION PRICE PER
ANNOUNCED TARGET NAME ACQUIROR NAME VALUE ($MIL) SHARE
--------- ------------------------------ ------------- ------------ ---------
<S> <C> <C> <C> <C>
01/12/98 Computer Language Research Inc Research Institute of America $ 325.4 $ 22.50
01/14/98 Freedom Chemical Co BF Goodrich Co 367.0 -
01/15/98 OHM Corp International Technology Corp 326.8 11.33
01/27/98 State of the Art Inc Sage Group PLC 245.2 22.00
01/29/98 Keebler Foods Co Flowers Industries Inc 309.1 27.60
01/29/98 ProSource Inc(Onex Corp) AmeriServe Food Distn Inc 343.3 15.00
01/30/98 Harveys Casino Resorts Colony Capital Inc 427.9 28.73
02/02/98 Pacific Scientific Co Danaher Corp 417.5 30.25
02/09/98 Summit Care Corp Fountain View(Heritage) 275.1 21.00
02/11/98 MTL Inc Sombrero Acquisition Corp 250.1 40.00
02/11/98 Waverly Inc Wolters Kluwer NV 375.6 39.00
02/17/98 Devon Group Inc Applied Graphics Technologies 474.4 60.08
02/19/98 Casino Magic Corp Hollywood Park Inc 344.8 2.27
02/24/98 Wonderware Corp Siebe PLC 362.7 24.00
03/02/98 Coleman Co Inc Sunbeam Corp 333.0 30.14
03/02/98 DeepTech International El Paso Natural Gas Co 375.4 14.00
03/02/98 Sealright Co Inc Huhtamaki Oy(Ahlgrens) 226.7 11.00
03/04/98 AP Green Industries Inc Global Industrial Technologies 212.0 22.00
03/05/98 Intelligent Electronics Inc Xerox Corp 342.4 7.60
03/13/98 Brown & Sharpe Manufacturing Thermo Instrument Systems Inc 212.3 15.50
03/13/98 MedCath Inc Investor Group 227.8 19.00
03/16/98 International Murex Tech Corp Abbott Laboratories 232.7 13.00
03/17/98 BET Holdings Inc Investor Group 462.3 63.00
03/24/98 Insilco Corp DLJ Merchant Bkg Partners II 425.3 45.00
04/06/98 MoneyGram Payment Systems Inc Viad Corp 293.6 17.35
04/08/98 Blessings Corp Huntsman Packaging Corp 269.7 21.00
</TABLE>
<TABLE>
<CAPTION>
DATE PREMIUM PRIOR TO ANNOUNCEMENT
ANNOUNCED TARGET NAME ACQUIROR NAME 1 DAY 1 WEEK 4 WEEKS 6 MONTHS 1 YEAR STATUS
--------- ------------------------- -------------------- ----- ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
01/12/98 Computer Language Research Inc Research Institute of America 60.7% 62.2% 69.8% 91.5% 109.3% Completed
01/14/98 Freedom Chemical Co BF Goodrich Co Completed
01/15/98 OHM Corp International Technology Corp 24.2% 45.0% 46.6% 42.2% 33.8% Completed
01/27/98 State of the Art Inc Sage Group PLC 33.3% 35.4% 35.4% 69.2% 57.1% Completed
01/29/98 Keebler Foods Co Flowers Industries Inc (1 Completed
01/29/98 ProSource Inc(Onex Corp) AmeriServe Food Distn Inc 126.4% 106.9% 100.0% 84.5% 14.2% Completed
01/30/98 Harveys Casino Resorts Colony Capital Inc 27.7% 27.0% 37.6% 69.0% 71.5% Completed
02/02/98 Pacific Scientific Co Danaher Corp 20.4% 21.9% 28.7% 78.6% 77.9% Completed
02/09/98 Summit Care Corp Fountain View(Heritage) 14.3% 31.3% 37.7% 40.0% 90.9% Completed
02/11/98 MTL Inc Sombrero Acquisition Corp 37.9% 38.5% 56.1% 66.7% 79.8% Completed
02/11/98 Waverly Inc Wolters Kluwer NV 42.5% 50.7% 50.7% 70.5% 77.3% Completed
02/17/98 Devon Group Inc Applied Graphics Technologies 29.2% 32.0% 37.9% 66.9% 114.6% Completed
02/19/98 Casino Magic Corp Hollywood Park Inc 34.5% 32.1% 32.1% 95.7% (19.2%) Completed
02/24/98 Wonderware Corp Siebe PLC 50.0% 59.3% 79.4% 29.7% 125.8% Completed
03/02/98 Coleman Co Inc Sunbeam Corp 44.4% 58.6% 121.2% 93.7% 134.0% Pending
03/02/98 DeepTech International El Paso Natural Gas Co 8.7% 9.8% 15.5% 33.3% 138.1% Completed
03/02/98 Sealright Co Inc Huhtamaki Oy(Ahlgrens) (2.2%) (1.1%) (5.4%) (6.4%) 0.0% Completed
03/04/98 AP Green Industries Inc Global Industrial Technologies 24.4% 37.5% 89.2% 109.5% 134.5% Completed
03/05/98 Intelligent Electronics Inc Xerox Corp 5.7% 19.2% 34.4% 81.4% 124.9% Completed
03/13/98 Brown & Sharpe Manufacturing Thermo Instrument Systems Inc 44.2% 47.6% 65.3% 12.2% 11.7% Pending
03/13/98 MedCath Inc Investor Group 15.2% 10.9% 34.5% 1.3% 26.7% Completed
03/16/98 International Murex Tech Corp Abbott Laboratories 21.6% 38.2% 50.7% 33.3% 62.5% Completed
03/17/98 BET Holdings Inc Investor Group 4.0% 14.3% 17.5% 18.6% 109.1% Completed
03/24/98 Insilco Corp DLJ Merchant Bkg Partners II 4.7% 11.1% 12.9% (2 Completed
04/06/98 MoneyGram Payment Systems Inc Viad Corp 11.5% 15.7% 42.4% (0.9%) 87.6% Completed
04/08/98 Blessings Corp Huntsman Packaging Corp 18.7% 18.3% 34.9% 40.0% 118.1% Completed
</TABLE>
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Page 46 SunTrust Equitable Securities
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PREMIUMS PAID ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE TRANSACTION PRICE PER
ANNOUNCED TARGET NAME ACQUIROR NAME VALUE ($MIL) SHARE
--------- -------------------------- ---------------------------- ------------ ---------
<S> <C> <C> <C> <C>
04/15/98 Harborside Healthcare Corp Investcorp $ 263.2 $ 25.00
04/17/98 XcelleNet Inc Sterling Commerce Inc 214.3 22.02
04/20/98 Atria Communities Inc Kapson Senior Quarters Corp 238.9 20.25
04/21/98 PCA International Inc Investor Group 232.5 26.50
04/28/98 Miller Global Properties-(13) Equity Office Properties Trust 394.0 -
04/30/98 Mycogen Corp(Dow AgroSciences) Dow AgroSciences(Dow Chemical) 355.2 28.00
06/04/98 Cable Michigan Inc Avalon Cable 291.2 40.50
06/10/98 Ceanic Corp Stolt Comex Seaway SA 222.8 20.00
06/10/98 Plenum Publishing Corp Wolters Kluwer NV 258.0 73.50
06/17/98 Nimbus CD International Inc Carlton Communications PLC 264.9 11.50
06/22/98 Special Devices Inc JF Lehman & Co 277.8 34.00
06/23/98 Metallurg Inc Investor Group 303.1 30.00
06/29/98 Bibb Co Inc Dan River Inc 257.9 16.50
06/29/98 Dawson Production Services Inc Key Energy Group Inc 348.8 17.50
06/30/98 Summit Holding Southeast Inc Liberty Mutual Group 233.4 33.00
07/07/98 Republic Engineered Steels Investor Group 417.8 7.25
07/17/98 Simmons Co Fenway Partners 500.0 -
08/06/98 Carr-Gottstein Foods Co Safeway Inc 331.9 12.50
08/07/98 Atrium Companies Inc(Hicks) Investor Group 225.0 -
08/10/98 Molecular Dynamics Inc Amersham Pharmacia Biotech Ltd 222.2 20.50
08/24/98 Coho Energy Inc Hicks Muse Tate & Furst Inc 250.0 6.00
10/08/98 Mecklermedia Corp Penton Media Inc 273.7 29.00
10/19/98 Bayard Drilling Technologies Nabors Industries Inc 200.5 4.41
10/19/98 Colonial Gas Co Eastern Enterprises 491.7 37.50
10/21/98 Centennial HealthCare Corp Welsh Carson Anderson & Stowe 292.1 16.00
</TABLE>
<TABLE>
<CAPTION>
DATE PREMIUM PRIOR TO ANNOUNCEMENT
ANNOUNCED TARGET NAME ACQUIROR NAME 1 DAY 1 WEEK 4 WEEKS 6 MONTHS 1 YEAR STATUS
--------- ------------------------- -------------------- ----- ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
04/15/98 Harborside Healthcare Corp Investcorp 18.3% 22.7% 5.8% 19.0% 117.4% Completed
04/17/98 XcelleNet Inc Sterling Commerce Inc 6.1% 12.6% 7.7% 77.9% 57.3% Completed
04/20/98 Atria Communities Inc Kapson Senior Quarters Corp 2.5% 7.3% (0.3%) 25.1% 81.9% Completed
04/21/98 PCA International Inc Investor Group 23.3% 17.8% 20.5% 9.8% 80.4% Completed
04/28/98 Miller Global Properties-(13) Equity Office Properties Trust Pending
04/30/98 Mycogen Corp(Dow AgroSciences) Dow AgroSciences(Dow Chemical) 41.8% 40.0% 52.4% 34.9% 54.4% Completed
06/04/98 Cable Michigan Inc Avalon Cable 14.9% 14.9% 23.2% 69.6% 141.8% (3 Completed
06/10/98 Ceanic Corp Stolt Comex Seaway SA 29.6% 34.5% 29.0% 66.7% 79.7% Completed
06/10/98 Plenum Publishing Corp Wolters Kluwer NV 6.5% 6.7% 10.7% 57.0% 107.0% Completed
06/17/98 Nimbus CD International Inc Carlton Communications PLC 7.0% 5.7% 10.8% 15.0% 8.2% Completed
06/22/98 Special Devices Inc JF Lehman & Co (2.5%) 1.9% 0.0% 20.4% 126.7% Completed
06/23/98 Metallurg Inc Investor Group 51.9% 51.9% 60.0% 77.7% 150.0% (4 Completed
06/29/98 Bibb Co Inc Dan River Inc 19.5% 22.2% 38.9% 109.4% 112.9% (5 Completed
06/29/98 Dawson Production Services Inc Key Energy Group Inc 40.7% 50.5% 66.7% 7.7% 25.0% Completed
06/30/98 Summit Holding Southeast Inc Liberty Mutual Group 28.2% 26.3% 28.2% 55.3% 94.1% Completed
07/07/98 Republic Engineered Steels Investor Group 56.8% 68.1% 45.0% 231.1% 425.4% Completed
07/17/98 Simmons Co Fenway Partners Completed
08/06/98 Carr-Gottstein Foods Co Safeway Inc 58.7% 48.1% 70.9% 140.8% 150.0% Pending
08/07/98 Atrium Companies Inc(Hicks) Investor Group Completed
08/10/98 Molecular Dynamics Inc Amersham Pharmacia Biotech Ltd 36.7% 47.7% 100.0% 64.0% (1.2%) Completed
08/24/98 Coho Energy Inc Hicks Muse Tate & Furst Inc 28.0% 20.0% (4.0%) (23.9%) (36.0%) Pending
10/08/98 Mecklermedia Corp Penton Media Inc 43.7% 52.6% 39.8% 18.9% 28.1% Completed
10/19/98 Bayard Drilling Technologies Nabors Industries Inc (10.7%) 3.8% (7.2%) (70.1%) (80.8%) (6 Pending
10/19/98 Colonial Gas Co Eastern Enterprises 26.8% 29.9% 26.1% 33.3% 54.6% Pending
10/21/98 Centennial HealthCare Corp Welsh Carson Anderson & Stowe 88.2% 111.6% 81.6% (31.6%) (35.5%) Pending
</TABLE>
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Page 47 SunTrust Equitable Securities
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE TRANSACTION PRICE PER
ANNOUNCED TARGET NAME ACQUIROR NAME VALUE ($MIL) SHARE
--------- -------------------------- ---------------------------- ------------ ---------
<S> <C> <C> <C> <C>
10/22/98 BA Merchant Services Inc Bank of America,San Francisco $ 357.6 $ 20.50
10/27/98 Citizens Corp(Hanover Ins Co) Allmerica Financial Corp 212.4 33.25
11/10/98 Players International Inc Hollywood Park Inc 333.3 6.00
11/25/98 Sbarro Inc Investor Group 386.4 28.85
12/02/98 Brylane Inc Pinault-Printemps Redoute 230.6 24.50
12/07/98 BRC Holdings Inc Matador Capital Management 288.5 21.00
12/07/98 Interlake Corp GKN PLC 466.7 7.25
12/15/98 Global Industrial Technologies WHX Corp 224.8 10.50
12/17/98 RightCHOICE Managed Care Inc Blue Cross & Blue Shield of KC 282.3 15.25
12/18/98 LeaRonal Inc Rohm and Haas Co 449.2 34.00
12/19/98 Whittaker Corp Tennenbaum & Co 201.6 18.50
12/27/98 Kaynar Technologies Inc Fairchild Corp 393.8 28.75
01/14/99 Winsloew Furniture Inc Investor Group 236.2 30.00
01/18/99 GeoScience Corp(Tech-Sym Corp) Core Laboratories NV 216.3 17.88
01/19/99 Excel Industries Inc Dura Automotive Systems(Onex) 482.1 26.18
01/20/99 Integrated Circuit Systems Inc Investor Group 269.1 21.25
02/01/99 Muzak Limited Partnership Audio Communications Network 350.0 -
02/09/99 Players International Inc Jackpot Enterprises Inc 428.8 8.25
02/16/99 MVE Holdings Inc Chart Industries Inc 240.0 -
02/19/99 Pinkerton's Inc Securitas AB 384.7 29.00
02/22/99 Republic Banking Corp,Miami,FL Union Planters Corp,Memphis,TN 409.5 19.25
02/26/99 North Face Inc Investor Group 219.5 17.00
03/04/99 Berkshire Realty Co Inc Aptco LLC 469.2 11.05
03/09/99 Powerhouse Technologies Inc Anchor Gaming 222.4 19.50
03/11/99 Franchise Mortgage Acceptance Bay View Capital,San Mateo,CA 333.8 10.58
03/11/99 Sodak Gaming Inc International Game Technology 228.4 10.00
</TABLE>
<TABLE>
<CAPTION>
DATE PREMIUM PRIOR TO ANNOUNCEMENT
ANNOUNCED TARGET NAME ACQUIROR NAME 1 DAY 1 WEEK 4 WEEKS 6 MONTHS 1 YEAR STATUS
--------- ------------------------- -------------------- ----- ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
10/22/98 BA Merchant Services Inc Bank of America,San Francisco 47.1% 56.2% 42.0% 10.8% 9.7% Pending
10/27/98 Citizens Corp(Hanover Ins Co) Allmerica Financial Corp 20.6% 17.2% 20.9% 5.6% 14.1% Completed
11/10/98 Players International Inc Hollywood Park Inc 20.0% 29.7% 54.8% 17.0% 77.5% Pending
11/25/98 Sbarro Inc Investor Group 18.0% 17.8% 26.1% 0.1% 1.2% Pending
12/02/98 Brylane Inc Pinault-Printemps Redoute 45.2% 88.5% 44.1% (50.3%) (52.9%) Pending
12/07/98 BRC Holdings Inc Matador Capital Management 10.9% 10.2% 12.8% 13.5% 3.0% Pending
12/07/98 Interlake Corp GKN PLC 107.1% 110.9% 100.0% 73.0% 61.1% Completed
12/15/98 Global Industrial Technologies WHX Corp 25.4% 33.3% 13.5% (26.0%) (39.6%) Pending
12/17/98 RightCHOICE Managed Care Inc Blue Cross & Blue Shield of KC 71.8% 70.6% 67.1% 31.9% 52.5% Pending
12/18/98 LeaRonal Inc Rohm and Haas Co 29.2% 37.4% 59.1% 29.5% 50.2% Completed
12/19/98 Whittaker Corp Tennenbaum & Co 12.1% 51.8% 35.2% 41.8% 127.6% Pending
12/27/98 Kaynar Technologies Inc Fairchild Corp 16.8% 27.8% 38.6% 29.2% 0.0% Pending
01/14/99 Winsloew Furniture Inc Investor Group 18.8% 24.7% 17.1% 17.1% 106.9% Pending
01/18/99 GeoScience Corp(Tech-Sym Corp) Core Laboratories NV 30.0% 50.6% 107.3% 32.4% 9.6% Pending
01/19/99 Excel Industries Inc Dura Automotive Systems(Onex) 25.4% 41.0% 55.1% 89.6% 48.5% Pending
01/20/99 Integrated Circuit Systems Inc Investor Group 14.9% 14.9% 33.3% 42.8% (14.1%) Pending
02/01/99 Muzak Limited Partnership Audio Communications Network Pending
02/09/99 Players International Inc Jackpot Enterprises Inc 37.5% 44.3% 46.7% 57.1% 88.4% Pending
02/16/99 MVE Holdings Inc Chart Industries Inc Pending
02/19/99 Pinkerton's Inc Securitas AB 71.2% 71.9% 46.8% 74.1% 28.5% Pending
02/22/99 Republic Banking Corp,Miami,FL Union Planters Corp,Memphis,TN 10.8% 28.9% 28.3% 40.5% 21.8% Pending
02/26/99 North Face Inc Investor Group 38.8% 32.7% 23.1% 36.0% (38.7%) Pending
03/04/99 Berkshire Realty Co Inc Aptco LLC 13.3% 17.1% 14.8% 16.3% (5.0%) Pending
03/09/99 Powerhouse Technologies Inc Anchor Gaming 35.1% 31.6% 52.2% 118.1% 64.1% Pending
03/11/99 Franchise Mortgage Acceptance Bay View Capital,San Mateo,CA 27.3% 24.5% 62.8% 30.1% (40.8%) Pending
03/11/99 Sodak Gaming Inc International Game Technology 25.0% 25.0% 34.5% 63.1% 39.1% Pending
</TABLE>
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Page 48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREMIUMS PAID ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$200MM TO $500MM CASH TRANSACTIONS SINCE 1/1/98
<TABLE>
<CAPTION>
PREMIUM PRIOR TO ANNOUNCEMENT
DATE TRANSACTION PRICE PER -----------------------------
ANNOUNCED TARGET NAME ACQUIROR NAME VALUE ($MIL) SHARE 1 DAY 1 WEEK 4 WEEKS 6 MONTHS 1 YEAR STATUS
- --------- ----------- ------------- ------------ ----- ----- ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAXIMUM 126.4% 111.6% 121.2% 231.1% 425.4%
MINIMUM (10.7%) (1.1%) (7.2%) (70.1%) (80.8%)
MEDIAN 25.4% 31.4% 37.7% 36.0% 57.3%
AVERAGE 29.9% 35.4% 41.0% 43.8% 59.9%
AVERAGE EXCLUDING HIGH AND LOW 29.0% 34.8% 40.5% 42.7% 56.6%
</TABLE>
(1) Reflects 1/29/98 Initial Public Offering Price.
(2) Taken private effective 12/88 per Bloomberg
(3) Price as of 9/19/97
(4) Price as of 9/9/97
(5) Price as of 10/3/97
(6) Reflects 11/3/97 Initial Public Offering Price.
Source: Securities Data Company, Inc. (201) 622-3100
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<PAGE>
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PREMIUMS PAID ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$200MM TO $500MM CASH TRANSACTIONS SINCE 1/1/98 STOCK PRICE DECLINE DURING THE
LTM PRIOR TO THE TRANSACTION
<TABLE>
<CAPTION>
PRICE PER SHARE
TRANSACTION ------------------------------------
DATE VALUE 1 DAY PRIOR TO 1 YEAR PRIOR TO
ANNOUNCED TARGET NAME ACQUIROR INSERT ($MIL) OFFER ANNOUNCEMENT ANNOUNCEMENT
--------- -------------------- --------------------- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
01/29/98 ProSource Inc(Onex Corp) AmeriServe Food Distn Inc 343.3 $15.00 $ 6.63 $ 13.13
02/19/98 Casino Magic Corp Hollywood Park Inc 344.8 2.27 1.69 2.81
03/13/98 Brown & Sharpe Manufacturing Thermo Instrument Systems Inc 212.3 15.50 10.75 13.88
06/29/98 Dawson Production Services Inc Key Energy Group Inc 348.8 17.50 12.44 14.00
08/10/98 Molecular Dynamics Inc Amersham Pharmacia Biotech Ltd 222.2 20.50 15.00 20.75
08/24/98 Coho Energy Inc Hicks Muse Tate & Furst Inc 250.0 6.00 4.69 9.38
10/08/98 Mecklermedia Corp Penton Media Inc 273.7 29.00 20.19 22.63
10/19/98 Bayard Drilling Technologies Nabors Industries Inc 200.5 4.41 4.94 23.00 (1)
10/21/98 Centennial HealthCare Corp Welsh Carson Anderson & Stowe 292.1 16.00 8.50 24.81
10/22/98 BA Merchant Services Inc Bank of America,San Francisco 357.6 20.50 13.94 18.69
10/27/98 Citizens Corp(Hanover Ins Co) Allmerica Financial Corp 212.4 33.25 27.56 29.13
11/25/98 Sbarro Inc Investor Group 386.4 28.85 24.44 28.50
12/02/98 Brylane Inc Pinault-Printemps Redoute 230.6 24.50 16.88 52.06
12/07/98 BRC Holdings Inc Matador Capital Management 288.5 21.00 18.94 20.39
12/07/98 Interlake Corp GKN PLC 466.7 7.25 3.50 4.50
12/15/98 Global Industrial Technologies WHX Corp 224.8 10.50 8.38 17.38
12/17/98 RightCHOICE Managed Care Inc Blue Cross & Blue Shield of KC 282.3 15.25 8.88 10.00
12/27/98 Kaynar Technologies Inc Fairchild Corp 393.8 28.75 24.63 28.75
01/18/99 GeoScience Corp(Tech-Sym Corp) Core Laboratories NV 216.3 17.88 13.75 16.31
01/20/99 Integrated Circuit Systems Inc Investor Group 269.1 21.25 18.50 24.75
</TABLE>
<TABLE>
<CAPTION>
1 YEAR PREMIUM OF
DATE DECLINE IN ANNOUNCEMENT
ANNOUNCED TARGET NAME ACQUIROR INSERT STOCK PRICE TO 1 DAY PRIOR STATUS
--------- ----------- --------------- ----------- -------------- ------
<S> <C> <C> <C> <C> <C>
01/29/98 ProSource Inc(Onex Corp) AmeriServe Food Distn Inc (49.5%) 126.4% Completed
02/19/98 Casino Magic Corp Hollywood Park Inc (39.9%) 34.5% Completed
03/13/98 Brown & Sharpe Manufacturing Thermo Instrument Systems Inc (22.6%) 44.2% Pending
06/29/98 Dawson Production Services Inc Key Energy Group Inc (11.2%) 40.7% Completed
08/10/98 Molecular Dynamics Inc Amersham Pharmacia Biotech Ltd (27.7%) 36.7% Completed
08/24/98 Coho Energy Inc Hicks Muse Tate & Furst Inc (50.0%) 28.0% Pending
10/08/98 Mecklermedia Corp Penton Media Inc (10.8%) 43.7% Completed
10/19/98 Bayard Drilling Technologies Nabors Industries Inc (78.5%) (10.7%) Pending
10/21/98 Centennial HealthCare Corp Welsh Carson Anderson & Stowe (65.7%) 88.2% Pending
10/22/98 BA Merchant Services Inc Bank of America,San Francisco (25.4%) 47.1% Pending
10/27/98 Citizens Corp(Hanover Ins Co) Allmerica Financial Corp (5.4%) 20.6% Completed
11/25/98 Sbarro Inc Investor Group (14.2%) 18.0% Pending
12/02/98 Brylane Inc Pinault-Printemps Redoute (67.6%) 45.2% Pending
12/07/98 BRC Holdings Inc Matador Capital Management (7.1%) 10.9% Pending
12/07/98 Interlake Corp GKN PLC (22.2%) 107.1% Completed
12/15/98 Global Industrial Technologies WHX Corp (51.8%) 25.4% Pending
12/17/98 RightCHOICE Managed Care Inc Blue Cross & Blue Shield of KC (11.3%) 71.8% Pending
12/27/98 Kaynar Technologies Inc Fairchild Corp (14.3%) 16.8% Pending
01/18/99 GeoScience Corp(Tech-Sym Corp) Core Laboratories NV (15.7%) 30.0% Pending
01/20/99 Integrated Circuit Systems Inc Investor Group (25.3%) 14.9% Pending
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREMIUMS PAID ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$200MM TO $500MM CASH TRANSACTIONS SINCE 1/1/98 STOCK PRICE DECLINE DURING THE
LTM PRIOR TO THE TRANSACTION
<TABLE>
<CAPTION>
PRICE PER SHARE
TRANSACTION -------------------------------------
DATE VALUE 1 DAY PRIOR TO 1 YEAR PRIOR TO
ANNOUNCED TARGET NAME ACQUIROR INSERT ($MIL) OFFER ANNOUNCEMENT ANNOUNCEMENT
--------- ----------- --------------- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
02/19/99 Pinkerton's Inc Securitas AB 384.7 29.00 16.94 22.56
02/26/99 North Face Inc Investor Group 219.5 17.00 12.25 27.75
03/04/99 Berkshire Realty Co Inc Aptco LLC 469.2 11.05 9.75 11.63
03/11/99 Franchise Mortgage Acceptance Bay View Capital,San Mateo,CA 333.8 10.58 8.31 17.88
</TABLE>
<TABLE>
<CAPTION>
1 YEAR PREMIUM OF
DATE DECLINE IN ANNOUNCEMENT
ANNOUNCED TARGET NAME ACQUIROR INSERT STOCK PRICE TO 1 DAY PRIOR STATUS
--------- ----------- --------------- ----------- -------------- ------
<S> <C> <C> <C> <C> <C>
02/19/99 Pinkerton's Inc Securitas AB (24.9%) 71.2% Pending
02/26/99 North Face Inc Investor Group (55.9%) 38.8% Pending
03/04/99 Berkshire Realty Co Inc Aptco LLC (16.2%) 13.3% Pending
03/11/99 Franchise Mortgage Acceptance Bay View Capital,San Mateo,CA (53.5%) 27.3% Pending
MINIMUM (5.4%) (10.7%)
MAXIMUM (78.5%) 126.4%
MEDIAN (25.1%) 35.6%
AVERAGE (32.0%) 41.3%
AVERAGE EXCLUDING HIGH AND LOW (31.0%) 39.7%
</TABLE>
(1) Reflects 11/3/97 Initial Public Offering Price.
Source: Securities Data Company, Inc. (201) 622-3100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 51
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT A:
FORM OF STES OPINION LETTER
<PAGE>
, 1999
-------
Board of Directors
CORT Business Services Corporation
4401 Fair Lakes Court
Fairfax, VA 22033
Members of the Board:
We understand that CORT Business Services Corporation ("CORT" or the
"Company") will enter into an Agreement and Plan of Merger to be dated March __,
1999 (the "Agreement"), with Acquisition Holdings, L.L.C. ("Parent") and
Acquisition Merger Sub, Inc. ("Sub") in substantially the form provided to us in
rendering this opinion. The Agreement provides that, at the effective time of
the merger (the "Merger") of Sub with and into CORT (the "Effective Time"), CORT
will become a wholly-owned subsidiary of Parent and each outstanding share of
Common Stock (as defined by the Agreement) of CORT (other than shares canceled
pursuant to Section 2.1(b) of the Agreement and other than Dissenting Shares (as
defined by the Agreement) and Retained Shares (as defined by the Agreement))
will be converted into the right to receive (i) $24.00 in cash and (ii) one
share of Senior Preferred (as defined by the Agreement), which consideration is
referred to in the Agreement and herein as the "Merger Consideration." The terms
and conditions of the Merger are more fully set forth in the Agreement.
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, of the Merger Consideration to the
shareholders of the Company receiving the Merger Consideration (the
"Non-Affiliated Shareholders").
SunTrust Equitable Securities Corporation ("SunTrust Equitable"), as
part of its investment banking business, is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. SunTrust Equitable has been engaged to render an opinion to the Board
of Directors of the Company with respect to the fairness, from a financial point
of view, to the Non-Affiliated Shareholders of the Merger Consideration and will
receive a fee for rendering this opinion and reimbursement of its expenses. In
addition, the Company has agreed to indemnify SunTrust Equitable for certain
liabilities arising out of its engagement, including the rendering of this
opinion. In the ordinary course of business, we trade the equity securities of
the Company for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in these securities.
In connection with our opinion, we have reviewed, among other things,
the Agreement, certain publicly-available information and certain other
financial information, reports, forecasts and other internal information that
was provided to us by or on behalf of the Company for
<PAGE>
Board of Directors
__________, 1999
Page 2
purposes of our analysis. We held discussions with the management and
representatives of the Company concerning the historical and current operations
of the Company, its financial condition and its prospects. In addition, we
conducted such other financial studies, analyses and investigations and reviewed
such other information and factors as we deemed appropriate for purposes of this
opinion.
In rendering this opinion, we have relied, without assuming any
responsibility for independent verification, on the accuracy and completeness of
all financial and other information reviewed by us that was publicly available
or furnished to us by or on behalf of the Company. We have assumed with your
consent that the financial forecasts that we examined were reasonably prepared
on bases reflecting the best currently available estimates and good faith
judgments of the management of the Company. We express no opinion with respect
to such forecasts or the assumptions on which they were based. We have not made
an independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of the Company, nor were we furnished with any such evaluations or
appraisals. In connection with the preparation of this opinion we have not been
authorized to solicit nor have we solicited or evaluated any alternative
transaction with any other party. Our opinion is based upon economic, market and
other conditions as they exist and can be evaluated on the date hereof. Our
opinion does not address the merits of the underlying decision by the Company to
engage in the Merger and does not constitute a recommendation to any shareholder
of the Company as to whether or not that shareholder should vote to approve the
Merger. The financial markets in general, and the markets for the securities of
the Company, in particular, are subject to volatility, and this opinion does not
purport to address potential developments in the financial markets or the
markets for the securities of the Company after the date hereof.
This letter may not be reproduced, disseminated, quoted or referred to
at any time without our prior written consent; however, the opinion rendered
hereby may be included in its entirety in the proxy statement relating to the
Merger to be distributed by the Company to its shareholders.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Merger Consideration is fair, from a financial point of
view, to the Non-Affiliated Shareholders of the Company.
Very truly yours,
SunTrust Equitable Securities Corporation
<PAGE>
CORT BUSINESS SERVICES CORPORATION
4401 FAIR LAKES COURT, SUITE 300
FAIRFAX, VIRGINIA 22033
, 1999
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
CORT Business Services Corporation ("CORT" or the "Company") to consider the
important matter of the acquisition of the Company by Bruckmann, Rosser,
Sherrill & Co., L.P., a Delaware limited partnership ("BRS"), Citicorp Venture
Capital Ltd. ("CVC") and certain of the Company's directors and officers. The
meeting will be held on , 1999, at .m., local time, at .
As explained in the enclosed Notice of Special Meeting of Stockholders and
Proxy Statement/ Prospectus, the purpose of the Special Meeting is to consider
and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of
March 25, 1999 (as such may be amended from time to time, the "Merger
Agreement"), among the Company, CBF Holding LLC ("CBF"), and CBF Mergerco, Inc.
("CBF Sub"). Pursuant to the Merger Agreement, CBF Sub will merge with and into
the Company (the "Merger"), and the Company will continue as the surviving
corporation. If the Merger is consummated, each stockholder's ownership interest
in the Company (other than those who are retaining shares pursuant to the Merger
Agreement) will be converted automatically into the right to receive per share
consideration of $24.00 in cash, without interest, and one share of a series of
preferred stock of the Company as the surviving company in the merger, with an
initial liquidation preference of $2.50, unless appraisal rights are exercised
and perfected in accordance with Delaware law. The treatment in the Merger of
outstanding stock options to purchase shares of common stock of the Company is
described in the accompanying Proxy Statement/Prospectus.
Details of the Merger Agreement and other important information appear in
the attached Proxy Statement/Prospectus. A copy of the Merger Agreement is
attached as Annex A to the Proxy Statement/ Prospectus.
The Board of Directors has unanimously approved and declared advisable the
Merger Agreement, has determined that the Merger is fair to, and in the best
interests of, the stockholders of the Company and has recommended that the
stockholders vote in favor of adoption of the Merger Agreement. The Company
retained SunTrust Equitable Securities Corporation ("STES") to act as financial
advisor to the Board and to assist it in its review and consideration of the
Merger. STES has rendered an opinion, confirmed as of the date hereof, that
based upon the various considerations described in the opinion, the
consideration to be received by the Company's stockholders (other than certain
of the Company's directors, officers and stockholders retaining shares of the
Company's common equity in connection with the Merger) pursuant to the terms of
the Merger Agreement is fair to them from a financial point of view. A copy of
the opinion of STES is set forth in full as Annex B to the attached Proxy
Statement/Prospectus.
According to the laws of the State of Delaware, the affirmative vote of the
holders of a majority of the outstanding shares of the Company's voting common
stock is required to adopt the Merger Agreement. In addition to the requirements
under Delaware law, the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of voting common stock that are
not owned beneficially by the Affiliated Stockholders (as defined in the Merger
Agreement) or their affiliates or associates to adopt the Merger Agreement. This
voting requirement affords the Company's "public" stockholders the opportunity
to approve or reject the Merger.
<PAGE>
IMPORTANT INFORMATION REGARDING THE PROPOSED MERGER IS INCLUDED IN THE
ENCLOSED PROXY STATEMENT/PROSPECTUS. WE URGE YOU TO READ THE ENCLOSED MATERIALS
CAREFULLY. We would like your shares to be represented, and we hope you can
attend the Special Meeting. Whether or not you plan to attend the Special
Meeting, please complete, sign and date your proxy card and return it in the
enclosed envelope as soon as possible. If after submitting your proxy, you
decide to change your vote or that you would rather vote your shares in person,
you may do so at any time prior to or at the Special Meeting. Please do not send
in your stock certificates at this time.
Sincerely,
Paul N. Arnold
President and Chief Executive Officer
ii
<PAGE>
CORT BUSINESS SERVICES CORPORATION
4401 FAIR LAKES COURT, SUITE 300
FAIRFAX, VIRGINIA 22033
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
To the Stockholders of CORT Business Services Corporation:
NOTICE HEREBY IS GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of CORT Business Services Corporation, a Delaware corporation (the
"Company"), will be held on , 1999, at .m., eastern time, at , Fairfax, Virginia
22033, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of March 25, 1999 (the "Merger Agreement"), among the
Company, CBF Holding, LLC, a Delaware limited liability company ("CBF"),
and CBF Mergerco Inc., a Delaware corporation and a wholly-owned
subsidiary of CBF ("CBF Sub"), pursuant to which: (a) CBF Sub will be
merged with and into the Company (the "Merger"), and the Company will be
the surviving corporation in the Merger, and (b) each share of the
Company's common stock, par value $.01 per share (the "Shares"), that is
issued and outstanding immediately prior to the effective time of the
Merger (the "Effective Time") (other than Shares held in the Company's
treasury or by any subsidiary of the Company, which will be canceled
automatically without payment, other than Retained Shares as defined in
the Merger Agreement, and other than Shares in respect of which appraisal
rights are perfected properly in accordance with Delaware law) will be
converted into the right to receive (i) $24.00, without interest (for
estimated aggregate cash consideration of approximately $277.4 million),
and (ii) one share of 12% Series A-1 Preferred Stock of the Company, as
the surviving corporation in the Merger, with an initial liquidation
preference of $2.50 per share; and
2. To transact such other business as may come properly before the Special
Meeting or any adjournments or postponements thereof.
These transactions and other related matters are more fully described in the
accompanying Proxy Statement/Prospectus and the Annexes and Schedules thereto. A
copy of the Merger Agreement is attached as Annex A to, and described in, the
accompanying Proxy Statement/Prospectus. The Board of Directors has approved the
Merger Agreement and declared its advisability, has determined that the Merger
is fair to, and in the best interests of, the stockholders of the Company and
recommends that the stockholders vote in favor of adoption of the Merger
Agreement.
The Board of Directors has fixed the close of business on , 1999
as the record date for determination of the holders of Shares entitled to notice
of and to vote at the Special Meeting. Only stockholders of record at the close
of business on , 1999 are entitled to receive notice of, and only
holders of record of voting Shares at the close of business on are
entitled to vote their voting Shares at, the Special Meeting and any
adjournments or postponements thereof. A list of stockholders will be available
at the time and place of the meeting and, during the 10 days prior to the
meeting, at the office of the Corporate Secretary, 4401 Fair Lakes Court, Suite
300, Fairfax, Virginia 22033. According to the laws of the State of Delaware,
the affirmative vote of the holders of a majority of the outstanding voting
Shares is required to adopt the Merger Agreement. In addition, the Merger
Agreement requires the affirmative vote of holders of a majority of the
outstanding voting Shares that are not owned beneficially by the Affiliated
Stockholders (as defined in the Merger Agreement) or any of their respective
affiliates or associates to adopt the Merger Agreement. See
"INTRODUCTION--Voting at the Special Meeting" in the accompanying Proxy
Statement/Prospectus.
Stockholders of the Company who do not vote in favor of adoption of the
Merger Agreement and who comply with the requirements of Section 262 of the
Delaware General Corporation Law (the "DGCL") will have the right to demand
appraisal of their shares in connection with the Merger. Generally, to preserve
appraisal rights, a stockholder must (1) before the vote with respect to the
Merger Agreement is
<PAGE>
taken at the Special Meeting, deliver to the Company a written demand for
appraisal of his, her or its Shares, (2) not vote in favor of adoption of the
Merger Agreement and (3) cause a petition for appraisal to be filed in the
Delaware Court of Chancery within 120 days after the Effective Time. For a
description of appraisal rights, see the information provided in the
accompanying Proxy Statement/Prospectus under the caption "APPRAISAL RIGHTS."
See also Annex C to the accompanying Proxy Statement/Prospectus for a copy of
Section 262 of the DGCL.
The Company is party to certain litigation challenging the Merger. See
"SPECIAL FACTORS-- Certain Litigation Challenging the Merger" in the
accompanying Proxy Statement/Prospectus.
A stockholder who has given a proxy may revoke it at any time before it is
voted at the Special Meeting by filing with the Secretary of the Company a
written revocation bearing a later date than the date of the proxy being
revoked, by submitting a subsequent proxy bearing a later date than the date of
the proxy being revoked or by voting in person at the Special Meeting, all as
more fully described in the accompanying Proxy Statement/Prospectus under the
caption "INTRODUCTION--Proxies." Properly executed but unmarked proxies will be
voted FOR adoption of the Merger Agreement.
Whether or not you intend to be personally present at the Special Meeting,
please complete, sign and date the enclosed proxy and return it promptly in the
enclosed postage prepaid envelope. Stockholders who attend the Special Meeting
may vote in person even if they have returned a proxy card.
By Order Of The Board of Directors
Frances Ann Ziemniak
Secretary
Fairfax, Virginia
, 1999
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED,
WHETHER OR NOT YOU INTEND TO BE
PRESENT AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
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.
CORT BUSINESS SERVICES CORPORATION
4401 FAIR LAKES COURT, SUITE 300
FAIRFAX, VIRGINIA 22033
------------------------
PROXY STATEMENT/PROSPECTUS
------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
This Proxy Statement/Prospectus is being furnished to the stockholders (the
"Stockholders") of CORT Business Services Corporation, a Delaware corporation
("CORT" or the "Company"), in connection with the solicitation by the Company's
Board of Directors (the "Board of Directors" or the "Board") of proxies from
holders of outstanding shares of Common Stock, par value $.01 per share, of the
Company (together with the outstanding shares of Class B Common Stock, par value
$.01 per share, the "Shares"), for use at the Special Meeting of Stockholders to
be held at , Fairfax, Virginia 22033, on , 1999, at: .m.,
eastern time, and at any adjournments or postponements thereof (the "Special
Meeting"). This Proxy Statement/Prospectus and the form of proxy attached hereto
are first being mailed to the Stockholders on or about , 1999.
At the Special Meeting, the holders of voting Shares will consider and vote
upon a proposal to adopt the Agreement and Plan of Merger, dated as of March 25,
1999 (the "Merger Agreement"), among CORT, CBF Holding LLC, a Delaware limited
liability company ("CBF"), and CBF Mergerco, Inc., a Delaware corporation and a
wholly-owned subsidiary of CBF ("CBF Sub"). A copy of the Merger Agreement is
attached as Annex A to this Proxy Statement/Prospectus. The Merger Agreement
provides for the merger of CBF Sub with and into CORT (the "Merger") following
which CORT will continue as the surviving corporation (the "Surviving
Corporation"). Bruckmann, Rosser, Sherrill & Co., L.P., a Delaware limited
partnership ("BRS"), organized CBF and CBF Sub on March 25, 1999 for the purpose
of acquiring CORT. It is expected that prior to consummation of the Merger all
of the equity interests in CBF will be owned by BRS and certain of its
affiliates. If the Merger is consummated, the ownership interests of the
Stockholders in CORT (other than the ongoing interest of the Affiliated
Stockholders in the Surviving Corporation and of the Stockholders in the Series
A-1 Preferred Stock, as defined below) will cease, and each Share outstanding at
the time the Merger becomes effective under Delaware law (the "Effective Time")
(other than Shares held at the Effective Time in CORT's treasury or by any
subsidiary of CORT, which will be canceled automatically without payment, other
than Retained Shares as defined in the Merger Agreement and other than Shares in
respect of which appraisal rights are perfected properly under Delaware law)
will be converted into the right to receive per Share consideration of $24.00 in
cash, without interest, and one share of Series A-1 Preferred Stock of the
Company as the surviving corporation in the Merger with an initial liquidation
value of $2.50 (the "Series A-1 Preferred Stock"). The total consideration was
determined based on discussions between the Board and representatives of the
Affiliated Stockholders and, in the opinion of the Company's financial advisor,
was fair to CORT's Stockholders (other than certain of the Company's directors,
officers and stockholders retaining shares of the Company's common equity in
connection with the Merger, the "Affiliated Stockholders") from a financial
point of view. For further discussion concerning the determination of the per
Share consideration, see "SPECIAL FACTORS-- Background of the Merger" and
"--Fairness of the Merger; Recommendation of the Board of Directors;
<PAGE>
Position of CBF." For additional information concerning the terms and conditions
of the Merger, see "THE MERGER." If the Merger is consummated, Citicorp Venture
Capital Ltd. ("CVC"), directors and management of CORT are expected to receive
aggregate net proceeds (net of the exercise price of Shares held under options)
of approximately $ 112.6 million in cash for conversion of their Shares in
connection with the Merger and 4,983,321 shares of the Series A-1 Preferred
Stock. For further information concerning the ownership of CBF, a description of
the conflicts of interest of certain members of the Board of Directors and the
financial interests of certain Affiliated Stockholders and of CORT's officers
and directors in the Merger, see "SPECIAL FACTORS--Interests of Certain Persons
in the Merger; Conflicts of Interest" and "CERTAIN INFORMATION CONCERNING CBF,
CBF SUB AND AFFILIATES."
This Proxy Statement/Prospectus also constitutes a prospectus of the Company
with respect to the shares of Series A-1 Preferred Stock of the Surviving
Corporation to be issued in connection with the Merger.
The affirmative vote of the holders of a majority of the outstanding voting
Shares and the affirmative vote of the holders of a majority of the outstanding
voting Shares that are not owned beneficially by the Affiliated Stockholders or
by persons that are "affiliates" or "associates" (as such terms are defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of the
Affiliated Stockholders (such holders other than the Affiliated Stockholders and
such affiliates and associates being referred to collectively as the
"Unaffiliated Stockholders") are required to adopt the Merger Agreement and to
consummate the Merger. See "THE MERGER--Stockholder Adoption of the Merger
Agreement."
The Board of Directors approved unanimously the Merger Agreement and
declared its advisability, has determined that the Merger is fair to, and in the
best interests of, all of its Stockholders, including the Unaffiliated
Stockholders, and recommends that the Stockholders vote in favor of adoption of
the Merger Agreement. See "SPECIAL FACTORS--Fairness of the Merger;
Recommendation of the Board of Directors; Position of CBF" and "--Interests of
Certain Persons in the Merger; Conflicts of Interest."
THE MERGER INVOLVES A MATTER OF GREAT IMPORTANCE TO THE COMPANY'S
STOCKHOLDERS. IF THE MERGER AGREEMENT IS ADOPTED AND THE MERGER IS CONSUMMATED,
EACH OF THE SHARES (OTHER THAN THOSE HELD IN THE COMPANY'S TREASURY OR BY ANY
SUBSIDIARY OF THE COMPANY, OTHER THAN RETAINED SHARES AS DEFINED IN THE MERGER
AGREEMENT, AND OTHER THAN THOSE AS TO WHICH APPRAISAL RIGHTS ARE PROPERLY
PERFECTED) WILL BE CONVERTED INTO THE RIGHT TO RECEIVE $24.00 IN CASH AND ONE
SHARE OF SERIES A-1 PREFERRED STOCK OF THE COMPANY AS THE SURVIVING CORPORATION,
AND THE STOCKHOLDERS' COMMON EQUITY INTEREST IN THE COMPANY (OTHER THAN THE
ONGOING INTEREST OF THE AFFILIATED STOCKHOLDERS IN THE SURVIVING CORPORATION)
WILL CEASE. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND CONSIDER CAREFULLY
THE INFORMATION SUMMARIZED BELOW AND PRESENTED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS.
The date of this Proxy Statement/Prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary.................................................................................................... 2
Date, Time and Place of Special Meeting.................................................................. 2
Purpose of the Special Meeting........................................................................... 2
Eligibility to Vote and Required Vote.................................................................... 2
The Merger............................................................................................... 2
What You Will Receive in the Merger...................................................................... 3
Effective Time of the Merger............................................................................. 3
Recommendation of the Board of Directors................................................................. 3
Opinion of Financial Advisor............................................................................. 3
Interests of Certain Persons in the Merger............................................................... 3
Conditions to Completion of the Merger................................................................... 5
Expenses................................................................................................. 5
Financing of the Merger.................................................................................. 5
Appraisal Rights......................................................................................... 6
Certain Federal Income Tax Consequences.................................................................. 6
Regulatory Matters....................................................................................... 6
Market Information....................................................................................... 6
Certain Litigation Challenging the Merger................................................................ 6
Business and Principal Executive Offices................................................................. 6
Selected Consolidated Historical and Pro Forma Financial Data.............................................. 7
Risk Factors............................................................................................... 8
We Will Have A High Level of Debt After The Merger Which Could Have An Adverse Effect On Our Business And
The Series A-1 Preferred Stock That You Will Be Entitled To Receive In Connection With The Merger...... 8
The Inability To Repay Our Debt And Interest Obligations May Have An Adverse Impact On Our Business...... 8
Our Debt Obligations May Contain Covenants That Will Restrict How We Operate Our Business................ 8
After The Merger, We Will Be Controlled By A Small Number Of Stockholders................................ 9
We Will Delist Our Common Stock From The NYSE And There Is Uncertainly Regarding The Liquidity And Market
Price For The Series A-1 Preferred Stock You Will Be Entitled To Receive In Connection With The
Merger................................................................................................. 9
Our Other Liabilities And Obligations Are Senior In Right Of Payment To The Series A-1 Preferred Stock
You Will Be Entitled To Receive In Connection With The Merger.......................................... 10
Your Series A-1 Preferred Stock Will Have Limited Voting Rights.......................................... 10
Our Board, Delaware Law And Our Debt Obligations May Impose Limitations On Our Ability To Pay Dividends
On The Series A-1 Preferred Stock You Will Be Entitled To Receive In Connection With The Merger........ 10
After The Merger, It Is Possible That We Will No Longer File Reports With The Securities And Exchange
Commission............................................................................................. 11
Our Business Is In A Highly Competitive Industry......................................................... 11
We Cannot Assure That We Will Be Able To Implement Key Components Of Our Business Strategy............... 11
We Depend On Key Personnel............................................................................... 12
Introduction............................................................................................... 12
Special Factors............................................................................................ 16
Background of the Merger................................................................................. 16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Contacts with Third Parties.............................................................................. 21
Fairness of the Merger; Recommendation of the Board of Directors; Position of CBF........................ 24
Opinion of Financial Advisor............................................................................. 27
Purpose of the Merger.................................................................................... 32
Interests of Certain Persons in the Merger; Conflicts of Interest........................................ 34
Change of Control Agreements............................................................................. 36
Certain Effects of the Merger............................................................................ 37
Plans for the Company After the Merger................................................................... 37
Risk that the Merger Will Not Be Consummated............................................................. 37
Certain Risks in the Event of Bankruptcy................................................................. 38
Certain Litigation Challenging the Merger................................................................ 39
Certain Projections...................................................................................... 39
The Merger................................................................................................. 40
General.................................................................................................. 40
Effective Time of the Merger............................................................................. 41
Stockholder Adoption of the Merger Agreement............................................................. 41
Payment for Shares....................................................................................... 41
The Exchange Fund........................................................................................ 42
Regulatory Matters....................................................................................... 42
Conditions to Consummation of the Merger................................................................. 43
Certain Covenants........................................................................................ 43
Termination.............................................................................................. 45
Expenses................................................................................................. 46
Indemnification of Directors and Officers; Directors' and Officers' Liability Insurance.................. 46
Accounting Treatment of the Merger....................................................................... 47
Financing of the Merger.................................................................................... 47
Debt Financing........................................................................................... 47
Equity Financing......................................................................................... 49
Fees and Expenses........................................................................................ 50
Description of Certain Indebtedness........................................................................ 51
Certain Federal Income Tax Consequences.................................................................... 52
Appraisal Rights........................................................................................... 57
Certain Information Concerning CBF, CBF Sub and Affiliates................................................. 59
Pro Forma Condensed Consolidated Financial Statements...................................................... 59
Capitalization............................................................................................. 64
Business of the Company.................................................................................... 65
Certain Information Regarding the Directors and Executive Officers of the Company Following the Merger and
CBF...................................................................................................... 74
Market Prices and Dividends on the Shares.................................................................. 77
Description of Capital Stock Prior to the Merger........................................................... 77
Description of Capital Stock After the Merger.............................................................. 78
Certain Transactions in the Common Stock................................................................... 87
Security Ownership of Certain Beneficial Owners and Directors and Officers................................. 87
Security Ownership of the Surviving Company................................................................ 88
Incorporation of Certain Documents by Reference............................................................ 90
Additional Available Information........................................................................... 90
Experts.................................................................................................... 91
Stockholder Proposals...................................................................................... 91
Forward-Looking Statements................................................................................. 91
Other Matters.............................................................................................. 92
</TABLE>
ii
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<TABLE>
<CAPTION>
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<S> <C>
ANNEXES
Annex A--Agreement and Plan of Merger......................................................................
Annex B--Opinion of STES Securities Corporation............................................................
Annex C--Section 262 of the Delaware General Corporation Law...............................................
SCHEDULES
Schedule I--Purchases of Shares by CORT and Certain Affiliates.............................................
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will CORT stockholders be entitled to receive in connection with the
merger for each CORT share?
A: Each CORT stockholder (other than those who are retaining shares) will be
entitled to receive in exchange for each share of CORT common stock $24.00
in cash and one share of Series A-1 Preferred Stock of the surviving
corporation with an initial liquidation preference of $2.50 per share.
Q: Will the new preferred stock of CORT be listed on the New York Stock
Exchange?
A: No. We do not expect that the shares of preferred stock of CORT will be
listed on any national securities exchange or any inter-dealer quotation
system.
Q: What do I need to do now?
A: If you are a holder of voting common stock, after carefully reading and
considering the information contained in this document, please fill out and
sign your proxy card. Then mail your completed, signed and dated proxy card
in the enclosed return envelope as soon as possible so that your shares can
be voted at the CORT special meeting.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will not be able to vote your shares without instructions from
you. You should follow the directions provided by your broker to vote your
shares.
Q: How do I change my vote after I have mailed my signed proxy card?
A: You may change your vote by sending a written notice stating that you would
like to revoke your proxy or by completing and submitting a new, later dated
proxy card to the Corporate Secretary of CORT. You also can attend the CORT
special meeting and vote in person.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, CORT stockholders will receive written
instructions for exchanging their CORT stock certificates for cash and stock
certificates representing the Series A-1 Preferred Stock issued in
connection with the merger.
Q: What are appraisal rights?
A: In lieu of receiving $24.00 in cash and one share of Series A-1 Preferred
Stock of the surviving corporation with an initial liquidation preference of
$2.50 per share, you may elect to have the fair value of your stock (whether
voting or non-voting common stock) appraised by the Delaware Court of
Chancery and paid to you in cash. In order to demand appraisal, you must
make a written demand for appraisal prior to the vote on the merger
agreement at the special meeting, you must not vote in favor of adoption of
the merger agreement, and you must satisfy the other requirements under
Delaware law which are described in this Proxy Statement/Prospectus.
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible after the
CORT special meeting. We hope to complete the merger early in the third
calendar quarter of 1999.
Q: Who can help answer my questions?
A: If you have any questions, please contact us at:
CORT Business Services Corporation
4401 Fair Lakes Court
Fairfax, Virginia 22033
(703) 968-8524
Attention: Corporate Secretary
iv
<PAGE>
SUMMARY
THE FOLLOWING IS ONLY A SUMMARY OF MATTERS DISCUSSED IN THIS PROXY
STATEMENT/PROSPECTUS. IT IS NOT INTENDED TO BE A COMPLETE DISCUSSION. THIS
SUMMARY IS QUALIFIED BY THE DETAILED INFORMATION IN THIS PROXY STATEMENT/
PROSPECTUS AND THE ATTACHED ANNEXES AND SCHEDULES. YOU ARE URGED TO REVIEW
CAREFULLY THIS PROXY STATEMENT/ PROSPECTUS AND THE ATTACHED ANNEXES AND
SCHEDULES IN THEIR ENTIRETY. THE TERMS "CORT," THE "COMPANY," "WE," "OUR," AND
"US" REFER TO CORT BUSINESS SERVICES CORPORATION (BOTH BEFORE THE COMPLETION OF
THE MERGER AND THEREAFTER AS THE SURVIVING CORPORATION OF THE MERGER) AND ITS
SUBSIDIARIES. WE HAVE INCLUDED CROSS REFERENCES IN THIS SUMMARY TO CAPTIONS IN
THE PROXY STATEMENT/PROSPECTUS TO DIRECT YOU TO MORE COMPLETE INFORMATION.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
A special meeting of our stockholders will be held at Fairfax,
Virginia 22033 on , 1999, at .m., eastern time.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, we will ask holders of our voting common stock to
adopt a merger agreement. The merger agreement is attached as Annex A to this
Proxy Statement/Prospectus. We encourage you to read it as it is the legal
document that governs the merger. See "INTRODUCTION--Matters to be considered at
the Special Meeting."
ELIGIBILITY TO VOTE AND REQUIRED VOTE
You may vote at the special meeting if you were the record owner of CORT
voting common stock at the close of business on , 1999. On ,
there were a total of shares of voting common stock outstanding and
entitled to vote, held by holders of record. The holders of a majority of the
outstanding shares of voting common stock entitled to vote must be present in
person or by properly executed proxy to have a quorum at the special meeting.
Under Delaware law, the affirmative vote of the holders of a majority of the
outstanding shares of our voting common stock is required to adopt the merger
agreement. In addition, the terms of the merger agreement require the
affirmative vote of holders of a majority of outstanding shares of voting common
stock that are not owned beneficially by certain members of our management and
certain other stockholders retaining a common equity interest in the surviving
corporation. See "INTRODUCTION--Voting at the Special Meeting" and "THE
MERGER--Stockholder Adoption of Merger Agreement."
All shares of voting common stock represented at the special meeting by
properly executed and timely proxies, which have not been revoked, will be voted
in accordance with their instructions. If no instructions are given, proxies
will be voted FOR adoption of the merger agreement. If you have given a proxy,
you may revoke it at any time before it is voted at the special meeting (or any
postponement or adjournment thereof). You may revoke a proxy by (1) filing with
our Secretary a written revocation bearing a later date than the proxy being
revoked; (2) submitting a validly executed proxy bearing a later date than the
proxy being revoked; or (3) attending the special meeting and voting in person.
However, your attendance at the special meeting will not in and of itself revoke
a proxy.
THE MERGER
Under the merger agreement, a corporation named CBF Mergerco Inc. will merge
into CORT. CBF Mergerco Inc. is a Delaware corporation formed solely to be a
party to the merger. It is a subsidiary of CBF Holding LLC, which is a Delaware
limited liability company formed in connection with the merger and owned by
Bruckmann, Rosser, Sherrill & Co., L.P. CBF Mergerco Inc. will cease to exist
after the merger. We will be the surviving corporation in the merger. CBF
Holding LLC will be one of our stockholders after the merger. See "THE MERGER."
2
<PAGE>
WHAT YOU WILL RECEIVE IN THE MERGER
For each share of CORT common stock owned before the merger, CORT
stockholders (other than those who are retaining shares pursuant to the merger
agreement) who do not perfect their appraisal rights will be entitled to receive
$24.00 in cash, without interest, and one share of Series A-1 Preferred Stock of
our company, as the surviving corporation in the merger, with a liquidation
preference of $2.50 per share. The merger will have the effect of canceling
shares held in our treasury or by any of our subsidiaries without payment. See
"THE MERGER."
EFFECTIVE TIME OF THE MERGER
The merger will become effective when we file a Certificate of Merger with
the Secretary of State of the State of Delaware in accordance with Delaware law,
or at a later time specified in the Certificate of Merger. We expect to file
promptly after the merger agreement is adopted at the special meeting of our
stockholders and after the other conditions to completion of the merger set
forth in the merger agreement are satisfied or waived. See "THE
MERGER--Effective Time of the Merger," "--Conditions to Consummation of the
Merger" and "--Certain Covenants." See also "SPECIAL FACTORS--Risk that the
Merger Will Not Be Consummated."
RECOMMENDATION OF THE BOARD OF DIRECTORS
Our Board of Directors unanimously approved the merger agreement. The Board
believes the proposed merger is fair to, and in the best interests of, all of
CORT's stockholders. The Board recommends that you vote in favor of adoption of
the merger agreement. The Board of Directors, in reaching its conclusions,
considered a number of factors, which are described in "SPECIAL
FACTORS--Fairness of the Merger; Recommendation of the Board of Directors." You
should recognize that because of the nature of the transaction all but two of
the members of our Board of Directors have actual or potential conflicts of
interests. See "SPECIAL FACTORS--Interests of Certain Persons in the Merger;
Conflicts of Interest."
OPINION OF FINANCIAL ADVISOR
We retained SunTrust Equitable Securities to evaluate the proposed merger.
On March 25, 1999, SunTrust Equitable Securities delivered its opinion orally to
the Board of Directors. It found the consideration proposed to be paid to the
stockholders (other than certain of our directors, officers and stockholders
retaining shares of the Company's common equity in connection with the merger)
pursuant to the merger agreement fair from a financial point of view.
SunTrust Equitable Securities' written opinion dated March 25, 1999,
describes the procedures followed, the matters considered, the scope of review
undertaken and the assumptions made in arriving at the opinion that the proposed
merger consideration is fair to the stockholders (other than certain of our
directors, officers and stockholders retaining shares of our common equity in
connection with the merger). The full text of this opinion is attached to this
Proxy Statement/Prospectus as Annex B. You are urged to read it in its entirety.
For purposes of its opinion, SunTrust Equitable Securities relied, without
independent verification, on the accuracy and completeness of all financial and
other information that it reviewed. For further information regarding SunTrust
Equitable Securities' services as financial advisor, its opinion and its fee and
expense arrangements, see "SPECIAL FACTORS--Opinion of Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the merger and the Board of Directors' conclusions, you
should be aware that certain directors and officers of CORT have interests that
present them with actual or potential conflicts of interest in connection with
the merger.
3
<PAGE>
The options held by certain of our officers, directors, employees and
members of our management including options that have not yet vested, may, at
the election of such persons, be exchanged for options of the surviving
corporation rather than exchanged for the merger consideration.
We expect that certain members of our management will acquire in connection
with the merger a total of approximately 825,000 shares of the surviving
corporation's common stock representing approximately 16.5% of the outstanding
shares of the surviving corporation's common stock, approximately 2,527,778
shares of Series B Preferred Stock of the surviving corporation, par value $.01
per share, representing approximately 7.22% of the outstanding shares of such
series of preferred stock and approximately 2,166,667 shares of Series C
Preferred Stock of the surviving corporation, par value $.01 per share,
representing approximately 7.22% of the outstanding shares of such series of
preferred stock. The members of our management who we expect to acquire such
shares include Paul Arnold, President and Chief Executive Officer, Charles Egan,
our Chairman, Steven Jobes, Executive Vice President and Chief Marketing Officer
and Frances Ann Ziemniak, Chief Financial Officer, and other persons who we,
Bruckmann, Rosser, Sherrill & Co., L.P. and Citicorp Venture Capital Ltd. select
prior to the effective time of the merger.
Citicorp Venture Capital Ltd. and certain of its affiliates including James
Urry and Michael Delaney, who are members of our Board, will receive preferred
stock in connection with their ongoing investment in the Company that will
entitle them to a special dividend preference over the Series A-1 Preferred
Stock you will be entitled to receive in connection with the merger.
Upon completion of the merger, as the surviving corporation, we expect to
pay a bonus of approximately $3.5 million in total to certain members of
management.
In addition, an affiliate of Bruckmann, Rosser, Sherrill & Co., L.P. will
receive from us a closing fee of approximately $3.4 million, in the aggregate,
at the effective time of the merger and thereafter will receive an annual
management fee from us of $1.0 million per year in the aggregate for certain
management, business and organization strategy and merchant and investment
banking services rendered to us. The amount of the annual management fee may be
increased in certain circumstances based upon our performance or other criteria
to be established by our Board of Directors.
Under the merger agreement, as the surviving corporation, we will provide
officers' and directors' liability insurance for six years after the merger
becomes effective. This insurance will cover each of our, or our subsidiaries,
present and former directors, officers, employees and agents who is currently
covered by our officers' and directors' liability insurance with respect to
actions and omissions occurring before the merger. The insurance coverage is on
terms no less favorable than the insurance we provided on the date of signing
the merger agreement, subject to certain limitations.
The merger agreement also provides that, as the surviving corporation, we,
and CBF Holding LLC, will indemnify and hold harmless the above individuals
against any losses, claims, damages, liabilities, costs, expenses, judgments and
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to any action or
omission occurring before the merger occurs to the full extent permitted under
Delaware law, our Certificate of Incorporation or By-Laws in effect when the
merger occurs. See "THE MERGER--Indemnification of Directors and Officers."
For a more detailed description of the conflicts of interest of certain of
our officers and directors, see "SPECIAL FACTORS--Interests of Certain Persons
in the Merger; Conflicts of Interest."
4
<PAGE>
CONDITIONS TO COMPLETION OF THE MERGER
The completion of the merger depends on the satisfaction of a number of
conditions, including without limitation, the following:
(i) The holders of a majority of our outstanding voting common stock, and
the holders of a majority of the outstanding voting common stock held by
stockholders other than certain of our directors, officers and
stockholders retaining shares of our common equity in connection with
the merger, must adopt the merger agreement at the special meeting;
(ii) CBF Holding LLC must receive financing in an amount necessary to
complete the merger;
(iii) Stockholders must not demand appraisal of shares representing more than
5% of the total number of shares outstanding on a fully-diluted basis;
and
(iv) CORT, CBF Holding LLC and CBF Mergerco Inc. must comply with other
covenants and conditions contained in the merger agreement.
Unless prohibited by law, the parties may elect to waive any condition that
has not been satisfied and complete the merger anyway. See "THE
MERGER--Conditions to Consummation of the Merger." See also "SPECIAL
FACTORS--Risk that the Merger Will Not Be Consummated."
EXPENSES
We have agreed to pay CBF Holding LLC and CBF Mergerco Inc. for their
out-of-pocket expenses incurred in connection with the merger agreement and
related transactions, including financing, in the event that:
(i) we exercise our right to terminate the merger agreement in accordance
with a provision of the merger agreement that allows us to approve
another acquisition proposal, or
(ii) CBF Holding LLC terminates the merger agreement because (a) we violate
certain provisions in the merger agreement or (b) we or our Board of
Directors approve another acquisition proposal.
Reimbursement for expenses shall not exceed a total of $2,000,000 plus
certain fees and expenses that may be incurred in connection with obtaining the
financing for the transaction. See "FINANCING OF THE MERGER."
FINANCING OF THE MERGER
CBF Holding LLC and CBF Mergerco Inc. require approximately $469.5 million
in funds to complete the merger and pay related fees and expenses. Such funds
will be raised by the corporation surviving in the merger as successor to CBF
Merger Co., Inc. through the issuance of debt securities and preferred stock,
borrowings under a new credit facility and contributions to its equity capital
by BRS, certain stockholders of our company and certain of their respective
affiliates or employees. In furtherance thereof, we have received commitment
letters from Bruckmann, Rosser, Sherrill & Co., L.P. and Citicorp Venture
Capital Ltd., our largest stockholder, pursuant to which these firms have
agreed, subject to certain conditions, to contribute in total up to $105 million
in cash and property to the equity of CBF Mergerco. Inc. or the surviving
corporation in the merger. All of the obligations arising from such debt
financings will be obligations of the surviving corporation following the
merger. See "FINANCING OF THE MERGER" for a description of such debt and equity
financing.
The receipt of financing proceeds sufficient to complete the merger and to
pay related fees and expenses is a condition to the completion of the merger.
See "THE MERGER--Conditions to Consummation of the Merger."
5
<PAGE>
APPRAISAL RIGHTS
Delaware law allows holders of CORT common stock to elect to have the fair
value of their stock appraised and paid to them in cash. If you hold shares of
CORT common stock and you elect to exercise your appraisal rights and you follow
the required formalities, you will receive neither the $24.00 cash price nor
shares of Series A-1 Preferred Stock of the surviving corporation. Instead, your
only right will be to receive the appraised value of your shares of CORT in
cash. See "APPRAISAL RIGHTS."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Your receipt of cash for shares pursuant to the merger or pursuant to the
exercise of appraisal rights and your receipt of Series A-1 Preferred Stock
pursuant to the merger will be taxable transactions for United States federal
income tax purposes and also may be taxable transactions for state, local,
foreign and other tax purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS.
REGULATORY MATTERS
Other than the requirements of the Securities Exchange Act of 1934, as
amended, and the filing of the Certificate of Merger under Delaware law, we, and
CBF Holding LLC and CBF Mergerco Inc., are not aware of any federal or state
regulatory approvals or consents that must be obtained in connection with the
merger.
MARKET INFORMATION
Our common stock is traded on the New York Stock Exchange under the symbol
"CBZ." On March 25, 1999, the last day of trading before the public announcement
of the execution of the merger agreement, the closing price was $16 3/4 per
share. On , 1999, the last full day of trading at the time of printing of
this Proxy Statement/Prospectus, the closing price was $ per share.
For historical information on prices for the shares, see "MARKET PRICES AND
DIVIDENDS ON THE SHARES."
CERTAIN LITIGATION CHALLENGING THE MERGER
Three alleged stockholders have separately filed suit against us, all of our
directors, Citicorp Venture Capital Ltd. and, in one case, Bruckmann, Rosser,
Sherrill & Co., L.P. in the Delaware Court of Chancery. Each lawsuit alleges
breaches of fiduciary duties in connection with the directors' approval of the
merger. The complaints purport to be class action complaints and the plaintiffs
seek to enjoin the merger or, in the alternative, to rescind the merger and also
seek to recover rescissory and/or compensatory damages. We believe that the
claims are without merit and intend to vigorously defend such lawsuits. See
"SPECIAL FACTORS--Certain Litigation Challenging the Merger."
BUSINESS AND PRINCIPAL EXECUTIVE OFFICES
Through our wholly-owned subsidiary CORT Furniture Rental Corporation, we
are the leading national provider of rental furniture, accessories and related
services in the "rent-to-rent" segment of the furniture rental industry. See
"BUSINESS OF THE COMPANY." The address and telephone number of our principal
executive offices are 4401 Fair Lakes Court, Fairfax, VA 22033, (703) 968-8524.
6
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth selected consolidated historical financial
data of the Company for the last five completed fiscal years. The Statement of
Operations Data for the years ended December 31, 1994 through 1998 and the
Balance Sheet Data as of December 31, 1994 through 1998 were derived from the
audited Consolidated Financial Statements of the Company. The selected unaudited
pro forma financial data has been derived from the Pro Forma Financial
Statements (as defined herein) included elsewhere herein. The Pro Forma Balance
Sheet Data gives effect to the Merger as if it was consummated on December 31,
1998. The Pro Forma Statement of Operations Data gives effect to the Merger as
if it was consummated on January 1, 1998. The pro forma financial information is
based on assumptions that management believes are reasonable and such
information is presented for comparative and informational purposes only. The
pro forma financial information does not purport to represent what the Company's
results of operations or financial condition would actually have been had the
Merger in fact occurred on such dates or to project the Company's results of
operations for any future period or financial condition on any future date. This
table should be read in conjunction with the Pro Forma Financial Statements
included elsewhere herein and the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 as amended, the Consolidated Financial Statements
of the Company and related notes thereto, and the other financial information
contained in the documents included or incorporated by reference herein. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
YEAR ENDED DECEMBER 31, 1998
------------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996(1) 1997 HISTORICAL PRO FORMA
--------- --------- --------- --------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Furniture rental revenue..................... $ 130,026 $ 141,988 $ 191,560 $ 237,212 $ 265,871 $ 265,871
Furniture sales revenue...................... 34,534 37,321 42,589 50,006 53,093 53,093
--------- --------- --------- --------- ----------- -----------
Total revenue.............................. 164,560 179,309 234,149 287,218 318,964 318,964
Cost of furniture rental..................... 25,771 27,950 36,958 45,634 47,863 47,863
Cost of furniture sales...................... 20,649 22,203 25,207 30,257 32,354 32,354
--------- --------- --------- --------- ----------- -----------
Total cost of goods........................ 46,420 50,153 62,165 75,891 80,217 80,217
Selling, general and administrative
expenses................................... 95,526 102,435 136,536 165,019 186,100 187,100
--------- --------- --------- --------- ----------- -----------
Operating earnings........................... 22,614 26,721 35,448 46,308 52,647 51,647
Interest expense, net........................ 16,246 15,917 8,251 8,374 7,837 33,925
Income before extraordinary loss............. 3,546 6,218 15,936 22,326 25,903 9,650
Net income................................... $ 3,546 $ 2,075 $ 15,936 $ 22,326 $ 23,395
Earnings (loss) per common share before
extraordinary loss......................... $ 0.91 $ 1.26 $ 1.40 $ 1.74 $ 1.99 $ (1.76)
Earnings (loss) per common share before
extraordinary loss--assuming dilution...... $ 0.85 $ 1.11 $ 1.31 $ 1.67 $ 1.92 $ (1.76)
Other Data:
Book value per share(2)...................... 1.46 11.28 10.96 11.66 13.49 (36.44)
Earnings to combined fixed charges and
preferred stock dividends (3).............. 1.33 1.57 3.21 3.77 4.14 --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1998
------------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 HISTORICAL PRO FORMA
--------- --------- --------- --------- ----------- -----------
Balance Sheet Data:
Total assets................................. $ 178,275 $ 173,722 $ 247,199 $ 277,841 $ 332,896 $ 352,397
Total debt................................... 123,645 53,800 65,600 63,132 90,800 339,450
Mandatorily Redeemable Preferred Stock....... -- -- -- -- -- 129,807
Stockholders' equity (deficit)............... 6,963 75,421 125,152 149,332 175,662 (183,294)
</TABLE>
- --------------------------
(1) Income statement data for the year ended December 31, 1996 include the
results of operations of Evans Rents from the date of acquisition, April 24,
1996. The acquisition of Evans Rents was accounted for as a purchase
business combination. Revenue of Evans Rents for the period of April 25,
1996 through December 31, 1996 was approximately $22,500,000.
(2) Represents stockholders' equity (deficit) divided by weighted average shares
outstanding.
(3) Represents the ratio of earnings to combined fixed charges and preferred
stock dividends. Earnings were inadequate to cover combined fixed charges
and preferred stock dividends in the pro forma period ended December 31,
1998 by $12,948.
7
<PAGE>
RISK FACTORS
You should carefully consider certain risks, as well as the other
information appearing in this Proxy Statement/Prospectus, before deciding
whether to vote to adopt the merger agreement.
WE WILL HAVE A HIGH LEVEL OF DEBT AFTER THE MERGER WHICH COULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS AND THE SERIES A-1 PREFERRED STOCK THAT YOU WILL
BE ENTITLED TO RECEIVE IN CONNECTION WITH THE MERGER.
After the merger, we will have a high level of debt. We will incur debt
through the issuance of senior subordinated notes and borrowings under a new
senior credit facility in order to finance part of the cash you will receive in
connection with the merger, refinance part of our debt, pay some of our fees and
expenses and provide for working capital. See "PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS."
Our high level of debt could have important consequences to you as a holder
of our Series A-1 Preferred Stock. For example, it could:
- make it more difficult for us to obtain additional debt financing in the
future for working capital, capital expenditures, acquisitions or general
corporate purposes;
- require us to dedicate a substantial portion of our cash flow from
operations to make interest payments on our indebtedness, reducing the
availability of our cash flow to fund working capital, capital
expenditures, acquisitions or general corporate expenses;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate, including limiting our
ability to take advantage of significant business opportunities;
- increase our vulnerability to general adverse economic and industry
conditions; and
- place us at a competitive disadvantage as compared to some of our
competitors that have less debt.
Our high level of debt could limit our ability to make dividend or other
payments to you that may be required by the terms of our Series A-1 Preferred
Stock. We may not pay you.
THE INABILITY TO REPAY OUR DEBT AND INTEREST OBLIGATIONS MAY HAVE AN ADVERSE
IMPACT ON OUR BUSINESS.
Our ability to pay interest and principal on our debt obligations will
depend on our future performance. Our ability to generate cash will depend on
many factors which may be beyond our control, including general economic,
financial and regulatory conditions. If we cannot generate enough cash flow in
the future to service our debt, we may need to delay capital expenditures and
acquisitions, refinance all or a portion of our debt, obtain additional
financing or sell assets. We might not be able to implement any of these
strategies on satisfactory terms or on a timely basis, if at all. If we are
unable to meet our debt service obligations or are unable to comply with
covenants required under our debt obligations, a default under our debt
agreements would result. See "FINANCING OF THE MERGER." Our obligations to our
creditors take priority over our obligation to holders of our Series A-1
Preferred Stock.
OUR DEBT OBLIGATIONS MAY CONTAIN COVENANTS THAT WILL RESTRICT HOW WE OPERATE
OUR BUSINESS.
Under the terms and conditions that we expect our lenders will require under
our debt obligations after the merger, we expect to agree to certain limitations
on our ability to make certain investments, create liens, make asset sales and
merge with another company. These limitations, as well as our high debt levels,
could significantly limit our ability to respond to changing business or
economic conditions or to substantial declines in operating results. A breach of
any of these limitations could result in an event of default under our debt
obligations. Our ability to comply with these limitations may be affected by
events
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beyond our control. See "FINANCING OF THE MERGER." As stated above, our
obligations to our creditors take priority over our obligations to holders of
our Series A-1 Preferred Stock.
AFTER THE MERGER, WE WILL BE CONTROLLED BY A SMALL NUMBER OF STOCKHOLDERS.
Upon completion of the merger, it is expected that Bruckmann, Rosser,
Sherrill & Co., L.P., Citicorp Venture Capital Ltd. and certain of their
affiliates together with certain of our affiliates collectively will own the
following percentages of the common and preferred stock of the surviving
corporation in the merger:
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
-----------------------
<S> <C>
Series A-1 Preferred Stock.................................................................. 41.6%
Series A-2 Preferred Stock.................................................................. 100%
Series B Preferred Stock.................................................................... 100%
Series C Preferred Stock.................................................................... 100%
Common Stock................................................................................ 100%
</TABLE>
Accordingly, such persons will have the power to elect a majority of our
directors and appoint new management. They will also have the power to approve
any action requiring the approval of the holders of any class of capital stock
other than Series A-1 Preferred Stock. Such actions include the adoption of most
amendments to the Certificate of Incorporation and the approval of mergers or
sales of substantially all of our assets. The directors will have the authority
to make decisions affecting our capital structure, including the issuance of
additional capital stock, the implementation of stock repurchase programs and
the declaration of dividends. We have no intent to issue more capital stock
senior to the Series A-1 Preferred Stock. While we cannot assure that we will
not issue such stock in the future, any such issuance will require the approval
of the holders of a majority of the outstanding shares of Series A-1 Preferred
Stock. CORT has no present intent to engage in any transaction that would
eliminate our Series A-1 Preferred Stock issued in connection with the merger to
our existing stockholders. However, we cannot assure that such a transaction
will not occur in the future.
In addition, our controlling stockholders may make it more difficult for a
third party to acquire, or may discourage a third party from seeking to acquire,
a majority of our outstanding equity securities. A third party must negotiate
any such transaction with such stockholders. The interests of such stockholders
may be different from the interests of other stockholders.
WE WILL DELIST OUR COMMON STOCK FROM THE NYSE AND THERE IS UNCERTAINTY
REGARDING THE LIQUIDITY AND MARKET PRICE FOR THE SERIES A-1 PREFERRED STOCK YOU
WILL BE ENTITLED TO RECEIVE IN CONNECTION WITH THE MERGER.
After the merger, our common stock will be delisted from the New York Stock
Exchange. The Series A-1 Preferred Stock you will be entitled to receive in
connection with the merger will not be listed on any securities exchange nor
quoted on the NASDAQ. Thus, we cannot assure that any trading market will exist
for shares of our Series A-1 Preferred Stock after the merger.
Shares of the Series A-1 Preferred Stock held by you will trade, if at all,
only in the over-the-counter market. At present, the National Association of
Securities Dealers, Inc. periodically publishes prices regarding trades in
thinly-traded securities in the "pink sheets." However, there is no assurance
that such publication will continue. In any case, quotes for shares of our
Series A-1 Preferred Stock may not be readily available.
Although the stated value of the Series A-1 Preferred Stock you will be
entitled to receive in connection with the merger is set at its liquidation
preference of $2.50 per share, the valuation of the Series A-1 Preferred Stock
is subject to uncertainties and contingencies. The stated value of the Series
A-1
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Preferred Stock and the amounts at which the Series A-1 Preferred Stock are
reflected in the pro forma financial information contained herein do not
necessarily reflect the prices at which they will actually trade at or after the
time of their issuance. You should expect the liquidity of and the market prices
for the Series A-1 Preferred Stock to vary with (i) changes in market and
economic conditions; (ii) our and our subsidiaries' financial condition and
prospects; and (iii) other factors that generally influence the market prices of
securities. In addition, the Series A-1 Preferred Stock may trade at prices that
do not fully reflect the value of accrued but undeclared dividends. See "SPECIAL
FACTORS."
OUR OTHER LIABILITIES AND OBLIGATIONS ARE SENIOR IN RIGHT OF PAYMENT TO THE
SERIES A-1 PREFERRED STOCK YOU WILL BE ENTITLED TO RECEIVE IN CONNECTION WITH
THE MERGER.
The Series A-1 Preferred Stock will rank junior to indebtedness under our
new credit facility, our new senior subordinated notes, and all of our other
indebtedness. The Series A-1 Preferred Stock will rank PARI PASSU with each
other series of the Series A Preferred Stock and will have a liquidation
priority over any other series or class of equity securities of the surviving
corporation (except any senior preferred approved by holders of Series A
Preferred Stock). However, the Series A-1 Preferred Stock will rank junior to
payments of up to $4.0 million in respect of our Series B-2 Preferred Stock and
up to $1.0 million per year in respect of our Series C-2 Preferred Stock.
YOUR SERIES A-1 PREFERRED STOCK WILL HAVE LIMITED VOTING RIGHTS.
As holders of Series A-1 Preferred Stock, you will have limited voting
rights. You will have the right to vote only
(i) as required by law;
(ii) with respect to the authorization of any series of our stock with a
dividend or liquidation preference senior to Series A-1 Preferred
Stock;
(iii) with respect to any change to the terms of the Series A-1 Preferred
Stock; and
(iv) if cash dividends are in arrears for four quarterly periods (whether or
not consecutive) beginning on or after the fifth anniversary of the
date of issuance of the Series A-1 Preferred Stock, the holders of a
majority of the outstanding shares of Series A-1 Preferred Stock voting
as a class will be entitled to elect one of our directors. SEE
"DESCRIPTION OF CAPITAL STOCK AFTER THE MERGER."
OUR BOARD, DELAWARE LAW AND OUR DEBT OBLIGATIONS MAY IMPOSE LIMITATIONS ON
OUR ABILITY TO PAY DIVIDENDS ON THE SERIES A-1 PREFERRED STOCK YOU WILL BE
ENTITLED TO RECEIVE IN CONNECTION WITH THE MERGER.
The Series A-1 Preferred Stock you will be entitled to receive in connection
with the merger will accrue dividends at the annual rate of $.30 per share.
However, the declaration and payment of cash dividends will be subject to the
Board of Directors' discretion. See "DESCRIPTION OF CAPITAL STOCK AFTER THE
MERGER." Our Board's ability to declare and pay dividends will depend upon the
financial condition, cash requirements, future prospects, and other factors
deemed relevant by our Board of Directors. The terms of any financing
arrangements which we may enter into in connection with the merger or thereafter
may also limit our Board of Directors' ability to declare and pay dividends. See
"FINANCING OF THE MERGER."
Under Delaware law, we may pay dividends on our capital stock, including the
Series A-1 Preferred Stock you will be entitled to receive in connection with
the merger, only out of our surplus. If we have no surplus, we may pay dividends
out of our net profits for the year in which a dividend is declared or for the
immediately preceding fiscal year. Surplus is defined as the excess of a
company's total assets over the sum of its total liabilities plus the par value
of its outstanding capital stock. In order to pay dividends in cash, we
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<PAGE>
must have surplus or net profits equal to the full amount of the cash dividend
at the time such dividend is declared and paid. In determining our ability to
pay dividends, Delaware law permits the Board of Directors to revalue our assets
and liabilities from time to time to reflect their fair market values. We cannot
predict what the value of our assets or the amount of our liabilities will be in
the future. Thus, we cannot assure that we will be able to pay cash dividends on
the Series A-1 Preferred Stock. See "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS." Even if we are able to pay cash dividends on the Series A-1
Preferred Stock you will hold after the merger, the declaration and payment of
such dividends will remain subject to the discretion of the Board of Directors.
We cannot assure that the Board of Directors will declare and pay cash dividends
in respect of any given dividend payment period. In any event, following the
fifth anniversary of the date of issuance of the Series A-1 Preferred Stock you
will be entitled to receive in connection with the merger, if cash dividends are
in arrears for four quarterly periods (whether or not consecutive), the holders
of a majority of the outstanding shares of Series A-1 Preferred Stock voting as
a class will be entitled to elect one of our directors.
AFTER THE MERGER, IT IS POSSIBLE THAT WE WILL NO LONGER FILE REPORTS WITH
THE SECURITIES AND EXCHANGE COMMISSION.
After the merger occurs, we may not, depending upon the number of holders of
our Series A-1 Preferred Stock, be subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended. As a result, the information
available to stockholders regarding our financial condition could be reduced,
which could have a material adverse effect on the value of the Series A-1
Preferred Stock you will be entitled to receive in connection with the merger.
We anticipate that the terms of our indebtedness may require us to file periodic
reports under the Exchange Act. However, such securities may be repaid after the
merger occurs and our obligation to file periodic reports under the Exchange Act
in respect of such securities may end.
OUR BUSINESS IS IN A HIGHLY COMPETITIVE INDUSTRY.
The "rent-to-rent" segment of the furniture rental industry is highly
competitive. Our principal competitors are national, regional and local
"rent-to-rent" furniture companies and retailers offering residential and office
furniture. With respect to sales of furniture through our clearance centers, we
compete with many used and new furniture retailers. Some of these retailers are
larger than us and have greater financial resources.
WE CANNOT ASSURE THAT WE WILL BE ABLE TO IMPLEMENT KEY COMPONENTS OF OUR
BUSINESS STRATEGY.
Key components of our business strategy are:
- growth by acquiring companies in similar lines of business;
- initiation of operations in new markets and the addition of showrooms and
clearance centers in existing markets;
- expansion of our corporate customer base; and
- continued investment in the development of new products and services.
We cannot assure that we will have the necessary funds to pursue these
strategies or that other opportunities will be available in the future. In order
to pursue these strategies, we may need more capital and certain federal and/or
state regulatory approvals. To raise more capital, we may undertake more debt.
More debt would result in more leverage and reduced working capital. Also, we
expect that the terms of our debt financing after the merger will restrict the
issuances of more debt. We cannot assure that we will be able to get the
necessary approvals or such financing on acceptable terms, if at all. This could
have a
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<PAGE>
material adverse effect on our ability to implement our strategies and
capitalize on profitable opportunities.
WE DEPEND ON KEY PERSONNEL.
The success of our business strategy and our ability to operate profitably
may depend on the continued employment of our senior management team. The loss
of the services of certain of our key executives could have a material adverse
effect on us. We cannot assure you that in the future we will be able to retain
our existing senior management, attract additional qualified executives or fill
new senior management positions or vacancies created by expansion or turnover.
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to the Stockholders in
connection with the solicitation by the Board of Directors of proxies from the
holders of our voting common stock for use at the Special Meeting to be held at
Fairfax, Virginia 22033, on , 1999, at .m., eastern time,
and at any adjournments or postponements thereof. This Proxy
Statement/Prospectus, the attached Notice of Special Meeting and the enclosed
form of proxy are first being mailed to the Stockholders on or about ,
1999.
CORT's principal executive offices are located at 4401 Fair Lakes Court,
Suite 300, Fairfax, Virginia 22033. Its telephone number is (703) 968-8524.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the holders of our voting common stock will be asked
to consider and vote upon a proposal to adopt a merger agreement dated March 25,
1999 by and among CBF Holding LLC ("CBF"), CBF Mergerco Inc. ("CBF Sub") and
CORT (the "Merger Agreement"). If the requisite votes in favor of the proposal
are obtained and certain other conditions are satisfied or, where permissible,
waived, the terms of the Merger Agreement provide, among other things, that: (i)
CBF Sub will be merged with and into CORT (the "Merger") and (ii) each share of
the Company's Common Stock, par value $.01 per share, and Class B Common Stock,
par value $.01 per share (collectively, the "Shares"), that is issued and
outstanding immediately prior to the effective time of the Merger (the
"Effective Time") (other than Shares held at the Effective Time in CORT's
treasury or by any subsidiary of CORT, which will be canceled without payment,
other than Retained Shares (as defined in the Merger Agreement) and other than
Shares in respect of which appraisal rights are perfected properly under
Delaware law) will be converted into the right to receive per Share
consideration of $24.00 in cash, without interest, and one share of Series A-1
Preferred Stock with an initial liquidation preference of $2.50 (the "Series A-1
Preferred Stock"). It is currently anticipated that the Merger will occur as
promptly as practicable after adoption of the Merger Agreement by the holders of
our voting common stock at the Special Meeting and the satisfaction or, where
permissible, waiver of the other conditions to the consummation of the Merger.
There can be no assurance that, even if the requisite Stockholder approval is
obtained, the other conditions to the Merger will be satisfied or waived, or
that the Merger will be consummated. See "SPECIAL FACTORS--Risk that the Merger
Will Not Be Consummated." A copy of the Merger Agreement is attached to this
Proxy Statement/Prospectus as Annex A. For additional information concerning the
terms and conditions of the Merger, see "THE MERGER."
CBF and CBF Sub are newly formed entities organized by Bruckmann, Rosser,
Sherrill & Co., L.P. ("BRS") for the purpose of effecting the transaction
described in this Proxy Statement/Prospectus and are more fully described in
"CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES". Prior to the
Effective Time of the Merger, CBF is expected to be owned entirely by BRS.
The Board of Directors unanimously approved the Merger Agreement and
declared its advisability, has determined that the Merger is fair to, and in the
best interests of, all of the Stockholders, including the
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<PAGE>
Affiliated Stockholders and their affiliates and associates and recommends that
the holders of our voting common stock vote in favor of adoption of the Merger
Agreement and thereby approve the consummation of the Merger. For a discussion
of the factors considered by the Board of Directors in reaching it conclusions,
see "SPECIAL FACTORS--Fairness of the Merger; Recommendation of the Board of
Directors." For a description of certain interests of certain of CORT's
directors and officers that may have presented them with actual or potential
conflicts of interest in connection with the Merger, see "SPECIAL
FACTORS--Background of the Merger," "--Purpose of the Merger" and "--Interests
of Certain Persons in the Merger; Conflicts of Interest."
VOTING AT THE SPECIAL MEETING
The Board of Directors has fixed the close of business on , 1999, as
the "Record Date" for determining the Stockholders entitled to notice of, and
the holders of voting common stock entitled to vote at, the Special Meeting.
Accordingly, only holders of record of Shares as of the Record Date will be
entitled to notice of and to vote their voting Shares at, the Special Meeting.
On the Record Date, there were voting Shares, held by approximately holders
of record, outstanding and entitled to vote. Stockholders may cast one vote per
voting Share, either in person or by properly executed proxy, on each matter to
be voted on at the Special Meeting.
Under the provisions of the DGCL, the affirmative vote of at least a
majority of the votes that all holders of voting common stock are entitled to
cast with respect to the Merger Agreement is required to adopt the Merger
Agreement. In addition to the requirements under Delaware law, the Merger
Agreement requires the affirmative vote of holders of a majority of the
outstanding shares of voting common stock that are held by Stockholders other
than the Affiliated Stockholders and their affiliates and associates (the
"Unaffiliated Stockholders") to adopt the Merger Agreement. The presence of a
majority of the Shares entitled to vote, represented in person or by proxy, is
necessary to constitute a quorum at the Special Meeting. As of the Record Date,
the Affiliated Stockholders may be deemed to have beneficially owned an
aggregate of voting Shares, constituting approximately % of the voting Shares
outstanding on such date. See "SPECIAL FACTORS--Interests of Certain Persons in
the Merger; Conflicts of Interest" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND DIRECTORS AND OFFICERS."
In the event that less than a majority of the outstanding voting Shares
owned by Unaffiliated Stockholders are voted for adoption of the Merger
Agreement and there are Unaffiliated Stockholders who did not deliver a proxy or
otherwise vote at the Special Meeting and whose voting Shares, if voted in favor
of the adoption of the Merger Agreement, would cause such requisite majority
vote to be obtained, it is expected that the Special Meeting will be adjourned
and additional proxies from those Unaffiliated Stockholders who have not
previously delivered a proxy or otherwise voted at the Special Meeting will be
solicited until such time as a definitive vote is obtained.
As of the Record Date, Unaffiliated Stockholders hold voting Shares, the
affirmative vote of of such voting Shares is required to adopt the Merger
Agreement. This special voting requirement has the effect of neutralizing the
ability of the Affiliated Stockholders that otherwise would exist (but for the
provisions of the Merger Agreement) to effectively control the outcome of the
vote through their ownership of a large percentage of voting Shares. The
Unaffiliated Stockholders who hold a majority of the outstanding voting Shares
held by Unaffiliated Stockholders will have the power to decide whether or not
to adopt the Merger Agreement. See "SPECIAL FACTORS--Fairness of the Merger;
Recommendation of the Board of Directors; Position of CBF" and "THE
MERGER--Stockholder Adoption of the Merger Agreement."
Votes cast in person or by proxy at the Special Meeting will be tabulated by
American Stock Trust & Transfer Co. (the "Transfer Agent"), which will determine
whether a quorum is present. The Transfer Agent will treat abstentions as voting
Shares that are present and entitled to vote. However, such
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<PAGE>
abstentions will have the effect of a vote against the adoption of the Merger
Agreement. In addition, if a broker submits a proxy indicating that it does not
have discretionary authority as to certain voting Shares to vote on a particular
matter, those voting Shares will nonetheless be treated as present for purposes
of determining whether a quorum is present at the Special Meeting, but will have
the effect of a vote against the adoption of the Merger Agreement.
THE MERGER INVOLVES A MATTER OF GREAT IMPORTANCE TO THE COMPANY'S
STOCKHOLDERS. IF THE MERGER AGREEMENT IS ADOPTED AND THE MERGER IS CONSUMMATED,
EACH SHARE OF THE COMPANY'S COMMON STOCK (OTHER THAN (I) THOSE HELD IN THE
COMPANY'S TREASURY OR BY ANY SUBSIDIARY OF THE COMPANY, (II) RETAINED SHARES AS
DEFINED IN THE MERGER AGREEMENT AND (III) THOSE AS TO WHICH APPRAISAL RIGHTS ARE
PROPERLY PERFECTED UNDER DELAWARE LAW) WILL BE CONVERTED INTO THE RIGHT TO
RECEIVE $24.00 IN CASH AND ONE SHARE OF SERIES A-1 PREFERRED STOCK OF THE
COMPANY AS THE SURVIVING CORPORATION, AND THE STOCKHOLDERS' COMMON EQUITY
INTEREST IN THE COMPANY (OTHER THAN THE ONGOING INTEREST OF THE AFFILIATED
STOCKHOLDERS IN THE SURVIVING CORPORATION) WILL CEASE. ACCORDINGLY, STOCKHOLDERS
ARE URGED TO READ AND CONSIDER CAREFULLY THE INFORMATION SUMMARIZED BELOW AND
PRESENTED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS.
PROXIES
All voting Shares represented at the Special Meeting by properly executed
proxies received prior to or at the Special Meeting, and not revoked before
their use, will be voted in accordance with the instructions thereon. If no
instructions are given, properly executed proxies will be voted FOR adoption of
the Merger Agreement. If any other matters are properly presented to the Special
Meeting or any adjournments or postponements thereof, the persons named in the
enclosed form of proxy as acting thereunder will have discretion to vote on such
matters in accordance with their best judgment. The Company does not know of any
matters other than the adoption of the Merger Agreement that will be presented
at the Special Meeting.
A Stockholder who has given a proxy may revoke it at any time before it is
voted at the Special Meeting, or any postponements or adjournments thereof, by
filing with the Secretary of the Company, at the address of the Company set
forth on the first page of this Proxy Statement/Prospectus, a written revocation
bearing a later date than the proxy being revoked, or by submission of a validly
executed proxy bearing a later date than the proxy being revoked, or by
attending the Special Meeting, or any postponements or adjournments thereof, and
voting in person (although attendance at the Special Meeting, or any
postponements or adjournments thereof, will not in and of itself constitute
revocation of a proxy).
In the event that less than a majority of the outstanding voting Shares
owned by Unaffiliated Stockholders are voted for the adoption of the Merger
Agreement and there are Unaffiliated Stockholders who did not deliver a proxy or
otherwise vote at the Special Meeting and whose voting Shares, if voted in favor
of adoption of the Merger Agreement, would cause such requisite majority vote to
be obtained, it is expected that the Special Meeting will be adjourned and
additional proxies from those Unaffiliated Stockholders who have not previously
delivered a proxy or otherwise voted at the Special Meeting will be solicited
until such time as a definitive vote is obtained. Adjournment of the Special
Meeting is expected under such circumstances because the Affiliated Stockholders
have indicated to the Company that, in the event that less than a majority of
the voting Shares owned by Unaffiliated Stockholders are voted for adoption of
the Merger Agreement and there are Unaffiliated Stockholders who did not deliver
a proxy or otherwise vote at the Special Meeting and whose voting Shares, if
voted in favor of adoption of the Merger Agreement, would cause such requisite
majority vote to be obtained, they would vote for adjournment of the Special
Meeting. If the Special Meeting is postponed or adjourned, a Stockholder who has
given a proxy may revoke it any time before it is voted at any postponement or
adjournment of the Special Meeting in the manner set forth above.
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Proxies are being solicited by and on behalf of the Board of Directors. The
Company will bear the cost of the Special Meeting and the cost of soliciting
proxies therefor, including the cost of printing and mailing the proxy material.
In addition to the solicitation of proxies by mail, the Company may utilize the
services of some of its directors, officers and regular employees (who will
receive no compensation therefor in addition to their regular remuneration) to
solicit proxies personally or by telephone, telegram or other form of wire or
facsimile communication. The Company intends to request brokers and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of Shares held of record by such persons. The Company will
reimburse such brokers and other custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses incurred in connection therewith.
In connection with the Merger, the Stockholders have the right to exercise
appraisal rights if they (i) do not vote for the adoption of the Merger
Agreement, (ii) deliver a written demand for appraisal to the Company prior to
the taking of a vote on the Merger Agreement, and (iii) otherwise comply with
the requirements of Section 262 of the DGCL, a copy of which is included in this
Proxy Statement/Prospectus as Annex C. See "APPRAISAL RIGHTS" for a summary of
the rights of Stockholders to demand appraisal and a description of the
procedure required to be followed to exercise such rights.
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SPECIAL FACTORS
BACKGROUND OF THE MERGER
On November 17, 1995, CORT completed its initial public offering of
3,076,923 Shares at an initial price to the public of $12.00 per Share. The
Shares traded between a high price of $48 per Share on April 1, 1998 and a low
price of $13 1/4 per Share on November 17, 1995 during the period beginning with
the initial public offering and ending on the day before the announcement of the
proposed Merger.
From time to time after CORT's initial public offering, representatives of
CORT spoke informally with Salomon Smith Barney regarding identification of
potential strategic partners for CORT. However, CORT did not believe that a
strategic alliance with any of the candidates identified by Salomon Smith Barney
was appropriate at the time and did not pursue these informal discussions any
further.
At various times beginning in the second half of 1998, the Board of
Directors of CORT discussed the desirability of pursuing alternatives for the
Company to increase Stockholder value. Among the factors that the Board
discussed in this context were: (i) that the growth rate of revenue in CORT's
core business was declining; (ii) that the trading market for CORT's common
stock had remained relatively illiquid; and (iii) that conditions in the mergers
and acquisitions market generally were favorable.
In November of 1998, representatives of CORT met with representatives of J.
P. Morgan to discuss the process that would be appropriate to follow if CORT
were to determine that it was in the best interest of the Stockholders to
combine with or sell to another entity. After several discussions, J. P. Morgan
indicated that the most likely acquirer for CORT was Aaron Rents, Inc.
("Aaron"). CORT determined that it was unnecessary to engage J. P. Morgan to
discuss an acquisition with Aaron because Mr. Paul Arnold, Chief Executive
Officer and President of CORT, had a long-standing professional relationship
with R. Charles Loudermilk, Sr., Chief Executive Officer and Chairman of Aaron,
and in the past Mr. Arnold had held various informal discussions concerning the
potential combination of CORT and Aaron.
At regular meetings of the Board of Directors held in October and December,
1998, the Board discussed the decline in the trading prices of CORT's stock and
considered alternatives available to improve these trading prices. At the time
of these discussions, Bruce C. Bruckmann, a director of CORT and a principal of
BRS, indicated to officers of the Company that, depending on several factors
which included the conditions of capital markets and the support of management
and the Company's stockholders, BRS might be willing to pursue a
recapitalization transaction that would give Stockholders an opportunity to
receive a cash price for their shares at a premium to market.
In December of 1998, Mr. Arnold met with representatives of Aaron for a
preliminary discussion of a potential combination of CORT and Aaron. The
representatives of Aaron indicated that it considered any potential combination
to be a "merger of equals," and that Aaron did not intend to pay any premium
over the then current trading price ($24 15/16 per share) for CORT's stock.
During conversations between Mr. Arnold and employees of CVC, such employees
indicated that CVC was not interested in participating in a transaction with a
third party unless such transaction would deliver a substantial premium over the
current market price. Shortly thereafter, discussions with Aaron regarding a
potential combination were terminated.
On December 16, 1998, Messrs. Arnold, Bruckmann, James A. Urry, a Board
member who is an employee of CVC, and Ms. Frances Ann Ziemniak, Chief Financial
Officer of the Company, met with representatives of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") to discuss capital market conditions and what
type of recapitalization transaction could be structured and financed in such an
environment. The representatives of DLJ indicated that markets were strong and
such a transaction could likely be financed through a variety of different
structures.
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On February 9, 1999, Mr. Bruckmann and Mr. Arnold discussed the possibility
of the Company entering into a recapitalization transaction with BRS in order
to, among other things, deliver to Stockholders a substantial premium over the
then current trading price of the Company's common stock. During such
conversation, Mr. Arnold indicated to Mr. Bruckmann his belief that members of
the Company's management might, depending on certain factors, support such a
transaction. Mr. Bruckmann indicated to Mr. Arnold that, given the support of
management, BRS would be interested in investigating the viability of such a
transaction.
On February 16, 1999, Messrs. Bruckmann and Urry again met with
representatives from DLJ to receive an update on capital market conditions and
to get a better understanding of how a recapitalization transaction involving
the Company would be structured. The representatives of DLJ described several
transactions that they believed could be financed in the then current financial
environment. To the Company's knowledge, neither the December 16th discussion
between the Company and DLJ nor the February 16th discussion resulted in any
contacts with third parties.
On March 3, 1999, a Special Meeting of the Board of Directors was held via
conference call. Representatives of the Company's special counsel, Dechert Price
& Rhoads ("Dechert"), were invited to participate in this meeting. At this
meeting, Mr. Bruckmann informed the Board that BRS was considering making an
offer for a recapitalization of the Company in a transaction in which holders of
the Company's stock would receive a price of between $22 to $23 per Share,
conditioned on the favorable vote of the holders of a majority of the Company's
voting stock who were not participants in the proposed transaction or affiliates
of such participants. In the course of this meeting, Mr. Arnold and Mr. Charles
Egan, Chairman of the Company, indicated that they would support such a
transaction with BRS, depending on the ultimate structure of the transaction and
intended to be equity participants with BRS in the recapitalization transaction.
Mr. Urry and Michael A. Delaney, a Board member who is an employee of CVC,
stated that, although CVC supported the idea of having BRS and management
explore the possibility of a recapitalization transaction, CVC had not made any
decision as to whether it would be an equity participant with BRS in such a
transaction, if proposed, or whether it would ultimately support such a
transaction as a stockholder of CORT. Keith E. Alessi and Gregory B. Maffei
stated that they had not been approached and did not intend to be investors or
participants in a recapitalization transaction. Messrs. Urry and Delaney also
indicated that they would not vote, as directors, in favor of any
recapitalization transaction that was not supported by Messrs. Alessi and
Maffei. After a general discussion, it was decided that all directors other than
Messrs. Alessi and Maffei would recuse themselves from the meeting and that the
meeting would continue with the representatives of Dechert to discuss procedures
to be followed in responding to any such proposal, including the selection and
engagement of an investment banking firm to advise with respect to a
recapitalization proposal if formally made.
Following the March 3 meeting, Messrs. Alessi and Maffei determined that
they would interview representatives of SunTrust Equitable Securities ("STES")
regarding its possible engagement as investment adviser. STES and its
predecessor firm, Equitable Securities Corporation, had provided research
coverage for the Company's common stock since August, 1996. Messrs. Alessi and
Maffei also considered interviewing representatives of the two other investment
banking firms that have, at various times, provided research coverage for CORT's
stock, but concluded not to interview those firms because one of them (Salomon
Smith Barney) is now an affiliate of CVC and the other (Nationsbanc Montgomery
Securities, L.L.C.) is now an affiliate of Bank of America Corporation and Mr.
Bruckmann had indicated that Bank of America Corporation would be a possible
participant in the senior financing for any proposed recapitalization
transaction.
Between March 4 and March 11, Messrs. Alessi and Maffei and representatives
of Dechert had numerous discussions with representatives of STES regarding the
potential engagement of STES by the Company. These discussions included STES'
qualifications and experience in similar transactions, its familiarity with the
rental industry and its proposed staffing and fee structure for the engagement.
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On March 8, Kirkland & Ellis ("Kirkland"), special counsel to BRS, delivered
a draft merger agreement to Dechert and Messrs. Alessi and Maffei. Also during
that week, the terms of a proposed confidentiality and standstill agreement
between CORT and BRS (the "Confidentiality Agreement") were negotiated and
representatives of Dechert discussed with Messrs. Alessi and Maffei the
principal issues raised by the draft merger agreement that had been presented to
them.
On March 12, a special meeting of the Board of Directors was held via
conference call (Mr. Delaney was absent). Messrs. Alessi and Maffei informed the
Board that they recommended the engagement of STES. The Board approved such
engagement and delegated to Messrs. Alessi and Maffei the authority to conclude
the final terms. The Board then, at the suggestion of the Company's Compensation
Committee, considered the desirability of entering into "change of control"
agreements with certain members of the Company's senior management. After
discussion, it was decided that Messrs. Alessi and Maffei would have additional
discussions with representatives of Dechert regarding appropriate provisions for
such agreements.
On March 12, terms of the engagement of STES were finalized and
representatives of STES began their due diligence investigation of the Company.
This continued through March 22, 1999 and included meetings with Mr. Arnold and
Ms. Ziemniak at the Company's headquarters in Fairfax, Virginia.
On March 15, representatives of Dechert and Kirkland commenced negotiations
with respect to the terms of the draft merger agreement. Substantial changes
were made to the draft merger agreement as a result of such negotiations,
including the elimination of certain representations and warranties of the
Company, the elimination of certain conditions to BRS' obligation to consummate
the transaction and the inclusion of a provision specifically allowing Messrs.
Alessi and Maffei to require the Company to furnish information to, or enter
into discussions or negotiations with, any person in connection with an
unsolicited, bona fide acquisition proposal by such person, provided that such
person had entered into a standstill and confidentiality agreement with the
Company on terms no less favorable to the Company than those contained in the
Confidentiality Agreement. On behalf of the Company, Dechert requested, among
other things, to: (1) eliminate provisions in the draft merger agreement for a
termination or "break up" fee equal to 2.5% of the proposed merger consideration
to be paid by the Company to BRS under certain circumstances in the event that
the merger was not consummated; (2) modify a provision in the draft providing
for expenses of BRS in connection with the merger to be reimbursed if the merger
was not consummated; (3) condition consummation of the merger on the receipt by
the Board of Directors of an opinion (a "Solvency Opinion"), rendered by a firm
experienced in such matters, substantially to the effect that the surviving
corporation would be solvent following consummation of the merger; (4) require
BRS to make additional payments to the Company's stockholders if the Company was
sold or engaged in any public offering of its common stock within two years
after the merger was consummated; (5) eliminate provisions in the draft
conditioning BRS' obligation to consummate the merger on the availability of
recapitalization accounting for the transaction and on the absence of any
material adverse change in capital markets generally; and (6) require BRS to
deliver, prior to execution of the merger agreement, definitive commitment
letters for all of the debt and equity financing required to consummate the
proposed transaction. On behalf of BRS, Kirkland refused these requests.
On March 17, the Board of Directors met via conference call. Representatives
of STES and Dechert participated in such meeting. At this meeting, Mr. Arnold
reviewed the history of the Company's prior contacts with third parties and
investment banking firms regarding a possible sale of the Company.
Representatives of Dechert reviewed with the Board the legal standards
applicable to their conduct and reported to the Board generally on the status of
negotiations regarding the draft merger agreement. Representatives of STES
reviewed for the Board what due diligence investigations had been completed and
what remained to be done. They also discussed generally the methodologies that
they expected to use to analyze the fairness, from a financial point of view, of
any price proposed to be paid in a transaction, but they did not provide any
quantitative analysis of prices or valuations. In the course of this meeting,
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Messrs. Urry and Delaney advised the Board that CVC had not reached any
conclusion as to whether it would be a participant with BRS in any proposed
recapitalization transaction, but that CVC had decided that if it did not so
participate, it would not be interested in selling its equity interest in the
Company other than for a price that it believed was not realistically
obtainable. In the course of this meeting, Mr. Urry, as Chairman of the
Compensation Committee, also reported on proposed terms of "change of control"
agreements for senior management, and these terms were generally discussed and
were approved by the Board. Following these presentations, all of the directors
except for Messrs. Alessi and Maffei were excused, and Messrs. Alessi and Maffei
continued discussions with representatives of STES and Dechert. In the course of
these discussions, it was decided that Mr. Maffei would request certain
additional information from Mr. Bruckmann regarding the contemplated terms of
the proposed transaction, the proposed capital structure and amount of equity,
and the status of financing to complete the transaction. It was also decided
that Messrs. Alessi and Maffei would meet again with representatives of STES on
March 19 to review preliminary valuation materials.
On Friday, March 19, representatives of STES reviewed preliminary valuation
materials with Messrs. Alessi and Maffei and representatives of Dechert. These
materials included preliminary analyses of comparable public company multiples,
comparable industry transactions, a discounted cash flow analysis, a leveraged
buyout analysis and analyses of premiums paid in acquisition transactions.
Representatives of STES indicated that they planned to continue work on these
analyses over the weekend and it was decided to arrange an in-person meeting
with Mr. Bruckmann on the following Tuesday, March 23, in New York.
Following the March 19 meeting, Mr. Bruckmann informed Mr. Maffei that BRS
intended to offer consideration consisting of $21 in cash and $2 liquidation
amount of a newly-created series of preferred stock of the recapitalized company
that would have a dividend rate of 12% per annum payable in cash after the fifth
anniversary of the merger. Mr. Bruckmann also provided some general information
regarding capital structure and financing.
Between March 17 and March 22, representatives of Dechert and Kirkland had
numerous discussions concerning the draft merger agreement. During the course of
these discussions, it was agreed that: (1) the availability of recapitalization
accounting as a condition to BRS' obligation to consummate the transaction would
be eliminated; and (2) the receipt of a Solvency Opinion as a condition to the
Company's obligation to consummate the transaction would be eliminated. It was
also agreed that prior to signing the definitive merger agreement, BRS would
provide executed commitment letters for all of the equity required for the
transaction, although Kirkland, on behalf of BRS, continued to reject a request
for signed commitment or highly confident letters covering the debt portion of
the financing.
On March 23, Messrs. Alessi and Maffei met with representatives of STES and
Dechert in Dechert's offices in New York. Mr. Bruckmann initially joined this
meeting and described in detail BRS' proposed capital structure for the
transaction. Mr. Bruckmann then retired to an adjoining conference room where he
remained with another representative of BRS. Representatives of STES reviewed
the results of their analyses in detail with Messrs. Alessi and Maffei and
representatives of Dechert. STES was not requested to, and did not, express any
opinion as to the fairness, from a financial point of view, of the consideration
suggested by Mr. Bruckmann, nor did STES indicate any minimum price per share at
which it would be prepared to opine that an offer would be fair from a financial
point of view to the Company's stockholders. Following this presentation, there
was a discussion of tactics and alternatives at the conclusion of which Messrs.
Alessi and Maffei decided to inform Mr. Bruckmann that, in their opinion, his
offer of $21 in cash and $2 liquidation value in preferred stock was
insufficient and that they would not recommend it to the Board.
Messrs. Alessi and Maffei then met with Mr. Bruckmann and the other BRS
representatives and informed them of their conclusion. Mr. Bruckmann replied
that he believed his initial offer was fair but
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that he would be willing to consider increasing his per share offer to $21.25 in
cash and $2.25 liquidation value in preferred stock if Messrs. Alessi and Maffei
would support that proposal. Messrs. Alessi and Maffei replied that they would
not. Messrs. Alessi and Maffei then conferred again with representatives of STES
and Dechert and determined that they would inform Mr. Bruckmann that they would
support a per share offer of $27 in cash.
Messrs. Alessi and Maffei then met again with Mr. Bruckmann and informed him
that they would support a per share offer of $27 in cash. Mr. Bruckmann
indicated that he would not under any circumstances be prepared to make such an
offer. After extensive discussion, Mr. Bruckmann indicated that he would be
willing to increase the BRS offer to $23 per share in cash. Messrs. Alessi and
Maffei replied that they would not support such an offer, but, subject to
further discussion with representatives of STES, they would be prepared to
support an all cash price of $26 per share. Mr. Bruckmann responded that he did
not have authority from his partners at BRS to accept a price that high and
suggested that further negotiations be postponed until after he could confer
with his partners.
Messrs. Alessi and Maffei then conferred again with representatives of STES
and Dechert and discussed alternatives, including the alternative of accepting a
lower cash offer combined with a distribution to CORT's stockholders of CORT's
equity investment in All Apartments, Inc. (now known as SpringStreet, Inc.).
SpringStreet, Inc. is an internet-based apartment locator service in which CORT
has invested approximately $3.3 million.
After this, Messrs. Alessi and Maffei rejoined Mr. Bruckmann who had
conferred with his partners. Mr. Bruckmann stated that he would be prepared to
increase his per share offer to $24 in cash and $1 liquidation value in
preferred stock. Messrs. Alessi and Maffei responded that they would support an
offer of $24 in cash, $3 liquidation value in preferred stock and the
distribution of CORT's investment in All Apartments pro rata to the
stockholders. Mr. Bruckmann stated that he was unwilling to make that offer.
Messrs. Alessi and Maffei next met again separately with representatives of
STES and Dechert. Messrs. Alessi and Maffei concluded on the basis of their
negotiations that Mr. Bruckmann might be willing to increase BRS' per share
offer to $24 in cash and $2.50 liquidation value in preferred stock if Messrs.
Alessi and Maffei could indicate their support for such an offer, but that BRS
would likely not be willing to make any offer higher than that. In the course of
these discussions, representatives of STES indicated that, if asked, they
believed that they would be able to opine that per share consideration of $24 in
cash plus $2.50 liquidation value in preferred stock would be fair, from a
financial point of view, to the Company's stockholders (other than those
participating as acquirers in the transaction as to which they would offer no
opinion). Messrs. Alessi and Maffei determined that this would be their final
proposal to Mr. Bruckmann and would be presented to him as such and be
conditioned upon satisfactory resolution of the remaining open issues related to
the draft merger agreement and the preferred stock terms.
Messrs. Alessi and Maffei then met with Mr. Bruckmann and communicated this
final proposal to him. After conferring with his partners, Mr. Bruckmann advised
Messrs. Alessi and Maffei that he would accept this offer but that his
acceptance was likewise subject to satisfactory resolution of all non-price open
issues. Mr. Bruckmann indicated that he would instruct Kirkland to recommence
discussion of the draft merger agreement immediately. The parties determined
that it would be appropriate to schedule a Board of Directors meeting for 3:30
p.m. on March 25 to consider the proposed transaction.
During the night of March 23, 1999 and throughout March 24, 1999,
representatives of Dechert and Kirkland continued negotiations over the draft
merger agreement and preferred stock terms and conferred with their clients
regarding the resolution of open items. In connection with discussions of the
terms of the newly-created preferred stock proposed to be included in the merger
consideration, a number of issues were left unresolved, including: (1) whether
the holders of the preferred stock would be entitled to elect any directors of
the Company if the Company failed to pay cash dividends when required; (2)
whether the
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Company's obligation to pay dividends on the preferred stock would be subject to
any covenants contained in the Company's financing agreements with its senior
lenders; and (3) whether the Company would have the option to convert such
preferred stock into a debt instrument without first paying in cash all
previously accrued but unpaid dividends. Negotiations continued throughout the
day on March 25, 1999, and the Board meeting originally scheduled for 3:30 p.m.
was postponed until 6:00 p.m. so that open items could be resolved and copies of
a final draft merger agreement could be provided to the directors in advance of
the meeting.
In the final negotiations over the merger agreement, the representatives of
Dechert and Kirkland agreed on behalf of the Company and BRS, respectively,
that: (1) no termination or "break up" fee would be payable under any
circumstances; (2) the Company's obligation to reimburse expenses in the event
the merger was not consummated would be limited to circumstances in which the
Company terminated the merger agreement to pursue an alternative transaction or
breached its obligations under certain specified provisions of the agreement;
(3) the acquiring entities would covenant that they would not sell the Company
nor engage in a public offering of the Company's stock for one year after the
merger was consummated; (4) the acquiring entities' obligations to consummate
the merger would be conditioned on the absence of any material adverse change in
capital market conditions, but only if such change had a material adverse effect
on the syndication of bank credit facilities or consummation of high-yield debt
offerings; and (5) BRS would not be required to deliver definitive commitment or
highly confident letters for the debt portion of the financing prior to
execution of the merger agreement, but the merger agreement would include a
provision by which it would terminate automatically unless such commitment or
highly confident letters were obtained within 30 days after the execution of the
merger agreement. See "--MERGER AGREEMENT." With respect to the preferred stock,
it was agreed that: (1) the holders of the preferred stock would be entitled
under certain circumstances to elect one director of the Company if the Company
fails to pay cash dividends when required; (2) the Company's obligation to pay
cash dividends on the preferred stock would be subject to any covenants
contained in the Company's financing agreements with its senior lenders; and (3)
the Company would not have the option to convert preferred stock into a debt
instrument without first paying in cash all previously accrued but unpaid
dividends. See "--MERGER AGREEMENT."
Later on March 25, 1999, the full Board of Directors met with
representatives of STES and Dechert to review the proposed final merger
agreement. At this meeting, Messrs. Urry and Delaney indicated that CVC had
decided that it would participate with BRS in the transaction by retaining a
portion of its existing equity in the Company and thereby providing a part of
the equity financing in the transaction. After a presentation by STES and the
delivery by STES of its oral fairness opinion to the Board of Directors (which
was subsequently confirmed in writing), and after a discussion of the terms of
the merger agreement and the interests of CVC, BRS and members of the Company's
management in the transaction, the Board of Directors voted unanimously to
approve the merger agreement and declare its advisability and to recommend that
the stockholders vote in favor of adoption of the merger agreement. Immediately
following the meeting, the merger agreement was executed.
On March 26, 1999, CORT made a public announcement of the execution of the
definitive merger agreement.
CONTACTS WITH THIRD PARTIES
From time to time after CORT's initial public offering, and again in
November, 1998, representatives of the Company had discussions with investment
banking firms regarding the possible sale of the Company or combination of the
Company with another entity. These discussions were preliminary and, to the
Company's knowledge, none of these discussions resulted in any contacts with
third parties. Also, in December, 1998, a representative of the Company met with
representatives of Aaron Rents, Inc. and had a preliminary discussion of a
potential combination of CORT and Aaron. These discussions were terminated
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and did not result in any transaction which the Company wished to pursue. See
"SPECIAL FACTORS-- Background of the Merger."
On December 16, 1998, Messrs. Arnold, Bruckmann, and Urry and Ms. Ziemniak
met with representatives of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") to discuss capital market conditions and what type of recapitalization
transaction could be structured and financed in such an environment. The
representatives of DLJ indicated that markets were strong and such a transaction
could likely be financed through a variety of different structures.
On February 9, 1999, Mr. Bruckmann and Mr. Arnold discussed the possibility
of the Company entering into a recapitalization transaction with BRS in order
to, among other things, deliver to Stockholders a substantial premium over the
then current trading price of the Company's common stock. During such
conversation, Mr. Arnold indicated to Mr. Bruckmann his belief that members of
the Company's management might, depending on certain factors, support such a
transaction. Mr. Bruckmann indicated to Mr. Arnold that, given the support of
management, BRS would be interested in investigating the viability of such a
transaction.
On February 16, 1999, Messrs. Bruckmann and Urry again met with
representatives from DLJ to receive an update on capital market conditions and
to get a better understanding of how a recapitalization transaction involving
the Company would be structured. The representatives of DLJ described several
transactions that they believed could be financed in the then current financial
environment. To the Company's knowledge, neither the December 16th discussion
between the Company and DLJ nor the February 16th discussion resulted in any
contacts with third parties.
Following the announcement of the Merger Agreement, Mr. Arnold received a
telephone call on April 14, 1999 from Robert W. Crawford, Chief Executive
Officer and sole stockholder of Brook Furniture Rental, Inc. ("Brook"),
informing him that Brook, in combination with Fremont Partners ("Fremont"), was
going to propose that the Company be recapitalized and combined with Brook in a
transaction that Mr. Crawford said would provide stockholders of the Company
with consideration of $28 per share in cash. Brook is a privately-held furniture
rental company headquartered in Illinois that is believed to be considerably
smaller than the Company. Fremont is a San Francisco-based private equity fund.
On April 15, 1999, Mr. Arnold received a letter from Fremont confirming
Fremont's interest in pursuing the transaction that had been described by Mr.
Crawford. The proposal was subject to numerous conditions, including
confirmatory due diligence, approval by the Company's board of directors,
termination of the Merger Agreement, funding of financing commitments and
eligibility for recapitalization accounting treatment. The April 15 letter also
appeared to require, as a condition, that CVC agree to participate in the
transaction by either retaining a significant equity interest in the Company or
effectively selling its entire equity interest in the Company for $28 per share.
As required by the Merger Agreement, Mr. Arnold notified CBF of this proposal.
Because the Fremont/Brook proposal appeared to be specifically conditioned upon
CVC's participation in the transaction, Mr. Arnold separately provided a copy of
the April 15 letter to CVC with a request that CVC, as a stockholder, advise the
Company whether CVC was willing to participate in the transaction described in
the letter.
On April 16, 1999, Mr. Arnold was advised by CVC that CVC was unwilling to
pursue either of the alternatives for participating in the Fremont/Brook
transaction that had been described by Mr. Arnold. CVC separately sent copies of
Mr. Arnold's April 15 letter and its April 16 response to a representative of
Fremont. On April 19, 1999, Mr. Arnold received a letter from Fremont purporting
to clarify its earlier proposal. The April 19 letter stated that no separate
agreement by CVC to participate in a transaction would be required so long as
the transaction could be structured to qualify for recapitalization accounting
treatment. The letter suggested that this requirement could be satisfied if all
Stockholders received $28 per share for approximately 97% of the shares they
held. Mr. Arnold provided a copy of this letter to CVC. CVC subsequently
reiterated its position to Mr. Arnold and to Fremont that, whether or not the
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transaction with CBF was approved by Stockholders, CVC would not support the
Fremont/Brook proposal and would take all steps legally available to it to
oppose the proposal and to protect its investment in the Company. CVC stated
that such steps could include converting CVC's shares of non-voting Company
common stock into voting shares so that CVC would then hold approximately 44% of
the Company's outstanding voting stock.
On April 20, 1999, the Board of Directors met by conference call to discuss
the Fremont/Brook letters. Representatives of Dechert and STES also participated
in this call. The Directors were informed of CVC's responses to Fremont and were
told that certain other stockholders of the Company were similarly opposed to
any transaction with Fremont/Brook. These other stockholders included affiliates
of CVC and BRS, who hold approximately 2.4% of the Company's outstanding voting
shares, and members of the Company's senior management who hold approximately
1.3% of such shares, and, in addition, hold currently exercisable options that
if exercised would result in CVC and such other stockholders owning in excess of
50% of the Company's outstanding shares. After discussion, the Board of
Directors unanimously rejected the Fremont/Brook proposal. The Board's decision
was based principally on its conclusion that it was unlikely that any
transaction with Fremont/Brook could be consummated in the face of the
significant opposition expressed by the Company's management and major
stockholders. In the course of the Board's consideration of these matters,
representatives of STES reconfirmed their opinion that the consideration
proposed to be paid under the Merger Agreement was fair from a financial point
of view to the Unaffiliated Stockholders.
In a letter dated April 28, 1999 to the Company's Board of Directors, Mr.
Crawford stated that in evaluating the Fremont/Brook proposal, the Board should
take into account advice that Brook had received from its counsel that, because
CVC is a licensed small business investment company, CVC would not be permitted
to convert its non-voting Company common stock into voting stock. Mr. Crawford
sent a copy of this letter directly to CVC. On April 29, 1999, CVC formally
notified the Company that it was converting its non-voting stock into voting
stock pursuant to the Company's certificate of incorporation and provided an
opinion of CVC's counsel that such conversion was permissible under the
regulations applicable to small business investment companies. Pursuant to CVC's
notice, the conversion became effective on May 7, 1999 following termination of
the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of
1976. On May 10, 1999, the Board of Directors convened by conference call to
review its earlier conclusion regarding the Fremont/Brook proposal in light of
Mr. Crawford's contentions and CVC's conversion of its shares. After discussion,
the Board unanimously reaffirmed its earlier decision to reject the
Fremont/Brook proposal. On May 12, 1999 the Company sent a letter to Fremont and
Brook to inform them of the Board's action.
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FAIRNESS OF THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS; POSITION OF
CBF
THE BOARD OF DIRECTORS. At its special meeting on March 25, 1999, the Board
unanimously determined that the Merger is in the best interest of and fair to
all of the Stockholders, authorized and approved entering into the Merger
Agreement and recommended that the Stockholders vote in favor of adoption of the
Merger Agreement.
In approving the Merger Agreement, and in determining the fairness of the
Merger to the Unaffiliated Stockholders, the Board of Directors considered
various factors, including, among others, the following (such factors were
considered over a period of time at various meetings):
(i) information with respect to the financial condition and results of
operations of CORT, and current industry, economic and market conditions
and the prices and volumes at which the Shares have traded historically;
(ii) the presentations by STES and the opinion of STES;
(iii) possible alternatives to the Merger, the possible values to
Stockholders of such alternatives and the timing and likelihood of
achieving those values, particularly in light of the position of CVC,
CORT's largest Stockholder, that it generally was not interested in a
third party sale transaction and would consider discussing such a
transaction only at a premium that CVC believed was not realistically
attainable from a third party acquirer, and the unlikelihood of such a
transaction, and in light of the fact that CORT was unable to identify
any viable alternative acquisition transactions;
(iv) the terms of the Merger Agreement (see "THE MERGER");
(v) the fact that, by reason of certain conditions to the obligations of CBF
and CBF Sub to consummate the Merger, including conditions concerning
financing, it is possible that the Merger may not be consummated and the
consequences under the Merger Agreement of the failure to satisfy such
conditions;
(vi) the possible conflicts of interest of certain directors and members of
management of CORT;
(vii) the absence of any recommendation of a special committee of independent
directors and the failure to retain any unaffiliated representative to
act solely on behalf of the Unaffiliated Stockholders;
(viii) the fact that the adoption of the Merger Agreement is subject to
receiving approval by the affirmative vote of a majority of the
outstanding voting Shares held by Unaffiliated Stockholders; and
(ix) the ability of Stockholders to exercise appraisal rights if the Merger
is consummated.
In view of the wide variety of factors considered in connection with its
evaluation of the transaction, the Board found it impracticable to, and did not,
quantify or attempt to assign relative weights to the specific factors
considered in reaching its determinations, although on balance, it viewed the
matters set forth in items (i), (ii), (iii), (iv), (viii) and (ix) as favorable
to its decision, the matters set forth in items (v) and (vii) as unfavorable to
its decision, and the matters set forth in item (vi) as neutral to its decision.
The factors set forth above were considered by the Board of Directors in the
manner set forth below.
(i) On balance the Board considered as favorable to its decision the matters
set forth in item (i). The Board reviewed the historical operating results of
CORT, including the most recently available quarterly results. The Board noted
in particular that the rate of revenue growth attributable to CORT's core
business had declined over the last six quarters. The Board compared these
operating results to movements in the market price of the Shares over the same
period of time. See "MARKET PRICES AND
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DIVIDENDS ON THE SHARES." The Board also considered that CORT became public as
of November 17, 1995, at an initial price to the public of $12.00 per Share,
that the market price for the Shares immediately prior to the public
announcement of the Merger Agreement was $16 3/4 per Share and that the Shares
had traded at an all time high price of $48 per share on April 1, 1998 and an
all-time low price of $13 1/4 per share on November 17, 1995.
The Board considered that the per Share consideration of $24.00 in cash plus
one share of Series A-1 Preferred Stock represented a premium of approximately
58% over the $16 3/4 market price for the Shares immediately prior to the public
announcement of the Merger. See "MARKET PRICES AND DIVIDENDS ON THE SHARES."
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THEIR SHARES.
The Board also noted statistics showing the trading volumes and closing
prices for the Shares during the period from November 17, 1995 through March 25,
1999, which demonstrated a relative illiquidity in the Shares. The Board
concluded that the cash consideration of $24.00 per share contemplated by the
Proposal would give the Unaffiliated Stockholders an opportunity to realize
immediate value for their Shares at a substantial premium.
The Board recognized that while consummation of the Merger would result in
the Stockholders being entitled to receive per Share consideration of $24.00 in
cash and one share of Series A-1 Preferred Stock, it also would eliminate the
opportunity for the current Stockholders (other than the Affiliated
Stockholders) to participate in the future growth, if any, of the business of
CORT and potential market appreciation in the Shares.
On balance, and considering CORT's future prospects, as well as its
historical results of operations, the Board concluded that the uncertain
prospect for appreciation over the next few years did not justify depriving
CORT's Stockholders of the opportunity to obtain an immediate cash premium for
their Shares. In light of these conclusions and the other matters discussed
below, the Board determined that the per Share consideration of $24.00 in cash
and one share of Series A-1 Preferred Stock payable in connection with the
Merger was fair and presented the Stockholders with an attractive opportunity
and potentially greater benefit than maintaining their current ownership
interests in CORT.
(ii) The Board considered as favorable to their decision the matters set
forth in item (ii). At the Board's March 25, 1999 special meeting, STES
delivered orally its opinion, subsequently confirmed in writing, that the per
Share consideration consisting of $24.00 in cash and one share of Series A-1
Preferred Stock to be received in connection with the Merger is fair from a
financial point of view to the Unaffiliated Stockholders. See "--Opinion of
Financial Advisor."
(iii) On balance the Board considered as favorable to their decision the
matters set forth in item (iii). The Board considered that CVC had indicated
that it generally was not interested in a third party sale transaction and would
consider discussing such a transaction only at a premium that CVC believed was
not realistically attainable from a third party acquirer. See "--Background of
the Merger." The Board did not consider CVC's stated position to have any
meaningful bearing on CORT's value or the fairness of the price offered in the
Merger. Rather, the Board understood this position to indicate that CVC intended
to continue holding its investment in CORT and would consider a sale only at a
price that was in excess of any price that CVC believed was realistically
achievable.
The Board accordingly concluded that it was unlikely that CORT could be sold
in a transaction, or any transaction could be consummated, in which the
Stockholders would have an opportunity to obtain a significant premium to market
price for the Shares other than the Merger or a similar transaction with the
Affiliated Stockholders. The Board, therefore, determined that the only
meaningful comparison was between the combined per Share consideration of $24.00
in cash and one share of Series A-1 Preferred Stock and the potential for market
appreciation in the Shares if CORT continued as a public company pursuing its
present business plan. See "SPECIAL FACTORS--Background of the Merger."
25
<PAGE>
(iv) On balance the Board considered as favorable to their decision the
matters set forth in item (iv). The Board noted that the Merger Agreement does
not preclude CORT from furnishing (and it in fact requires CORT, at the request
of Messrs. Alessi and Maffei, to furnish) information to or participating in
negotiations with persons making unsolicited bona fide proposals to acquire CORT
(provided that such third party enters into a Confidentiality Agreement with
CORT on terms no less favorable to CORT than those contained in the
Confidentiality Agreement executed by BRS) and that the Merger Agreement permits
the Board of Directors to terminate the Merger Agreement if CORT receives a bona
fide third party offer to effect an acquisition transaction that the Board of
Directors determines after consultation with its advisors is more favorable than
the Merger and is reasonably likely to be consummated. The Merger Agreement also
does not contain any provision requiring the payment of any termination or
"break up" fee by CORT if the Merger Agreement is terminated, including by
reason of a breach by CORT, although if the Merger Agreement is terminated under
certain circumstances, CBF and CBF Sub will be entitled to have their expenses
reimbursed by CORT. The Board also noted that the amount of reimbursable
expenses was limited to $2,000,000, plus up to 2% of the maximum amount of
committed debt financing paid by CBF if CORT requests one or more executed
financing letters. See "THE MERGER--Expenses."
In all other respects, with the exception of certain conditions to
consummation of the Merger, including a financing condition, discussed in (v)
below, the Board considered the terms of the Merger Agreement to be generally
favorable.
(v) The Board viewed as unfavorable to its decision the matters set forth in
item (v). The conditional nature of various aspects of the Merger Agreement was
reviewed by the Board. The Merger Agreement provides for certain conditions to
the obligations of CBF to complete the Merger. These conditions include
principally (i) the completion of the necessary financing, (ii) the assertion of
appraisal rights under Delaware law by holders of no more than 5% of the Shares,
(iii) the adoption of the Merger Agreement by the Stockholders as required under
Delaware law and by a majority of the outstanding voting Shares held by
Unaffiliated Stockholders, (iv) the making of all filings and the obtaining of
all consents from governmental authorities or third parties, which, if not
obtained or made, would have a material adverse effect on the financial
condition, results of operation or business of CORT, (v) the absence of any
effective restraining order, injunction or order preventing consummation of the
Merger and (vi) the absence of any material adverse change in CORT's business,
results of operations or financial position. The Board noted that any or all of
the conditions to the completion of the Merger may be waived by the party whose
obligations are subject to the satisfaction of such condition; provided that
certain conditions would be required to be satisfied by applicable law,
notwithstanding any waiver. The Board was able to accept the conditions of the
Merger Agreement based on their conclusion that they had a reasonable basis to
believe that such conditions, including the condition relating to financing,
would be satisfied, and their understanding and belief that the other conditions
were customary for transactions of this kind, were required as a matter of law
or were otherwise essential to one or both parties to the transaction. In
particular, in evaluating the acceptability of the financing condition, the
Board considered the experience and past success of BRS and CVC in structuring
and closing transactions similar to the Merger. In addition, while the Board
recognized that the Merger Agreement may be terminated by CBF if there shall
have occurred a material disruption of or a material adverse change in
conditions in the banking or capital markets which has a material adverse effect
on the syndication of bank credit facilities or consummation of high yield debt
offerings, the Board was able to accept this provision. See "--Background of
Merger" and "FINANCING OF THE MERGER." The Board also noted that termination of
the Merger Agreement due to a failure to satisfy these conditions would not
entitle CBF or CBF Sub to reimbursement of their expenses, nor entitle CORT to
reimbursement of its expenses.
(vi) On balance the Board viewed as neutral to its decision the matters set
forth in item (vi). The possible conflicts of interest of the directors were
considered at various meetings of the Board. The Board
26
<PAGE>
considered significant the fact that adoption of the Merger Agreement requires
an affirmative vote of a majority of the outstanding voting Shares held by
Unaffiliated Stockholders.
(vii) The Board viewed as unfavorable to its decision the matters set forth
in item (vii). The Board felt, however, that because (x) completion of the
Merger is conditioned upon receiving the affirmative vote of a majority of the
outstanding voting Shares held by Unaffiliated Stockholders, (y) the Board had
retained an independent financial advisor to evaluate the fairness of the Merger
to the Unaffiliated Stockholders from a financial point of view and (z) the
terms of the Merger Agreement and the price to be paid to CORT's public
stockholders were negotiated by two members of the Board who will not be equity
participants in the transaction, the absence of a special committee and an
unaffiliated representative was acceptable.
(viii) The Board viewed the matters set forth in item (viii) to be favorable
to its decision. The Board considered one of the paramount factors in approving
the Merger Agreement to be that the Merger Agreement requires that the
Unaffiliated Stockholders determine for themselves whether they prefer to
receive the consideration contemplated by the Merger, and the substantial
premium to market prices reflected therein, or to continue as Stockholders in
CORT.
(ix) The Board viewed as favorable to its decision the matters set forth in
item (ix). The Board considered that even if the required majority of the
Unaffiliated Stockholders approves the Merger, certain Stockholders may not
support the Merger and wish to exercise appraisal rights. The Board felt it to
be important that Delaware law provides Stockholders with the opportunity to
exercise appraisal rights and to seek a judicial determination of the fair value
of their Shares, despite the approval of a majority of similarly situated
Unaffiliated Stockholders.
In connection with its evaluation of the fairness of the Merger, the Board
did not consider valuations of CORT based solely on net book value, going
concern value, or liquidation value, because it considered the valuation
methodologies undertaken by STES, after discussion with the Board, to be the
most relevant to the values that would be realistically available to
Stockholders.
CBF. CBF and the Affiliated Stockholders have not undertaken any
independent formal evaluation of the fairness of the proposal to the
Unaffiliated Stockholders. Based, however, upon their consideration of, among
other things, (i) historical market prices for the Shares, including the Shares'
initial public offering price, (ii) the analysis of the Board described in the
foregoing discussion and (iii) that the Board had received the written opinion
of STES to the effect that, as of the date thereof, the per Share consideration
of $24.00 in cash and one share of Series A-1 Preferred Stock to be received by
the Unaffiliated Stockholders in connection with the Merger is fair to the
Unaffiliated Stockholders from a financial point of view, CBF and the Affiliated
Stockholders believe that the Merger is fair to the Unaffiliated Stockholders
from a financial point of view. This belief should not, however, be construed as
a recommendation to the Company's Stockholders by CBF or the Affiliated
Stockholders to vote to adopt the Merger Agreement.
OPINION OF FINANCIAL ADVISOR
In connection with the Merger, the Company engaged SunTrust Equitable
Securities to provide an opinion as to the fairness, from a financial point of
view, of the merger consideration. STES is a nationally recognized firm and, as
part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with merger transactions and
other types of acquisitions, negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements and valuations for
corporate and other purposes. The Company selected STES to render a fairness
opinion on the basis of its experience and expertise in transactions similar to
the Merger and its reputation and experience in the rental industry. STES was
not engaged to solicit or evaluate, nor did it solicit or evaluate, any
alternative transaction to the Merger.
27
<PAGE>
At the March 25, 1999 meeting of the Board of Directors, STES delivered its
oral opinion (as subsequently confirmed in writing as of such date, the "STES
Opinion") that, as of such date, and based upon and subject to the limitations,
assumptions and qualifications set forth in such opinion, the merger
consideration was fair, from a financial point of view. No limitations were
imposed by the Board of Directors upon STES with respect to the investigations
made or the procedures followed by it in rendering its opinion.
THE FULL TEXT OF THE STES OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS OF REVIEW BY STES, IS ATTACHED HERETO AS
ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND
IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY STATEMENT. THE FOLLOWING SUMMARY
OF THE STES OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE STES OPINION. THE STES OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER OF THE COMPANY AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
SPECIAL MEETING.
In connection with its opinion, STES, among other things:
- reviewed certain publicly available financial and certain other financial
information, reports, forecasts and other internal information that were
provided to STES by or on behalf of the Company;
- reviewed the Merger Agreement;
- compared certain financial positions and operating results of the Company
to other companies in the rental industry;
- considered, to the extent available, the financial terms of certain other
similar transactions recently effected which it believed to be comparable
to the Merger;
- reviewed and discussed the historical and current operations of the
Company, its financial condition and prospects with management and
representatives of the Company; and
- conducted such other financial studies, analyses and investigations and
reviewed such other information and factors as it deemed appropriate for
purposes of the STES Opinion.
In connection with its review, STES did not independently verify and relied
on the accuracy and completeness in all material respects of all of the
financial and other information and data publicly available or furnished to or
otherwise reviewed by it. With respect to the financial forecasts for the
Company, STES assumed for purposes of the STES Opinion that the forecasts were
reasonably prepared on bases reflecting the best available estimates at the time
of preparation as to the future financial performance of the Company and good
faith judgments of the management of the Company. STES did not express an
opinion with respect to such forecasts or the assumptions on which they were
based. STES also assumed that there were no material changes in the Company's
assets, financial condition, results of operations, business or prospects since
the date of the last financial statements made available to STES. STES relied on
advice of counsel to the Company as to all legal matters with respect to the
Company, the Merger and the Merger Agreement. STES has assumed that the Merger
will be consummated in a manner that complies in all respects with the
applicable provisions of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and all other applicable federal and state statutes, rules and
regulations. In addition, STES did not assume responsibility for making an
independent evaluation, appraisal or physical inspection of the assets or
liabilities (contingent or otherwise) of the Company and was not furnished with
any such appraisals. Finally the STES Opinion was based on economic, monetary,
market and other conditions as they existed and could be evaluated on the date
of the STES Opinion and did not address the fairness of the Merger Consideration
as of any other date.
28
<PAGE>
Set forth below is a summary of material financial analyses performed by
STES in connection with the STES Opinion and included in its presentation to the
Company's Board of Directors.
ANALYSIS OF PREMIUMS PAID
STES calculated the acquisition premiums represented by the merger
consideration over the market price of the CORT Common Stock at various
intervals prior to the announcement of the Merger. STES also performed the same
analysis for 77 transactions since January 1, 1998, involving public companies
in which cash was the acquisition consideration and the transaction value was
between $200 million and $500 million. STES then compared the acquisition
premiums represented by the merger consideration to the median acquisition
premiums for the comparison group of transactions at the same intervals. The
results of this comparison are set forth in the following table:
<TABLE>
<CAPTION>
INTERVAL PRIOR TO ANNOUNCEMENT
--------------------------------------------
<S> <C> <C> <C> <C> <C>
1 DAY 1 WEEK 4 WEEKS 6 MONTHS 1 YEAR
----- ------ ------- -------- ------
Median Premium.................................... 25.4% 31.4% 37.7% 36.0% 57.3%
CORT Premium...................................... 69.5% 62.5% 62.5% (3.8%) (41.1%)
</TABLE>
STES also reviewed 22 transactions where the market price of the target's
stock had declined during the year preceding the transaction and calculated the
acquisition premium over the market price on the day preceding the announcement
of the transaction. The table below shows the median percentage decline in
market price for the 22 companies in the comparison group to the decline in the
market price of the CORT Common Stock over the year preceding the Merger, and
compares the median acquisition premium for the 22 companies to the acquisition
premium represented by the merger consideration over the market price of the
CORT Common Stock on the day preceding the public announcement of the Merger.
<TABLE>
<CAPTION>
STOCK PRICE DECLINE DURING YEAR PREMIUM ONE DAY PRIOR TO
PRIOR TO ANNOUNCEMENT ANNOUNCEMENT
------------------------------- ---------------------------
<S> <C> <C>
Median Premium.......................................... (25.1%) 35.6%
CORT Premium............................................ (64.8%) 69.5%
</TABLE>
STES viewed this analysis as supporting fairness since the implied premium
was comparable to premiums in similar transactions.
COMPARABLE COMPANIES ANALYSIS
STES analyzed two groups of publicly-traded rental companies. The first
group consisted of five consumer rental companies ("Consumer Rental") that
included Aaron Rents, Inc., Globe Business Resources, Inc., Rainbow Rentals,
Inc., Rent-A-Center, Inc. and Rent-Way, Inc. The second group consisted of six
equipment rental companies ("Equipment Rental") that included Electro Rent
Corp., McGrath Rentcorp, National Equipment Services, Inc., Neff Corp., Rental
Service Corp. and United Rentals, Inc. The table below presents the multiples of
total market capitalization to the latest twelve months' ("LTM") revenue, LTM
earnings before interest, taxes, depreciation and amortization
29
<PAGE>
("EBITDA"), LTM earnings before interest and taxes ("EBIT"), LTM price to
earnings ratio ("P/E"), 1998 P/E and 1999 P/E.
<TABLE>
<CAPTION>
CONSUMER RENTAL EQUIPMENT RENTAL
------------------------ ------------------------
MULTIPLE OF: MINIMUM MAXIMUM MINIMUM MAXIMUM
- -------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
LTM Revenues........................................................ 0.9x 1.9x 1.4x 2.6x
LTM EBITDA.......................................................... 6.7x 26.8x 6.2x 11.0x
LTM EBIT............................................................ 8.4x 33.6x 6.6x 13.1x
LTM P/E............................................................. 13.6x 21.7x 8.2x 21.5x
1998 P/E............................................................ 11.9x 21.5x 10.9x 21.5x
1999 P/E............................................................ 10.1x 17.3x 8.8x 16.9x
</TABLE>
STES judged this analysis as supporting fairness since the valuation
multiples implied by the merger consideration were within the range of the
valuation multiples of comparable companies. No company or transaction used in
the above analysis is identical to the Company or the Merger. Accordingly, an
analysis of the results of the foregoing involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies to which the Company and the Merger are being compared.
Mathematical analysis (such as determining the minimum, maximum, average or
median) is not, in itself, a meaningful method of using comparable company data.
COMPARABLE TRANSACTIONS ANALYSIS
STES developed a list of 13 merger and acquisition transactions involving
selected rental companies and compared transaction value as a multiple of
revenue, EBITDA, EBIT, net income and book value for these transactions to the
transaction value multiples for the Company. The minimum and maximum multiples
paid for these other rental company transactions are presented in the table
below.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
------------- -----------
<S> <C> <C>
Revenues............................................................... 1.0x 4.3x
EBITDA................................................................. 4.7x 37.6x
EBIT................................................................... 7.5x 30.9x
Net Income............................................................. 7.4x 68.9x
Book Value............................................................. 1.3x 4.1x
</TABLE>
No company or transaction used in the above analysis is identical to the
Company or the Merger. Accordingly, an analysis of the results of the foregoing
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value of the companies to which the Company and
the Merger are being compared. Mathematical analysis (such as determining the
minimum, maximum, average or median) is not, in itself, a meaningful method of
using comparable transaction data. STES judged this analysis as supporting
fairness since the valuation multiples implied by the transaction value were
within the range of the valuation multiples of comparable transactions.
DISCOUNTED CASH FLOW ANALYSIS
Using certain projected financial information supplied by the Company for
calendar years 1999 and 2001 and arithmetically extended by STES to 2003 using
assumptions provided by the Company, STES calculated the net present value of
free cash flows of the Company through 2003 using discount rates ranging from
9.3% to 11.3%. STES' estimate of the appropriate discount rate was based on the
estimated weighted average cost of capital for comparable rental companies. STES
also calculated the terminal value of the Company in the year 2003 based on
multiples of 2003 EBITDA ranging from 5.1x to 7.5x and
30
<PAGE>
discounted these terminal values using the assumed range of discount rates. This
analysis indicated a range of per share values indicated in the table below.
<TABLE>
<CAPTION>
LOW HIGH
--------- ---------
<S> <C> <C>
Implied Equity Value Per Share............................................. $ 23.40 $ 36.33
</TABLE>
Inherent in any discounted cash flow valuation are the use of a number of
assumptions, including the accuracy of projections, and the subjective
determination of an appropriate terminal value and discount rate to apply to the
projected cash flows of the entity under examination. Variations in any of these
assumptions or judgments could significantly alter the results of a discounted
cash flow analysis. STES judged this analysis as supporting fairness since the
transaction value was within the range of values generated by this analysis.
LEVERAGED BUYOUT ANALYSIS
STES applied a leveraged buyout analysis to the projected financial
information supplied by the Company for calendar years 1999 to 2001 and
arithmetically extended by STES to 2003 using assumptions provided by the
Company to calculate the rate of return the Affiliated Stockholders would
receive in a leveraged transaction. STES utilized the capital structure assumed
by the Affiliated Stockholders. The return is calculated over a five-year time
period with an assumed exit valuation of 7.0x to 8.0x EBITDA, a range that
approximates the assumed acquisition valuation multiple. This analysis suggested
that the equity provided by the Affiliated Stockholders would receive an
internal rate of return shown in the table below.
<TABLE>
<CAPTION>
ASSUMED EXIT
VALUATION
MULTIPLE
--------------------
<S> <C> <C>
7.0X 8.0X
--------- ---------
Implied Internal Rate of Return................................................. 27.1% 33.1%
</TABLE>
Inherent in any leveraged buyout analysis are the use of a number of
assumptions, including the accuracy of projections, the appropriate capital
structure and the exit multiple used in the analysis. Variations in any of these
assumptions or judgments could significantly alter the results of a leveraged
buyout analysis. STES judged this analysis as supporting fairness because the
returns implied by the transaction value are consistent with the returns that in
STES' experience are expected by equity investors in leveraged transactions of
this type.
The summary set forth above does not purport to be a complete description of
the presentation by STES to the Board of Directors or the analyses performed by
STES. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. STES
believes that the analyses and the summary set forth above must be considered as
a whole and that selecting portions of its analyses and of the factors
considered, without considering all such analyses and factors, would create an
incomplete or misleading view of the evaluation process underlying its opinion.
In addition, STES may have given various analyses more or less emphasis than
other analyses, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be STES' view of the actual
value of the Company.
In performing its analyses, STES made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company. The analyses
performed by STES are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as part of STES' analysis
of the fairness of the merger consideration and were provided to the Board of
Directors in connection with the delivery of the STES Opinion. The analyses do
not purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices
31
<PAGE>
at which any securities may trade at the present time or at any time in the
future. STES used in its analyses various projections of future performance
prepared by the management of the Company. The projections are based on numerous
variables and assumptions, which are inherently unpredictable and must be
considered not certain of occurrence as projected. Accordingly, actual results
could vary significantly from those set forth in such projections.
STES was engaged by the Company to render its fairness opinion pursuant to
an engagement letter dated March 12, 1999. Under the terms of the engagement
letter, the Company agreed to pay STES (i) a retainer fee of $100,000, (ii) an
additional fee of $200,000 following the delivery of its oral opinion to the
Board of Directors and (iii) an additional fee of $200,000 following the
delivery of the Proxy Statement to the stockholders. The Company has also agreed
to reimburse STES for its reasonable out-of-pocket expenses. Pursuant to a
separate letter agreement, the Company has agreed to indemnify STES, its
affiliates, and their respective partners, directors, officers, agents,
consultants, employees and controlling persons against certain liabilities,
including liabilities under the federal securities laws. In the ordinary course
of its business, STES actively trades securities of the Company for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
PURPOSE OF THE MERGER
CORT has entered into the Merger Agreement because the Board of Directors
concluded that the Merger was fair to, and in the best interests of, the
Unaffiliated Stockholders. In particular, the Board concluded that it was
unlikely that any transaction could be consummated, other than the Merger or a
similar transaction with the Affiliated Stockholders, in which the Stockholders
would have an opportunity to obtain a significant premium to historical and
current market prices, and that the per Share consideration of $24.00 in cash
plus one share of Series A-1 Preferred Stock payable in connection with the
Merger represented an attractive alternative to the potential for future market
appreciation of the Shares. For a discussion of the various factors considered
by the Board in reaching these conclusions, see "SPECIAL FACTORS--Background of
the Merger" and "--Fairness of the Merger; Recommendation of the Board of
Directors; Position of CBF."
The purpose of CBF, CBF Sub, BRS and the Affiliated Stockholders in
proceeding with the Merger is to acquire the entire common equity interest in
CORT in a transaction providing a substantial premium to the current market
price to the Unaffiliated Stockholders. See "CERTAIN INFORMATION CONCERNING CBF,
CBF SUB AND AFFILIATES" and "--Interest of Certain Persons in the Merger." BRS
and the Affiliated Stockholders regard the acquisition of the Shares in the
Merger as an attractive investment opportunity because they believe CORT's
future business prospects are favorable and that the substantial increase in the
debt to equity ratio of CORT after the Merger, although importing greater
investment risks, will create the potential for the stockholders' equity value
of CORT to increase more rapidly on a percentage basis than the stockholders'
equity value of an identical corporation with a larger equity base and less
debt. BRS and the Affiliated Stockholders could earn a substantial return on
their equity investment in CORT. In addition, the flexibility inherent in a
closely-held corporation to implement a long-term business strategy, without
concentrating on short-term, reported quarterly earnings reports, should render
more feasible these results.
While BRS and the Affiliated Stockholders are looking to achieve substantial
returns on their investment in CORT, they believe that such returns are
available only to those long-term investors who are willing to bear the
substantial risks associated with a highly leveraged investment.
As a result of the Merger, the Affiliated Stockholders will increase their
percentage beneficial ownership of the common equity interests in CORT, on a
fully diluted basis, from approximately % to 100%. The Affiliated Stockholders'
percentage interests in CORT's net book value and net earnings will increase
correspondingly. Payments in connection with the Merger and related financing
will reduce substantially CORT's net book value and net earnings. See "FINANCING
OF THE MERGER."
32
<PAGE>
In order to provide a prompt and orderly transfer of ownership of CORT from
the Stockholders to BRS and the Affiliated Stockholders, in light of relevant
financial, legal, tax and other considerations, and to facilitate the required
financing for the transaction, the acquisition has been structured as a merger
pursuant to which, if the Merger Agreement is adopted by the requisite vote of
the Stockholders, and the other conditions thereto are satisfied, CBF Sub will
be merged with and into CORT and all of the outstanding Shares (other than
Shares held in CORT's treasury or by any subsidiary of CORT, and other than
Retained Shares as defined in the Merger Agreement) will be converted into the
right to receive per Share consideration of $24.00 in cash, without interest,
and one share of Series A-1 Preferred Stock, unless holders thereof elect to
pursue appraisal rights under the DGCL. See "THE MERGER" and "APPRAISAL RIGHTS."
33
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the recommendation of the Board of Directors with respect to
the Merger, Stockholders should be aware that certain members of CORT's Board of
Directors have certain interests that present them with actual or potential
conflicts of interest in connection with the Merger. The Board of Directors was
aware of these conflicts and considered them among the other matters described
under "SPECIAL FACTORS--Fairness of the Merger; Recommendation of the Board of
Directors."
INTEREST IN COMMON STOCK. As of the Record Date, CORT's directors, Paul
Arnold, Bruce Bruckmann, Keith Alessi, Gregory Maffei, Charles Egan, James Urry,
and Michael Delaney, beneficially owned an aggregate of 541,938 Shares, as
follows:
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
SHARES (* DENOTES LESS THAN
NUMBER OF SHARES(1) 1%)
------------------- ---------------------------------
<S> <C> <C>
Paul Arnold................................................... 209,429 1.6%
Bruce Bruckmann............................................... 182,506 1.4%
Keith Alessi.................................................. 51,660 *
Gregory Maffei................................................ 42,526 *
Charles Egan.................................................. 31,382 *
James Urry.................................................... 13,934 *
Michael Delaney............................................... 10,501 *
</TABLE>
- ------------------------
(1) Includes all stock options which are exercisable within 60 days of the
Record Date. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
DIRECTORS AND OFFICERS."
In addition, as of the Record Date, Citicorp Venture Capital Ltd.
beneficially owned 5,778,518 Shares, representing approximately 44.1% of the
outstanding Shares.
If the Merger is consummated, the directors of CORT, as Stockholders, are
expected to receive aggregate net proceeds (net of the exercise price of Shares
held under options) of approximately $10,633,000 in respect of the conversion of
their Shares in connection with the Merger, assuming no one exercises the option
to retain shares, see "THE MERGER-Payment for Shares," and $1,329,415 in a
liquidation preference of Series A-1 Preferred Stock as follows:
<TABLE>
<S> <C> <C>
Paul Arnold...................................... $ 516,280
Bruce Bruckmann.................................. 453,263
Keith Alessi..................................... 127,148
Gregory Maffei................................... 103,313
Charles Egan..................................... 74,328
James Urry....................................... 31,833
Michael Delaney.................................. 23,250
</TABLE>
OPTIONS. Some of the Options held by certain of the Affiliated
Stockholders, (including Options which have not yet vested), will be treated
differently from Options held by employees of CORT. See "THE MERGER--Payment for
Shares." In lieu of receiving the net merger consideration after deduction of
the applicable exercise price of such Options, certain Options held by such
Affiliated Stockholders will be converted at such Affiliated Stockholders'
election into options of the Surviving Corporation having an intrinsic value
equal to the aggregate merger consideration to which such optionholder would be
entitled to receive in connection with the Merger but for such conversion and
will be exercisable for shares of common stock, Series B Preferred Stock and
Series C Preferred Stock of the Surviving Corporation.
ROLLOVER EQUITY INVESTMENT. The Affiliated Stockholders are expected to
exchange certain of the securities of the Company that they currently own on a
tax deferred basis for stock of the surviving
34
<PAGE>
corporation at an implied value of $26.50 per share. Shares of the Surviving
Corporation shall be acquired for a purchase price of $1.00 per share (other
than the Series A Preferred Stock which will be purchased for $2.50 per share),
the same prices per share as the securities of CBF Sub purchased by CBF with the
proceeds of the BRS Equity Investment. For more information regarding the
ownership of securities of the Surviving Corporation, see "SECURITY OWNERSHIP IN
THE SURVIVING CORPORATION."
The shares of Series B Preferred Stock of the Surviving Corporation that CVC
will obtain in connection with the conversion of its Retained Shares (as defined
in the Merger Agreement) will have a special liquidation premium that will
entitle CVC and certain of its affiliates and employees holding such shares to
approximately $3.4 million, in the aggregate, upon the liquidation of the
Company or redemption of such shares, plus accrued and unpaid dividends thereon,
in addition to the liquidation preference and accrued and unpaid dividends
otherwise payable on the shares of Series B Preferred Stock. In addition, the
shares of Series C Preferred Stock of the Surviving Corporation to be issued to
CVC in exchange for its Retained Shares will entitle the holder thereof to a
special dividend preference in an aggregate amount per annum equal to the
greater of (i) $1,000,000 and (ii) 1.5% of the Company's earnings before
interest, taxes, depreciation (other than rental depreciation) and amortization.
MANAGEMENT. Members of the Company's management are expected to receive
cash bonuses from the Surviving Corporation in an aggregate amount of up to $3.5
million.
Over a three-year period beginning on the Effective Time, it is also
expected that certain employees of the Company will be provided with the
opportunity to receive non-qualified options (the "New Options") to purchase
shares of the Surviving Corporation Common Stock representing approximately 5%
of the outstanding Surviving Corporation Common Stock on a fully diluted basis
at a price per share equal to the then current fair value of Surviving
Corporation Common Stock. The New Options will vest over a three-year period.
MANAGEMENT FEE. CBF currently anticipates that BRS, or an affiliate of BRS,
will enter into a Management Agreement with the Company (the "Management
Agreement") at the Effective Time. The Management Agreement will provide that
BRS or such affiliate will receive an annual management fee of $1.0 million from
CORT or its Subsidiaries for certain management, business and organizational
strategy and merchant and investment banking services rendered to the Company.
The amount of the annual management fee may be increased in certain
circumstances based upon performance or other criteria to be established by the
Board of Directors of the Company. In addition, an affiliate of BRS will receive
from CORT a closing fee of approximately $3.4 million in the aggregate, at the
Effective Time in respect of the Merger. See "FINANCING OF THE MERGER."
EQUITY OWNERSHIP OF CORT AFTER THE MERGER. The Affiliated Stockholders are
expected to own 100% of the common equity interests in CORT after the Merger.
See "CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES" and "SECURITY
OWNERSHIP OF THE SURVIVING CORPORATION."
INSURANCE AND INDEMNIFICATION. Under the Merger Agreement, CBF or CORT as
the surviving corporation in the Merger (the "Surviving Corporation") is
required to provide, for a period of six years after the Effective Time,
directors' and officers' liability insurance policies in favor of the present
and former directors, officers, employees and agents of CORT who are presently
covered under such policies by the Company with respect to actions or omissions
occurring prior to the Effective Time on terms no less favorable than such
insurance maintained by CORT as of the date of the Merger Agreement in terms of
coverage and amounts, provided that CBF and the Surviving Corporation shall not
be required to pay in the aggregate an annual premium for such insurance in
excess of 200% of the last annual premium paid prior to the date of the Merger
Agreement. The Merger Agreement also provides that CBF and the Surviving
Corporation will indemnify and hold harmless the above parties against any
losses, claims, damages, liabilities, costs, expenses, judgments and amounts
paid in settlement in connection with any
35
<PAGE>
claim, action, suit, proceeding or investigation arising out of or pertaining to
any action or omission in connection with the performance of their duties to
CORT (including, without limitation, in connection with the Merger) and
occurring prior to the Effective Time to the full extent permitted under
Delaware law, or the Surviving Corporation's Certificate of Incorporation or
By-Laws in effect as of the Effective Date. In addition, under the Merger
Agreement, CBF, CBF Sub and CORT have agreed that all rights to indemnification
existing in favor of an Indemnified Party under an indemnification agreement in
effect on the date of the Merger Agreement will survive the Merger, and that the
Certificate of Incorporation and Bylaws of the Surviving Corporation will
include substantially similar indemnification provisions as those contained in
the Restated Charter and Bylaws of the Company in effect as of the Effective
Time. The Merger Agreement also provides that all existing indemnification
agreements between the Company and its directors, officers, employees and agents
will be continued after the Effective Time. See "THE MERGER--Indemnification of
Directors and Officers."
OTHER. BRS is the sole member and manager of CBF. CBF, as the sole
stockholder of CBF Sub, is expected to elect a new slate of directors to the
board of CBF Sub immediately prior to the consummation of the Merger. Such board
is anticipated to include representatives designated by BRS, CVC and the
Company's management. See "CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND
AFFILIATES." The Merger Agreement provides that the directors of CBF Sub will be
the directors of the Surviving Corporation, and that the officers of CORT will
be the officers of the Surviving Corporation upon the consummation of the
Merger. See "CERTAIN INFORMATION CONCERNING THE DIRECTORS AND OFFICERS OF THE
COMPANY FOLLOWING THE MERGER." The compensation levels and employee benefit
plans and programs for directors, officers and employees of CORT after the
Merger are expected to be substantially the same as those currently provided by
CORT.
CHANGE OF CONTROL AGREEMENTS
CORT has entered into change of control agreements with several executive
officers. These agreements terminate one year from March 25, 1999, the date on
which they were entered into. Under the agreement with Chief Executive Officer
Paul Arnold, in the event of a change of control (as defined in the agreement)
of CORT, Mr. Arnold will receive a cash payment within three days thereof in the
amount of $1,200,000. In addition to the payment, if Mr. Arnold is terminated by
the Company within one year of a change of control other than for "cause" or by
Mr. Arnold for "good reason," as these terms are defined in the agreement, Mr.
Arnold is entitled to a continuation of certain welfare benefits for three years
after his termination at the same cost and coverage level as in effect on his
date of termination. Other executives are entitled to payments in amounts of
either $150,000 or $400,000 in the event they are terminated by the Company
within one year of a change of control other than for "cause" or by them for
"good reason." These executives also would receive welfare benefits for three
years after their termination at the same cost and coverage level as in effect
on their dates of termination.
In addition, pursuant to a Change of Control Bonus Plan (the "Plan"),
certain management employees are eligible for payments if they are terminated
within one year of a change of control by the Company other than for "cause" or
by the management employee for "good reason," as defined in the Plan. The
Compensation Committee, in its sole discretion, shall determine the amount of
the payment, if any, payable to each management employee on or before the date
of a change of control. The aggregate amount of all payments under the Plan
shall not exceed $400,000.
The Merger will not result in a change of control under the change of
control agreements or the Plan. However, certain executives are expected to
receive payments as a result of the merger. See "SPECIAL FACTORS--Interests of
Certain Persons in the Merger; Conflicts of Interest."
36
<PAGE>
CERTAIN EFFECTS OF THE MERGER
Upon consummation of the Merger, the Stockholders will be entitled to
receive per Share consideration of $24.00 in cash, without interest, and one
share of Series A-1 Preferred Stock, or to exercise appraisal rights under
Section 262 of the DGCL if properly demanded prior to the vote on the adoption
of the Merger Agreement at the Special Meeting. The Stockholders (other than the
Affiliated Stockholders), as of the Effective Time, will have no continuing
ownership interest in the Company other than the Series A-1 Preferred Stock and
will no longer participate in the future earnings and potential growth of the
Company. BRS and the Affiliated Stockholders, as the holders of outstanding
common stock of CORT, will be entitled to all of the benefits, and subject to
all of the risks, that will result from such ownership.
From the Effective Time, the Shares will no longer be traded on the NYSE,
and price quotations with respect to sales of Shares in the public market will
no longer be available. The registration of the Shares under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), will terminate and this
termination will substantially reduce the information required to be filed by
the Company with the Securities and Exchange Commission (the "Commission") and
will make certain of the provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b) and the requirement, under the proxy
rules of Regulation 14A, of furnishing a proxy or information statement in
connection with stockholders meetings no longer applicable to the Company. The
Company anticipates being required to file periodic reports under the Exchange
Act pursuant to the terms of its indebtedness. See "FINANCING OF THE MERGER."
However, such securities may be repaid after the merger occurs and the
obligation to file periodic reports under the Exchange Act in respect of such
securities may end.
Pursuant to the terms of the Merger Agreement, the board of directors of CBF
Sub shall become, upon consummation of the Merger, the board of directors of the
Company (as the Surviving Corporation). The Company expects BRS to elect a new
slate of directors to the board of CBF Sub immediately prior to the Effective
Time of the Merger, which directors are anticipated to include representatives
designated by BRS, CVC and the Company's management.
PLANS FOR THE COMPANY AFTER THE MERGER
It is expected that following the Merger the business and operations of the
Company will, except as set forth in this Proxy Statement/Prospectus, be
conducted by the Surviving Corporation substantially as they are currently
conducted. Under the Merger Agreement, other than in connection with the Merger,
CBF and CBF Sub have agreed (a) not to sell, dispose or otherwise transfer, or
cause to be sold, disposed of or otherwise transferred, directly or indirectly,
within one year of the time the Merger becomes effective upon the filing of the
certification of merger with the Delaware Secretary of State, or at such later
time as specified in the Certificate of Merger and is agreed to by the parties
(the "Effective Time") (i) more than 50% of the beneficial ownership of the
outstanding voting capital stock of the Surviving Corporation or (ii) assets
constituting more than 50% of the earning power of the Company and its
subsidiaries or with a book value in excess of 50% of the book value of all
assets of the Company and its subsidiaries and (b) that the Company shall not
engage in any public offering of its common equity securities (other than in
connection with any offering of an "equity kicker" which is part of the
financing obtained to consummate the Merger) within one year of the Effective
Time.
RISK THAT THE MERGER WILL NOT BE CONSUMMATED
Consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including receipt of the required Stockholder approval, the
absence of an injunction or other order restraining consummation of the
transactions contemplated by the Merger Agreement, receipt by CBF and/or CBF Sub
of the required financing to complete the Merger and to pay related fees and
expenses, holders of not more than 5% of the outstanding Shares on a
fully-diluted basis electing to demand appraisal rights, the absence of certain
legal proceedings, and the performance of obligations under the Merger
Agreement. In
37
<PAGE>
addition, the Merger Agreement may be terminated by CBF if there is a material
disruption or material adverse change in conditions in the banking or capital
markets which has a material adverse effect on the syndication of bank credit
facilities or consummation of high yield debt offerings. See "THE MERGER--
Conditions to Consummation of the Merger." Although, as described in "FINANCING
OF THE MERGER," CBF has obtained commitment or highly confident letters for the
required financing, they contain several conditions. Therefore, even if the
requisite Stockholder approval is obtained, there can be no assurance that the
Merger will be consummated.
The Merger Agreement provides that CBF and CBF Sub are entitled to
reimbursement from CORT for their expenses incurred in connection with the
Merger Agreement and consummation of the transactions contemplated thereby in
the event that the Merger Agreement is terminated by CORT because the Board of
Directors approves an Alternative Transaction as defined by and pursuant to the
terms of the Merger Agreement, or if the Merger Agreement is terminated by CBF
because the Board of Directors or CORT (i) solicits, initiates or encourages the
submission of any Acquisition Proposal as defined herein, or participates in any
discussions or negotiations regarding, or furnishes to any person any non-public
information with respect to, or takes any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal; provided, among other things,
however, that the foregoing shall not prohibit the Independent Directors from
furnishing information or requiring the Company to furnish information to, or
entering into discussions or negotiations with, any person in connection with an
unsolicited bona fide Acquisition Proposal by such person if, and to the extent
that such person first enters into a standstill and confidentiality agreement
with the Company on terms no less favorable to the Company than those contained
in the Confidentiality Agreement or (ii) shall have approved another Acquisition
Proposal or Alternative Transaction as defined in the Merger Agreement; provided
that such reimbursement for expenses shall not exceed an aggregate of $2,000,000
plus any fees and expenses incurred in connection with obtaining the Financing
if the Company requests one or more executed highly confident letters and/or
commitment letters in respect of bank financing which fees and expenses shall
not exceed 2.0% of the maximum amount of any such Financing. See "THE
MERGER--Expenses."
It is expected that if the Merger Agreement is not adopted by the
Stockholders, or if the Merger is not consummated for any other reason, the
Company's current management, under the direction of the Board of Directors,
will continue to manage the Company as an on-going business. No other
transaction is currently being considered by the Company as an alternative to
the Merger.
CERTAIN RISKS IN THE EVENT OF BANKRUPTCY
If the Company is insolvent at the Effective Time or becomes insolvent as a
result of the Merger, the transfer of the per Share consideration of $24.00 in
cash plus one share of Series A-1 Preferred Stock upon consummation of the
Merger may be deemed to be a "fraudulent conveyance" under applicable law, and
therefore may be subject to claims of certain creditors of the Company. If such
a claim is asserted by the creditors of the Company after the Merger, there is a
risk that persons who were Stockholders of the Company at the Effective Time
will be ordered by a court to turn over to the Company's trustee in bankruptcy
all or a portion of the per Share consideration they received upon the
consummation of the Merger.
Based upon the projected capitalization of the Company at the time of the
Merger and projected results of operations and cash flow after the Merger,
management of the Company has no reason to believe that the Company and its
subsidiaries, on a consolidated basis, will be insolvent immediately after
giving effect to the Merger.
38
<PAGE>
CERTAIN LITIGATION CHALLENGING THE MERGER
On March 26, 1999 and April 1, 1999, respectively, Harbor Finance Partners
and Michael Sternberg, alleged stockholders of the Company, each filed suit
against CORT, CVC, CORT's Chief Executive Officer and Director Paul Arnold, and
Directors Charles Egan, Michael Delaney, James Urry, Gregory Maffei, Keith
Alessi and Bruce Bruckmann in the Delaware Court of Chancery. The complaints
purport to be class action complaints and plaintiffs seek to enjoin the Merger
or, in the alternative, to rescind the transaction and/or seek compensatory
damages and/or rescissory damages. Plaintiffs allege breaches of fiduciary
duties owed by the defendants to the Company's stockholders and claim that the
price to be paid for shares under the Merger Agreement is unfair and inadequate.
On March 26, 1999, Harold Shapiro, an alleged stockholder of the Company,
filed a similar class action lawsuit in the Delaware Court of Chancery.
Plaintiff Shapiro additionally names as a defendant BRS. Plaintiff Shapiro also
claims that the defendants breached their fiduciary duties, or aided and abetted
any such breach, and alleges that the defendants failed to make an informed
decision with respect to CORT's value and that the price to be paid for Shares
under the Merger Agreement is unfair and inadequate. Plaintiff Shapiro seeks
injunctive, rescissory and/or compensatory relief.
The time for defendants to respond to these complaints has been extended
until the cases are consolidated and a consolidated complaint is designated. The
Company believes that these claims are without merit. The Company, the
directors, CVC and BRS intend to vigorously defend the actions. Copies of these
complaints are filed as exhibits to the Company's Form 8-K filed on April 29,
1999 and are incorporated herein by reference. See "ADDITIONAL AVAILABLE
INFORMATION."
CERTAIN PROJECTIONS
CORT provided STES, in connection with its analyses described above under
"SPECIAL FACTORS--Opinion of Financial Advisor," and BRS with certain non-public
financial projections for CORT prepared by its management. The material portions
are set forth below:
<TABLE>
<CAPTION>
PROJECTED FISCAL YEARS
----------------------------------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
----------------------------------
<CAPTION>
FISCAL FISCAL FISCAL
1999 2000 2001
---------- ---------- ----------
<S> <C> <C> <C>
Furniture rental revenue..................................................... $ 298,145 $ 319,015 $ 344,537
Furniture sales revenue...................................................... 61,046 65,930 71,863
---------- ---------- ----------
Total revenue.............................................................. 359,191 384,945 416,400
Cost of furniture rentals.................................................... 53,896 57,742 62,361
Cost of furniture sales...................................................... 37,353 40,217 43,837
---------- ---------- ----------
Total cost of goods........................................................ 91,249 97,959 106,198
Total gross profit......................................................... 267,942 286,986 310,202
Selling, general and administrative expenses................................. 209,988 223,268 239,846
---------- ---------- ----------
Operating earnings......................................................... 57,954 63,718 70,356
Interest expense, net........................................................ 6,682 7,125 7,363
---------- ---------- ----------
Income before income taxes................................................. 51,272 56,593 62,993
Income taxes................................................................. 21,637 23,882 26,583
---------- ---------- ----------
Net income................................................................. 29,635 32,711 36,410
---------- ---------- ----------
Average common shares........................................................ 13,522 13,700 13,800
Earnings per common share--assuming dilution................................. $ 2.19 $ 2.39 $ 2.64
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
39
<PAGE>
CORT does not usually publicly disclose projections of future revenues,
earnings or other financial information. We are not including these projections
in this Proxy Statement/Prospectus to influence your vote with respect to the
Merger. Our projections were based upon a variety of assumptions, including our
ability to achieve strategic goals, objectives and targets over the applicable
periods. These assumptions involve judgments with respect to, among other
things, future economic, competitive and regulatory conditions, financial market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control or
after the Merger, CORT's control. CORT's projections were not prepared with a
view to public disclosure, use in this Proxy Statement/ Prospectus or compliance
with published guidelines of the Securities and Exchange Commission, nor were
they prepared in accordance with the guidelines established by the American
Institute of Certified Public Accountants for preparation and presentation of
financial projections. Neither the Company's independent auditors, nor any other
independent accountants or financial advisors, have compiled, examined or
performed any procedures with respect to the projections contained herein, nor
have they expressed any opinion or any form of assurance on such information or
its achievability, and assume no responsibility for, and disclaim any
association with, the projections. Neither CORT nor the Board assume any
responsibility for the accuracy of these projections, although we have no
reasons to doubt the reasonableness of the underlying assumptions. In the past,
we have made projections which we did not achieve. Stockholders are cautioned
not to rely on the projections.
THE MERGER
THE FOLLOWING INFORMATION WITH RESPECT TO THE TERMS AND CONDITIONS OF THE
MERGER IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE
MERGER AGREEMENT, WHICH IS INCORPORATED BY REFERENCE INTO THIS PROXY
STATEMENT/PROSPECTUS. A COPY OF THE MERGER AGREEMENT IS ATTACHED TO THIS PROXY
STATEMENT/ PROSPECTUS AS ANNEX A.
GENERAL
The Merger Agreement sets forth the terms and conditions upon which the
Merger is to be effected. The Merger will be consummated only if the conditions
thereto set forth in the Merger Agreement are satisfied or waived (see
"Conditions to Consummation of the Merger" below) including receipt of the
required stockholder approval (see "Stockholder Adoption of the Merger
Agreement" below).
The Merger Agreement provides that at the Effective Time, CBF Sub will merge
with and into the Company and the separate existence of CBF Sub will cease. The
Company shall be the Surviving Corporation in the Merger. Each Share which is
outstanding immediately prior to the Effective Time (other than Shares held at
the Effective Time in the Company's treasury or by any Subsidiary of the
Company, which will be canceled without payment, other than Retained Shares as
defined in the Merger Agreement, and other than Shares in respect of which
appraisal rights are properly perfected under Delaware Law) will be converted
into the right to receive per Share consideration of $24.00 in cash, without
interest, and one share of Series A-1 Preferred Stock. Each share of common
stock of CBF Sub issued and outstanding immediately prior to the Effective Time
shall be converted into Series A-2 Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Common Stock of the Surviving Corporation. Each
share of preferred stock of CBF issued and outstanding immediately prior to the
Effective Time shall be converted into one share of Series A-1 Preferred Stock
of the Surviving Corporation. Upon consummation of the Merger, Stockholders,
other than CBF (and the Affiliated Stockholders), will possess no further
interest in, or rights as Stockholders of, the Company, other than their right
to receive per Share consideration of $24.00 in cash and one share of Series A-1
Preferred Stock, or to exercise appraisal rights.
40
<PAGE>
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Merger will become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State of
the State of Delaware in accordance with the DGCL or at such later time as is
specified in the Certificate of Merger. The required filing is expected to be
made promptly following adoption of the Merger Agreement by the Stockholders at
the Special Meeting and the satisfaction, or where permissible, waiver of the
other conditions set forth in the Merger Agreement. Upon the effectiveness of
the Merger, the Restated Certificate of Incorporation of CORT will be amended to
read as set forth in an exhibit to the Merger Agreement and as so amended will
be the Restated Certificate of Incorporation of the Surviving Corporation, and
the By-Laws of CBF Sub in effect at the Effective Time will become the By-Laws
of the Surviving Corporation. The Merger Agreement provides that, at the
Effective Time, the directors of CBF Sub will be the directors of the Surviving
Corporation and the officers of CORT will be the officers of the Surviving
Corporation.
STOCKHOLDER ADOPTION OF THE MERGER AGREEMENT
Under the Delaware General Corporation Law ("DGCL"), the affirmative vote of
holders of a majority of the outstanding shares of voting common stock is
required for adoption of the Merger Agreement. In addition to this requirement,
pursuant to the terms of the Merger Agreement, the affirmative vote of holders
of a majority of the outstanding shares of voting common stock held by
Unaffiliated Stockholders is required. See "INTRODUCTION--Voting at the Special
Meeting," "SPECIAL FACTORS--Interests of Certain Persons in the Merger;
Conflicts of Interest."
PAYMENT FOR SHARES
COMPANY SHARES. After consummation of the Merger, Stockholders must
surrender their stock certificates to a bank or trust company to be designated
by CBF Sub (the "Exchange Agent") in order to receive cash merger consideration
and certificates for shares of Series A-1 Preferred Stock. No interest will be
paid or accrued on the cash payable upon the surrender of such certificates.
Detailed instructions with regard to the surrender of certificates, together
with a letter of transmittal, will be forwarded to holders of Shares by the
Exchange Agent promptly following the Effective Time. Stockholders should not
submit their certificates to the Company or the Exchange Agent until they have
received such materials.
Payment for Shares will be made to former Stockholders as promptly as
practicable following receipt by the Exchange Agent of such certificates and
other required documents. Until stock certificates and other required documents
are received by the Exchange Agent, each certificate formerly representing
Shares (other than Retained Shares, as defined below) shall represent solely (i)
the right to receive per Share consideration of $24.00 in cash, without
interest, and one share of Series A-1 Preferred Stock or (ii) in the case of
Stockholders who properly perfect appraisal rights with respect to their Shares,
the right to seek payment pursuant to Section 262 of the DGCL. See "APPRAISAL
RIGHTS."
STOCK OPTIONS. Each Option, as defined in the Merger Agreement, other than
certain Options held by the Affiliated Stockholders, that has an exercise price
which is less than $26.50 per share, shall be extinguished and represent at the
Effective Time the right to receive one share of Series A-1 Preferred Stock for
each share of Common Stock issuable upon exercise of such Option, and a cash
amount equal to the product of (x) the excess, if any, of (a) $24.00 over (b)
the exercise price of such Option multiplied by (y) the aggregate number of
shares of Common Stock issuable upon the exercise in full of such Option as of
the Effective Time; provided, however, that each such Option with an exercise
price in excess of $24.00 shall entitle the holder to receive only a number of
shares of Series A-1 Preferred Stock equal to the product of (x) a fraction, the
numerator of which is equal to $26.50 minus the exercise price and the
denominator of which is $2.50 (the initial liquidation preference of the Series
A-1 Preferred Stock), multiplied by (y) the aggregate number of shares of Common
Stock issuable upon the exercise in full of
41
<PAGE>
such Option as of the Effective Time; provided that each holder shall be
entitled to receive cash in lieu of any fractional shares of Series A-1
Preferred Stock.
RETAINED SHARES. BRS and the Affiliated Stockholders shall have the right
to elect, by notice to the Company and CBF before the Effective Time, to
exchange a certain number of their shares of Common Stock (the "Retained
Shares") for the right to receive, in lieu of the per Share consideration of
$24.00 in cash, and one share of Series A-1 Preferred Stock, quantities and
classes of certain securities of the Company (the "Retained Share Merger
Consideration"). The securities into which the Retained Shares can be converted
consist of shares of the Company's Series A-2 Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, and Common Stock. In the event that
all shares are converted which are eligible to be converted, then CVC and its
affiliates will own 7,000,000 shares of Series A-2 Preferred Stock, 17,500,000
shares of Series B Preferred Stock, 15,000,000 shares of Series C Preferred
Stock, and 2,500,000 shares of Common Stock. BRS and its affiliates will own
7,000,000 shares of Series A-2 Preferred Stock, 17,500,000 shares of Series B
Preferred Stock, 15,000,000 shares of Series C Preferred Stock, and 2,500,000
shares of Common Stock in CORT. Certain members of management of the Company
will own 2,527,778 shares of Series B Preferred Stock, 2,166,667 shares of
Series C Preferred Stock, and 825,000 shares of Common Stock. The number of
shares of each of the Series B Preferred Stock, Series C Preferred Stock and
Common Stock held by BRS, CVC and each of their affiliates or employees will be
reduced proportionately by the number of shares of each such class or series
held by the management investors.
The commitment letters in respect of the financing under the New Credit
Facility provide that in the event that market conditions permit the aggregate
proceeds available at closing pursuant to the New Credit Facility to exceed $86
million, the number of shares of Series A-2 Preferred Stock will be reduced by
the same amount.
THE EXCHANGE FUND
As of the Effective Time, CBF Sub (or the Company, as the Surviving
Corporation) shall deposit, or shall cause to be deposited, with or for the
account of a bank or trust company designated prior to the Effective Time by CBF
Sub, which shall be reasonably satisfactory to the Company (the "Exchange
Agent"), for the benefit of the holders of Shares and Options (i) cash in an
aggregate amount (the "Exchange Fund") equal to the sum of (x) the product of
(A) the number of Shares issued and outstanding at the Effective Time (other
than Shares held at the Effective Time in the Company's treasury or by any
subsidiary of the Company, other than the Retained Shares and other than Shares
in respect of which appraisal rights are properly perfected under Delaware law)
multiplied by (B) $24.00 plus (y) the aggregate product with respect to certain
of the Options, as discussed in "--Payment for Shares", of (A) the number of
shares of Common Stock issuable upon exercise in full of such Options as of the
Effective Time multiplied by (B) the excess of $24 over the exercise price of
such Options and (ii) a stock certificate issued in the name of the Exchange
Agent or its nominee representing the number of shares of Series A-1 Preferred
Stock deliverable for such Shares and Options (including any fractional shares).
REGULATORY MATTERS
Other than the requirements of the Exchange Act, and the filing of the
Certificate of Merger pursuant to the DGCL, neither the Company, CBF nor CBF Sub
is aware of any federal or state regulatory approvals or consents that must be
obtained in connection with the Merger.
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CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of CBF, CBF Sub and CORT to effect the Merger are
subject to the satisfaction or waiver, at or prior to the Effective Time, of
each of the following conditions: (i) the representations and warranties
contained in the Merger Agreement, subject to certain exceptions, are true and
correct as of the date of the Merger Agreement and the date of the closing set
forth in the Merger Agreement; (ii) the performance in all material respects of
all obligations contained in the Merger Agreement that are required to be
performed at or prior to the Closing Date; (iii) the Stockholders shall have
adopted the Merger Agreement as required under the laws of the State of
Delaware, and the holders of a majority of the outstanding voting Shares that
are held by the Unaffiliated Stockholders shall have voted for the adoption of
the Merger Agreement; (iv) all filings with and all approvals, consents,
authorizations and waivers from governmental and other regulatory agencies and
other third parties required to consummate the transactions contemplated by the
Merger Agreement, which, if not obtained, would have a Material Adverse Effect,
as defined in the Merger Agreement, or would prevent the consummation of the
Merger, shall have been made or obtained; (v) there shall be no effective
restraining order, injunction or any other order of any nature issued by a court
of competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger and the transactions contemplated by the Merger
Agreement; (vi) no action, proceeding, application or counterclaim by any
governmental entity before any court or governmental regulatory or
administrative agency, authority or tribunal, and which (x) if adversely
determined would have a material adverse effect on the Surviving Corporation or
the ability of any party to the Merger Agreement to perform its obligations
thereunder or (y) challenges or seeks to challenge, restrain or prohibit the
consummation of the Merger, shall have been threatened, instituted or be
pending; and (vii) (x) the registration statement of which this Proxy
Statement/Prospectus is a part shall have become effective under the Securities
Act and shall not be the subject of any stop order or related proceeding, (y)
any material "blue sky" and other state securities laws applicable to the
registration and qualification of, and any rules or regulations of any
self-regulatory organization applicable to, the Senior Preferred Stock to be
issued in connection with the Merger shall have been complied with, and (z) this
Proxy Statement/Prospectus and the Schedule 13E-3 (filed with the Securities
Exchange Commission with the Registration Statement of which this Proxy
Statements/Prospectus is a part) shall have been disseminated to the extent, and
for the minimum time period required by, the Exchange Act and the rules and
regulations thereunder.
The obligation of CBF and CBF Sub to effect the Merger is also subject to
the satisfaction or waiver, at or prior to the Effective Time, of the following
conditions: (i) CBF and/or CBF Sub shall have completed their arrangements for
the Financing (as hereafter defined) and received the cash proceeds thereof; and
(ii) the holders of not more than 5% of the total number of Shares outstanding
immediately prior to the Effective Time, on a fully diluted basis, shall have
demanded an appraisal of such Shares in accordance with Section 262 of the DGCL.
Each of the conditions to the consummation of the Merger may be waived by
the party whose obligations are subject to the satisfaction of such condition;
provided that certain conditions would be required to be satisfied by applicable
law, notwithstanding any waiver.
CERTAIN COVENANTS
CONDUCT OF CORT'S BUSINESS PRIOR TO THE MERGER. The Merger Agreement
provides that, prior to the Effective Time, except as contemplated by the Merger
Agreement or otherwise permitted by the Merger Agreement: (i) CORT will use its
reasonable best efforts to operate, and will cause its subsidiaries to use their
reasonable best efforts to operate, its business in the ordinary course; (ii)
CORT shall not without CBF's consent, declare, set aside or pay any dividends
on, or make any other distributions in respect of, its outstanding capital
stock, it shall not split, combine or reclassify any of its outstanding capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its outstanding capital stock, and
it shall not purchase, redeem or otherwise acquire any shares of its
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outstanding capital stock or any rights, warrants or options to acquire any such
stock; (iii) CORT shall not issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, or other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities, except for the issuance of
shares of Common Stock upon exercise of Options outstanding before the date of
the Merger Agreement and disclosed thereunder, or take any action that would
make the Company's representations and warranties not true in all material
respects; (iv) CORT shall not amend its Restated Charter or By-laws; (v) CORT
shall not acquire any business or any corporation, partnership, joint venture,
association or other business organization or division thereof (or any interest
therein) in a transaction involving aggregate consideration in excess of $25
million, or form any subsidiaries; (vi) CORT shall not sell or otherwise dispose
of any of its substantial assets, except in the ordinary course of business or
in a transaction or series of transactions involving assets with an aggregate
value of less than $5 million; (vii) CORT shall not make any capital
expenditures or commitments with respect thereto, except capital expenditures or
commitments not exceeding the Company's budget by more than $1 million in the
aggregate as CORT may, in its discretion, deem appropriate; (viii) CORT shall
not (x) incur any indebtedness for borrowed money or guaranty any such
indebtedness of another person, other than (A) borrowings in the ordinary course
under existing lines of credit (or under any refinancing of such existing
lines), (B) indebtedness owing to, or guaranties of indebtedness owing to, CORT
or (C) in connection with the Financing of the Merger, or (y) make any loans or
advances to any other person, other than to CORT and other than routine advances
to employees, except in the case of either (x) or (y) as disclosed in the
Disclosure Schedule to the Merger Agreement; (ix) CORT shall not grant or agree
to grant to any employee any increase in wages or bonus (other than in the
ordinary course of business consistent with past practices), severance, profit
sharing, retirement, deferred compensation, insurance or other compensation or
benefits, or establish any new compensation or benefit plans or arrangements, or
amend or agree to amend any existing Company Stock Option Plans, except as may
be required under existing agreements disclosed in the Disclosure Schedule to
the Merger Agreement; (x) CORT shall not merge, amalgamate or consolidate with
any other entity in any transaction, or sell all or substantially all of its
business or assets; (xi) CORT shall not enter into or amend any employment,
consulting, severance or similar agreement with any individual which provides
for the payment of an annual base salary in excess of $125,000; (xii) CORT shall
not change its accounting policies in any material respect, except as required
by generally accepted accounting principles; (xiii) CORT shall not cancel,
terminate, amend, modify or waive any of the terms of any confidentiality or
standstill agreement executed with respect to a proposed acquisition of the
capital stock or substantially all of the assets of CORT or any of its
subsidiaries by any other party prior to the date of the Merger Agreement; (xiv)
CORT shall not, with certain exceptions, authorize, recommend, propose or
announce an intention to authorize, recommend or propose, or enter into an
agreement in principle or an agreement with respect to any merger, consolidation
or business combination (other than the Merger), any acquisition or disposition
of a material amount of assets or securities (including, without limitation, the
assets or securities of any subsidiary and other than inventory in the ordinary
course); and (xv) CORT shall not, with certain exceptions, commit or agree to
take any of the foregoing actions.
OTHER AGREEMENTS. Upon receipt of the Financing Letters, CORT has agreed to
take all action necessary in accordance with applicable law and its Restated
Certificate of Incorporation and By-laws to call, give notice of and convene the
Special Meeting of Stockholders to consider and vote upon the adoption of the
Merger Agreement. CORT, CBF and CBF Sub have agreed to use their commercially
reasonable efforts to take all actions and to otherwise cooperate in doing all
things necessary to consummate the Merger. In particular, CBF and CBF Sub have
agreed to use their commercially reasonable efforts to obtain the Financing on
terms satisfactory to them. CORT has agreed, subject to certain provisos, that
it will not, and will not permit any of its representatives, directly or
indirectly, to solicit, initiate or encourage the submission of any Acquisition
Proposal, as defined in the Merger Agreement, or to participate in any
discussions or negotiations regarding, or furnish to any person any non-public
information with respect to, or to take any other action to facilitate any
inquiries or the making
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of any proposal that constitutes, or reasonably may be expected to lead to, any
Acquisition Proposal; provided, however, that the foregoing shall not prohibit
Messrs. Alessi and Maffei from furnishing information or requiring the Company
to furnish information to, or entering into discussions or negotiations with,
any person in connection with an unsolicited bona fide Acquisition Proposal by
such person if, and to the extent that such person first enters into a
standstill and confidentiality agreement with the Company on terms no less
favorable to the Company than those contained in the Confidentiality Agreement.
TERMINATION
The Merger Agreement may be terminated and abandoned at any time prior to
the Effective Time, whether before or after adoption of the Merger Agreement by
the Stockholders of CORT or CBF Sub: (i) by mutual written consent of CBF and
CORT; (ii) by either CORT or CBF if the Merger has not been consummated on or
before October 31, 1999, provided that the failure to consummate the Merger is
not attributable to the failure of the terminating party to fulfill its
obligations pursuant to the Merger Agreement; (iii) by either CORT or CBF if at
the Special Meeting or any adjournment thereof, the Stockholders fail to adopt
the Merger Agreement as required by Delaware law or a majority of the
Unaffiliated Stockholders do not adopt the Merger Agreement; (iv) by either CORT
or CBF if a governmental entity shall have issued an order, decree or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree ruling or other action shall have
become final and nonappealable; (v) by CORT, subject to a proviso, if the Board
of Directors of CORT shall have approved any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transactions contemplated by the Merger Agreement, (an
"Alternative Transaction") after determining, in good faith, after consultation
with its advisors, that such transaction is more favorable to the Stockholders,
is not subject to any material contingency as to which the other party has not
reasonably demonstrated its ability to obtain, and is reasonably likely to be
consummated and is in the best interests of the Stockholders, and the Company
has received advice that there is a material risk that failure to approve such
transaction will be a breach of the Board of Directors' fiduciary duties, and
the Company has received a written opinion from an investment banking firm that
the transaction is fair from a financial point of view; (vi) by CBF, if CORT or
the Board of Directors of CORT shall have (i) solicited, initiated or encouraged
the submission of any Acquisition Proposal, defined as any proposal with respect
to a merger, consolidation, share exchange, business combination or similar
transaction involving the Company or any of its subsidiaries, or any purchase of
all or any significant portion of the assets of the Company or any of its
subsidiaries, or any equity interest in the Company or any of its subsidiaries,
other than the transactions contemplated by the Merger Agreement, or
participated in any discussions or negotiations regarding, or furnished to any
person any non-public information with respect to, or taken any other action to
facilitate any inquiries or made any proposal that constitutes, or reasonably
may be expected to lead to, any Acquisition Proposal; provided, however, that
the foregoing shall not prohibit Messrs. Alessi and Maffei from furnishing
information or requiring the Company to furnish information to, or entering into
discussions or negotiations with, any person in connection with an unsolicited
bona fide Acquisition Proposal by such person if, and to the extent that such
person first enters into a standstill and confidentiality agreement with the
Company on terms no less favorable to the Company than those contained in the
Confidentiality Agreement; (ii) withdrawn or modified, in a manner adverse to
CBF or CBF Sub, the approval or recommendation by the Board of Directors of the
Merger Agreement or the transactions contemplated thereby; or (iii) approved
another Acquisition Proposal or Alternative Transaction; (vii) by CBF, if any of
the conditions to CBF or CBF Sub's obligations set forth in the Merger Agreement
shall have become incapable of fulfillment, and shall not have been waived by
CBF; (viii) by CORT, if any of the conditions to CORT's obligations set forth in
the Merger Agreement shall have become incapable of fulfillment, and shall not
have been waived by CORT; (ix) by CBF, if there shall have occurred a material
disruption of or a material adverse change in conditions in the banking or
capital markets which has a material adverse effect
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on the syndication of bank credit facilities or consummation of high yield debt
offerings; or (x) automatically without further action by any party in the event
that one or more executed highly confident letters and/or commitment letters in
respect of financing in each case, which are in customary, executable form, from
one or more reputable commercial or investment banks indicating the willingness
to underwrite, syndicate or otherwise provide, subject to the terms and
conditions set forth therein, debt financing to the Surviving Company, the net
proceeds of which shall not be less than $335,000,000 in the aggregate (the
"Financing Letters") shall not have been delivered within the time period
required by the Merger Agreement. The Financing Letters were timely delivered
and are filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
EXPENSES
The Merger Agreement provides that CBF and CBF Sub are entitled to
reimbursement from CORT for certain expenses incurred in connection with the
Merger Agreement in the event that the Merger Agreement (A) is terminated by
CORT if the Board of Directors, under certain circumstances including after it
approves an Alternative Transaction after determining, in good faith, after
consultation with its advisors, that such transaction is more favorable to the
Stockholders, is not subject to any material contingency as to which the other
party thereto has not reasonably demonstrated its ability to obtain, and is
reasonably likely to be consummated and is in the best interest of the
Stockholders of the Company; or (B) is terminated by CBF because the Board of
Directors of CORT, except under certain circumstances, solicited, initiated or
encouraged the submission of any Acquisition Proposal or participated in any
discussions or negotiations regarding, or furnished to any person any non-public
information with respect to, or took any other action to facilitate any
inquiries or the making of any proposal that constituted, or may reasonably be
expected to lead to, any Acquisition Proposal; except in connection with an
unsolicited bona fide Acquisition Proposal by any person if, and to the extent
that such person first enters into a standstill and confidentiality agreement
with the Company on terms no less favorable to the Company than those contained
in the Confidentiality Agreement. Such reimbursement for expenses shall not
exceed an aggregate of $2,000,000 plus any fees and expenses incurred in
connection with obtaining the Financing if the Company requests one or more
executed Financing Letters, which fees and expenses shall not exceed 2.0% of the
maximum amount of any such Financing. See "FINANCING OF THE MERGER--Fees and
Expenses."
INDEMNIFICATION OF DIRECTORS AND OFFICERS; DIRECTORS' AND OFFICERS' LIABILITY
INSURANCE
Under the Merger Agreement, CBF or the Surviving Corporation is required to
provide, for a period of six years after the Effective Time, directors' and
officers' liability insurance policies in favor of the present and former
directors, officers, employees and agents of CORT who are presently covered
under such policies by the Company with respect to actions or omissions
occurring prior to the Effective Time on terms no less favorable than such
insurance maintained by CORT as of the date of the Merger Agreement in terms of
coverage and amounts, provided that CBF and the Surviving Corporation shall not
be required to pay in the aggregate an annual premium for such insurance in
excess of 200% of the last annual premium paid prior to the date of the Merger
Agreement. The Merger Agreement also provides that CBF and the Surviving
Corporation will indemnify and hold harmless the above parties against any
losses, claims, damages, liabilities, costs, expenses, judgments and amounts
paid in settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to any action or omission occurring
prior to the Effective Time to the full extent permitted under Delaware law, or
the Surviving Corporation's Certificate of Incorporation or By-Laws in effect as
of the Effective Date. In addition, under the Merger Agreement, CBF has agreed
that all rights to indemnification existing in favor of the employees, agents,
directors and officers of CORT under any indemnification agreement in effect on
the date of the Merger Agreement will survive the Merger, and that the
Certificate of Incorporation and Bylaws of the Surviving Corporation will
include indemnification provisions substantially similar to those contained in
the Company's Restated Certificate of Incorporation and Bylaws as of the
Effective Time.
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The Merger Agreement also provides that all existing indemnification agreements
between the Company and its directors, officers, employees and agents will be
continued after the Effective Time. See "THE MERGER--Indemnification of
Directors and Officers."
ACCOUNTING TREATMENT OF THE MERGER
The transaction has been structured as a merger so that stockholders of the
Company will have an opportunity to vote for or against the transaction before
any transfer of control and so that it can qualify and be accounted for as a
recapitalization. If the transaction is accounted for as a recapitalization, the
historical basis of the Company's assets and liabilities will not be affected by
the transaction. See "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
FINANCING OF THE MERGER
The consummation of the Merger is subject to, among other things, receipt by
CBF and CBF Sub of proceeds of the Financing necessary to pay the consideration
payable to the Stockholders in the Merger and to pay fees and expenses incurred
in connection with the Merger. The total amount of financing expected to be
required is approximately $469.5 million and is expected to be obtained from the
issuance of debt securities and preferred stock, borrowings under the new credit
facility and contributions to its equity capital by BRS, certain stockholders of
the Company and certain of their respective affiliates or employees, as
described below.
The expected sources and uses of funds in connection with the Merger are as
follows (in thousands):
<TABLE>
<S> <C>
SOURCES
New Credit Facility............................................... $ 84,652
Senior Subordinated Notes......................................... 250,000
Equity Contribution............................................... 49,229
Equity Rollover................................................... 55,771
Series A-1 Preferred Stock........................................ 29,807
---------
TOTAL SOURCES OF FUNDS............................................ $ 469,459
---------
---------
USES
Payment for Shares in the Merger.................................. $ 263,760
Equity Rollover................................................... 55,771
Series A-1 Preferred Stock........................................ 29,807
Management, Director and Employee Options......................... 13,621
Repayment of Existing Indebtedness................................ 86,000
Fees and Expenses................................................. 20,500
---------
TOTAL USES OF FUNDS............................................... $ 469,459
---------
---------
</TABLE>
DEBT FINANCING
THE NEW CREDIT FACILITY
In connection with the Merger, the Surviving Corporation's wholly-owned
subsidiary, CORT Furniture Rental Corporation (the "Borrower") will enter into
the New Credit Facility with NationsBank, N.A. ("NationsBank" or the "Agent").
The New Credit Facility will consist of a 6-year senior secured revolving loan
facility in an aggregate principal amount not to exceed $225 million, which will
include a $10 million sublimit for the issuance of letters of credit and a $10
million sublimit for the making of swingline loans. Advances under the New
Credit Facility are referred to herein as "Revolving Loans."
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The New Credit Facility will include an expandability clause providing for
additional commitments of up to $100 million to be available at the Borrower's
election from existing lenders or from other lenders which would otherwise
constitute eligible assignees under the New Credit Facility.
Revolving Loans in the aggregate principal amount of $84.7 million, are
anticipated to be drawn on the closing date of the New Credit Facility in
connection with the Merger. If market conditions permit the syndication of the
Credit Facilities on terms and conditions, satisfactory to NationsBanc
Montgomery Securities LLC ("NMS") and NationsBank, at the discretion of the
Agent, the initial advance may be increased and the equity contribution provided
by BRS and CVC may be reduced by the same amount. Subject to compliance with
customary conditions precedent, Revolving Loans will be available at any time
prior to the final maturity of the New Credit Facility. Amounts repaid under the
New Credit Facility may be reborrowed prior to the final maturity of the New
Credit Facility, provided that availability requirements are met.
All obligations of the Borrower under the New Credit Facility will be
unconditionally guaranteed by the Surviving Corporation and each existing and
each subsequently acquired or organized domestic subsidiary of Surviving
Corporation (other than the Borrower) and, to the extent no adverse tax
consequences would result, foreign subsidiary of Surviving Corporation (the
"Guarantors"). The New Credit Facility and the related guarantees will be
secured by substantially all the assets of the Borrower and its subsidiaries,
including but not limited to (a) a first priority pledge of all the capital
stock of the Borrower and each Guarantor of its domestic subsidiaries and, to
the extent no adverse tax consequences would result therefrom, foreign
subsidiaries and (b) perfected first priority security interests in
substantially all of the tangible assets of the Borrower and its subsidiaries.
Borrowings under the New Credit Facility will bear interest at a floating
rate based upon, at the Borrower's option, (i) the higher of the prime rate of
NationsBank, or the federal funds effective rate plus .50%, plus, a margin equal
to .75%, or (ii) the London Interbank Offered Rate ("LIBOR"), plus an initial
margin equal to 2.00% (subject to adjustment as set forth below). The Borrower
may elect interest periods of one, two, three or six months for LIBOR
borrowings. Interest shall be payable at the end of each interest period.
In addition to paying interest on outstanding principal under the New Credit
Facility, the Borrower will be required to pay a commitment fee to the lenders
in the New Credit Facility equal to .50% per annum of the undrawn portion of the
commitments in respect of the facilities commencing to accrue upon the
acceptance of the commitment letter, and initially payable upon the execution
and delivery of the credit agreement governing the New Credit Facility (the
"Credit Agreement") and payable quarterly in arrears thereafter, in each case
for the actual number of days elapsed in a 360-day year. The Credit Agreement
will contain provisions under which margins on interest rates under the
facilities will be adjusted in increments to be agreed upon based on performance
goals to be agreed upon.
Principal amounts outstanding under the New Credit Facility will be due and
payable in full at maturity. The New Credit Facility will be subject to
mandatory prepayments and reductions in the event of certain extraordinary
transactions or issuances of debt and equity by the Borrower or any Guarantor.
The New Credit Facility will contain representations and warranties,
covenants, events of default and other provisions customary for credit
facilities of this type. The Borrower will pay the lenders thereunder certain
syndication and administration fees, reimburse certain expenses and provide
certain indemnities, in each case which are customary for credit facilities of
this type.
THE NOTES
The Surviving Corporation will issue Notes in an aggregate principal amount
of $250 million in an offering (the "Note Offering") underwritten by Credit
Suisse First Boston Corporation. The Notes will bear interest from the date of
issuance at the then prevailing market rate, which interest will be payable
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semi-annually. The Note Offering will be made pursuant to a Rule 144A
distribution that will be consummated concurrently with the closing of the
Merger.
The Notes will be senior subordinated obligations of the Surviving
Corporation, subordinated to all existing and future senior indebtedness,
including indebtedness pursuant to the New Credit Facility. The Notes will be
unconditionally guaranteed on a senior subordinated basis by each subsidiary of
the Surviving Corporation that guarantees the New Credit Facility.
The Notes will mature on the tenth anniversary of the date of issuance and
will contain such other terms and conditions that are usual and customary for
high yield securities of this type including those with respect to redemption
and change of control provisions.
The indenture governing the Notes will contain certain covenants customary
for high yield securities such that, among other things, it will limit the
ability of the Surviving Corporation and the Guarantors to: (i) incur additional
indebtedness or permit certain subsidiaries to incur additional indebtedness;
(ii) create certain liens; (iii) permit the issuance of capital stock by certain
subsidiaries; (iv) enter into certain transactions with affiliates; (v) issue
preferred stock, pay dividends or make certain other payments or permit certain
subsidiaries to pay dividends or make other distributions; or (vi) enter into
certain mergers, consolidations and agreements to sell assets or permit other
asset sales.
The Surviving Corporation will, concurrently with the Note Offering, enter
into a registration rights agreement with the initial purchasers of the Notes
pursuant to which the Surviving Corporation will agree to file a registration
statement with respect to an offer to exchange the Notes for new issues of debt
securities of the Surviving Corporation registered under the Securities Act,
with terms substantially identical to those of the Notes. Under certain
circumstances, the Surviving Corporation will be required to provide a shelf
registration statement to cover resales of the Notes by the holders thereof. If
the Surviving Corporation fails to satisfy these registration obligations, it
will be required to pay liquidated damages to the holders of Notes under certain
circumstances.
EQUITY FINANCING
In connection with the Merger, the Surviving Company will procure $134.8
million through equity financing which will include approximately $29.8 million
of Series A-1 Preferred Stock issued to the Stockholders of the Corporation as
part of the Merger Consideration. In addition, (i) CVC and its affiliates have
agreed to provide equity financing to the Surviving Corporation by converting up
to 1.9 million Shares of the Company's Common Stock ("Rollover Shares") into up
to 7,000,000 shares of Series A-2 Preferred Stock, 17,500,000 shares of Series B
Preferred Stock, 15,000,000 shares of Series C Preferred Stock and 2,500,000
shares of Common Stock of the Surviving Corporation (the "CVC Rollover"), and
(ii) BRS and its affiliates have agreed to purchase up to 7,000,000 shares of
Series A-2 Preferred Stock, 17,500,000 shares of Series B Preferred Stock,
15,000,000 shares of Series C Preferred Stock and 2,500,000 shares of Common
Stock of the Surviving Corporation (the "BRS Equity Investment"). If and to the
extent that BRS or CBF owns any shares of Common Stock prior to the Effective
Time, in lieu of all or any portion of the BRS Equity Investment, it will have
the option to convert such number of Shares into shares of Series A-2 Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Common Stock of
the Surviving Corporation in the same ratio as the CVC Rollover. BRS will not be
entitled to receive the Merger Consideration in exchange for any Shares held
thereby as of the Effective Time but may receive shares of Series A-1 Preferred
Stock upon the exchange of preferred stock of CBF Sub. The number of shares of
each of the Series B Preferred Stock, Series C Preferred Stock and common stock
of the Surviving Corporation held by each of BRS, CVC and their respective
affiliates and employees will be reduced proportionately by the number of shares
of each such class or series of stock held by the management investors. See "THE
MERGER--Payment for Shares." Pursuant to the terms of the Financing Letter in
respect of the New Credit Facility, in the event that the bank's syndication
efforts permit in excess of $86 million to be available at Closing, the total
drawing under the New Credit Facility
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may be increased at the Borrower's discretion and the amount of equity
contributed by BRS and CVC may be reduced by the same amount. Correspondingly,
the Surviving Corporation will be even further leveraged.
BRS has provided CBF Sub with a commitment letter pursuant to which BRS and
related investors have committed to invest up to $52.5 million in securities of
CBF Sub which will be converted in the Merger into equity securities of the
Surviving Corporation. Such investment will be made on a PARI PASSU basis with
the investment by CVC to be retained in the Company and is conditioned upon the
fulfillment to BRS's satisfaction of all of the conditions to CBF and CBF Sub's
obligations under the Merger Agreement.
CVC has provided CBF Sub with a commitment letter pursuant to which CVC has
committed to invest up to $52.5 million in securities of CBF Sub or the
Surviving Company by means of a rollover of shares of CORT into the equity
capital of the Surviving Company. Such investment will be made on PARI PASSU
basis with the investment by BRS and is contingent upon the fulfillment to CVC's
satisfaction of all of the conditions to CBF and CBF Sub's obligations under the
Merger Agreement.
In the event the Merger is consummated (see "SPECIAL FACTORS--Interests of
Certain Persons in the Merger") BRS shall be entitled to a transaction fee in
the amount of approximately $3.4 million and an annual management fee in the
amount of $1.0 million. The amount of the annual management fee may be increased
in certain circumstances based upon performance or other criteria to be
established by the Board of Directors of the Company.
The foregoing commitment letters have been filed as exhibits to the Schedule
13E-3 and the of which this Proxy Statement/Prospectus is a part and reference
is made thereto.
FEES AND EXPENSES
The fees and expenses paid and estimated to be paid by CBF and CORT in
connection with the Merger, the Financing and related transactions are as
follows:
<TABLE>
<S> <C>
Financing Fees................................................. $3,938,000
Investment Banking............................................. $7,375,000
Legal and Accounting........................................... $1,500,000
Management and Employee Bonuses................................ $3,500,000
BRS............................................................ $3,392,000
Printing and Distribution...................................... $ 500,000
SEC Filings.................................................... $ 72,600
Miscellaneous.................................................. $ 222,400
----------
TOTAL.......................................................... $20,500,000
----------
----------
</TABLE>
Whether or not the Merger is consummated, each party will bear its
respective fees and expenses incident to carrying out the Merger Agreement
except as provided in the Merger Agreement. See "THE MERGER--Expenses."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
THE NEW CREDIT FACILITY
In connection with the Merger, the Surviving Corporation's wholly-owned
subsidiary, CORT Furniture Rental Corporation will enter into the New Credit
Facility with NationsBank, N.A. The New Credit Facility will consist of a 6-year
senior secured revolving loan facility in an aggregate principal amount not to
exceed $225 million, which will include a $10 million sublimit for the issuance
of letters of credit and a $10 million sublimit for the making of swingline
loans. Advances under the Revolving Credit Facility are referred to herein as
"Revolving Loans."
The Revolving Credit Facility will include an expandability clause providing
for additional commitments of up to $100 million to be available at the
Borrower's election, from existing lenders or from other lenders which would
otherwise constitute eligible assignees under the New Credit Facility.
Revolving Loans in the aggregate principal amount of $84.7 million, are
anticipated to be drawn on the closing date of the New Credit Facility in
connection with the Merger. If market conditions permit the syndication of the
Credit Facilities on terms and conditions, satisfactory to NMS and NationsBank,
at the discretion of the Agent, the initial advance may be increased and the
equity contribution provided by BRS and CVC may be reduced by the same amount.
Subject to compliance with customary conditions precedent, Revolving Loans will
be available at any time prior to the final maturity of the Credit Facility.
Amounts repaid under the New Credit Facility may be reborrowed prior to the
final maturity of the New Credit Facility, provided that availability
requirements are met.
All obligations of the Borrower under the New Credit Facility will be
unconditionally guaranteed by the Surviving Corporation and each existing and
each subsequently acquired or organized domestic subsidiary of Surviving
Corporation (other than the Borrower) and, to the extent no adverse tax
consequences would result, foreign subsidiary of Surviving Corporation. The New
Credit Facility and the related guarantees will be secured by substantially all
the assets of the Borrower and each of its subsidiaries, including but not
limited to (a) a first priority pledge of all the capital stock of the Borrower
and each of its domestic subsidiaries and, to the extent no adverse tax
consequences would result therefrom, foreign subsidiaries and (b) perfected
first priority security interests in substantially all of the tangible assets of
the Borrower and each of its subsidiaries.
Borrowings under the New Credit Facility will bear interest at a floating
rate based upon, at the Borrower's option, (i) the higher of the prime rate of
NationsBank, or the federal funds effective rate plus .50%, plus, a margin equal
to .75%, or (ii) the London Interbank Offered Rate ("LIBOR"), plus an initial
margin equal to 2.00% (subject to adjustment as set forth below). The Borrower
may elect interest periods of one, two, three or six months for LIBOR
borrowings. Interest shall be payable at the end of each interest period.
In addition to paying interest on outstanding principal under the New Credit
Facility, the Borrower will be required to pay a commitment fee to the lenders
in the New Credit Facility equal to .50% per annum of the undrawn portion of the
commitments in respect of the facilities commencing to accrue upon the
acceptance of the commitment letter, and initially payable upon the execution
and delivery of the Credit Agreement and payable quarterly in arrears thereafter
in each case for the actual number of days elapsed in a 360-day year. The Credit
Agreement will contain provisions under which margins on interest rates under
the facilities will be adjusted in increments to be agreed upon based on
performance goals to be agreed upon.
Principal amounts outstanding under the New Credit Facility will be due and
payable in full at maturity. The New Credit Facility will be subject to
mandatory prepayments and reductions in the event of certain extraordinary
transactions or issuances of debt and equity by the Borrower or any Guarantor.
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The New Credit Facility will contain representations and warranties,
covenants, events of default and other provisions customary for credit
facilities of this type. The Borrower will pay the lenders thereunder certain
syndication and administration fees, reimburse certain expenses and provide
certain indemnities, in each case which are customary for credit facilities of
this type.
THE NOTES
The Surviving Corporation will issue Notes in an aggregate principal amount
of $250 million in an offering (the "Note Offering") underwritten by Credit
Suisse First Boston Corporation. The Notes will bear interest from the date of
issuance at the then prevailing market rate, which interest will be payable
semi-annually. The Note Offering will be made pursuant to a Rule 144A
distribution that will be consummated concurrently with the closing of the
Merger.
The Notes will be senior subordinated obligations of the Surviving
Corporation, subordinated to all existing and future senior indebtedness,
including indebtedness pursuant to the New Credit Facility. The Notes will be
unconditionally guaranteed on a senior subordinated basis by each subsidiary of
the Surviving Corporation that guarantees the New Credit Facility.
The Notes will mature on the tenth anniversary of the date of issuance and
will contain such other terms and conditions that are usual and customary for
high yield securities of this type including those with respect to redemption
and change of control provisions.
The indenture governing the Notes will contain certain covenants customary
for high yield securities that, among other things, it will limit the ability of
the Surviving Corporation and the Guarantors to: (i) incur additional
indebtedness or permit certain subsidiaries to incur additional indebtedness;
(ii) create certain liens; (iii) permit the issuance of capital stock by certain
subsidiaries; (iv) enter into certain transactions with affiliates; (v) issue
preferred stock, pay dividends or make certain other payments or permit certain
subsidiaries to pay dividends or make other distributions; or (vi) enter into
certain mergers, consolidations and agreements to sell assets or permit other
asset sales.
The Surviving Corporation will, concurrently with the Note Offering, enter
into a registration rights agreement with the initial purchasers of the Notes
pursuant to which the Surviving Corporation will agree to file a registration
statement with respect to an offer to exchange the Notes for new issues of debt
securities of the Surviving Corporation registered under the Securities Act,
with terms substantially identical to those of the Notes. Under certain
circumstances, the Surviving Corporation will be required to provide a shelf
registration statement to cover resales of the Notes by the holders thereof. If
the Surviving Corporation fails to satisfy these registration obligations, it
will be required to pay liquidated damages to the holders of Notes under certain
circumstances.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of federal income tax consequences is based on current
law and is for general information only. The tax treatment of a Stockholder may
vary depending upon his, her or its particular situation. Certain holders
(including, but not limited to, insurance companies, tax-exempt organizations,
financial institutions, S Corporations, employees of CORT, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. Furthermore, the
following discussion does not address the tax treatment of persons who have the
right to receive the Retained Share Merger Consideration pursuant to the Merger.
EACH STOCKHOLDER SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
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THE MERGER
The receipt of cash and shares of Series A-1 Preferred Stock for Shares
pursuant to the Merger or the exercise of appraisal rights by Stockholders will
be treated as a redemption of CORT stock for federal income tax purposes. Except
as described below, the Stockholder will realize gain or loss equal to the
difference between (i) the sum of (A) the amount of cash received and (B) the
fair market value of the shares of Series A-1 Preferred Stock received and (ii)
the Stockholder's tax basis for his, her or its Shares. The gain or loss will be
capital gain or loss if the Stockholder holds his, her or its Shares as a
capital asset, and will be treated as long-term capital gain or loss if the
Shares have been held for more than one year.
Certain Stockholders in CORT would not qualify for sale or exchange
treatment as described above if the redemption were considered "essentially
equivalent to a dividend" and if the redemption is not treated as "substantially
disproportionate" with respect to the Stockholder, applying the rules of Section
302 of the Internal Revenue Code of 1986, as amended (the "Code"). While
application of these rules depends upon the facts and circumstances applicable
to a particular Stockholder (taking into account shares of stock that
Stockholder may be considered to own pursuant to the constructive ownership
rules of Section 318 of the Code), persons who retain no interest in the voting
or common stock of the Company following the Merger (or whose interest in such
stock is materially reduced) should qualify for sale or exchange treatment, as
described above. Stockholders are urged to consult with their tax advisors
regarding the application of the Section 302 rules with respect to the Merger.
If the transaction did not qualify for sale or exchange treatment as
described above, the payment for Shares would be treated as a distribution by
CORT with respect to its stock, taxable as a dividend (without any reduction for
the Stockholder's basis in the Shares) to the extent that CORT has current or
accumulated earnings and profits for federal income tax purposes. Any
unrecovered basis in the Shares would be reallocated to other stock that the
holder owns or is treated as owning under the constructive ownership rules. If
the amount of the payment exceeds CORT's earnings and profits, it would be
treated first as a return of capital (thereby reducing the Stockholder's basis
in his, her or its Shares) and then, to the extent it exceeds his, her or its
basis, as gain or loss from the sale or exchange of the Shares.
DISTRIBUTIONS ON SERIES A-1 PREFERRED STOCK
Cash distributions on the Series A-1 Preferred Stock will be taxable to a
holder as ordinary dividend income to the extent that the cash amount does not
exceed the Company's then current or accumulated earnings and profits (as
determined for federal income tax purposes). To the extent that the amount of
any distribution on the outstanding Series A-1 Preferred Stock exceeds the
Company's then current or accumulated earnings and profits (as determined for
federal income tax purposes), the distribution will be treated as a return of
capital, thus reducing the holder's adjusted tax basis in such outstanding
Series A-1 Preferred Stock. The amount of any such excess distribution that is
greater than the holder's adjusted tax basis in the outstanding Series A-1
Preferred Stock will be taxed as capital gain and will be long-term capital gain
if the holder's holding period for such outstanding Series A-1 Preferred Stock
exceeds one year.
To the extent that dividends are treated as ordinary income, dividends
received by corporate holders generally will be eligible for the 70%
dividends-received deduction under Section 243 of the Code. There are, however,
many exceptions and restrictions relating to the availability of such
dividends-received deduction, such as restrictions relating to (i) the holding
period of the stock on which the dividends are sought to be deducted, (ii)
debt-financed portfolio stock, and (iii) taxpayers that pay alternative minimum
tax. Corporate stockholders should consult their own tax advisor regarding the
extent, if any, to which such exceptions and restrictions may apply to their
particular factual situations.
Under Section 1059 of the Code, the tax basis of Series A-1 Preferred Stock
that has been held by a corporate stockholder for two years or less is generally
reduced (but not below zero) by the non-taxed portion of an "extraordinary
dividend" for which a dividends-received deduction is allowed. To the extent
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<PAGE>
that a corporate holder's tax basis in its Series A-1 Preferred Stock would have
been reduced below zero, such holder must generally recognize gain upon receipt
of such an "extraordinary dividend." Generally, an "extraordinary dividend" is a
dividend that (i) equals or exceeds 5% of the holder's basis in the Series A-1
Preferred Stock (treating all dividends that have ex-dividend dates within an
85-day period as a single dividend) or (ii) exceeds 20% of the holder's adjusted
basis in the Series A-1 Preferred Stock (treating all dividends having
ex-dividend dates within 365-day period as a single dividend). "Extraordinary
dividend" also includes a non-pro-rata redemption of Series A-1 Preferred Stock,
regardless of length of the corporate stockholder's holding period.
CORPORATE STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE POSSIBLE APPLICATION OF SECTION 1059 OF THE CODE TO THEIR OWNERSHIP OF
PREFERRED STOCK.
The declaration and payment of cash dividends with respect to shares of
Series A-1 Preferred Stock will, after the Effective Time, be limited under the
terms of the financing arrangements of the Company. Dividends that are not
declared currently will, under the terms of the Series A-1 Preferred Stock, be
required to be paid at the time the Series A-1 Preferred Stock is redeemed or
exchanged or the Surviving Corporation is liquidated, unless previously declared
and paid. The Company intends to take the position that, under current law,
holders of Series A-1 Preferred Stock are not required to include any such
accrued and unpaid dividends in income until such dividends are declared or paid
in cash, and the Company does not intend to treat any such accruing but
undeclared and unpaid dividends as distributions to holders of Series A-1
Preferred Stock under the information reporting rules. Stockholders should be
aware that the Internal Revenue Service could take the position that such
dividends are includible in income as they accrue prior to the time that such
dividends are declared or paid in cash.
SERIES A-1 PREFERRED STOCK DISCOUNT
The Series A-1 Preferred Stock is subject to mandatory redemption on the
twelfth anniversary of the date of its issuance (the "Mandatory Redemption"). In
addition, subject to certain restrictions, the Series A-1 Preferred Stock is
redeemable at any time or from time to time at the option of the Company at
specified redemption prices (the "Optional Redemption"). In the event that the
fair market value of a share of Series A-1 Preferred Stock is determined to be
less than its stated liquidation preference at the time of the Merger, holders
of Series A-1 Preferred Stock may be required, pursuant to Section 305(c) of the
Code, to treat a portion of the difference between the Series A-1 Preferred
Stock's issue price and its redemption price as constructive distributions of
property includible in income on a periodic basis as it accrues.
Section 305(c) of the Code provides that the entire amount of a redemption
premium with respect to preferred stock that is subject to mandatory redemption
is treated as being distributed to the holders of such preferred stock on an
economic accrual basis over the period from issuance to the date of such
mandatory redemption. Preferred stock generally is considered to have a
redemption premium for this purpose if the price at which it must be redeemed
(the "Redemption Price") exceeds its issue price (its fair market value at the
time of issuance) by more than a DE MINIMIS amount. For this purpose, such
excess (the "Series A-1 Preferred Stock Discount") will be treated as zero if it
is less than 1/4 of 1% of the Redemption Price multiplied by the number of
complete years from the date of issuance of the stock until the stock must be
redeemed. Series A-1 Preferred Stock Discount is taxable as a constructive
distribution to the holder (treated as a dividend to the extent of the Company's
current and accumulated earnings and profits and otherwise subject to the
treatment described above for distributions) over the term of the preferred
stock using a constant interest rate method.
Under recently issued regulations (the "Regulations"), certain optional
redemption features may also result in constructive distributions over the
period from the date of issue to the date of such optional
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redemption distribution. The Company does not believe that the optional
redemption rights will result in constructive distributions to holders of Series
A-1 Preferred Stock under these rules.
SALE OR REDEMPTION OF SERIES A-1 PREFERRED STOCK
A redemption of shares of Series A-1 Preferred Stock for cash would be a
taxable event. A redemption of shares of Series A-1 Preferred Stock for cash
will generally be treated as a sale or exchange if the holder does not own,
actually or constructively within the meaning of Section 318 of the Code, any
stock of the Company other than the redeemed Series A-1 Preferred Stock. If a
holder does own, actually or constructively, other stock of the Company
(including Series A-1 Preferred Stock not redeemed), a redemption of Series A-1
Preferred Stock may, in certain circumstances, be treated as a dividend to the
extent of the Company's current and accumulated earnings and profits (as
determined for federal income tax purposes). Such dividend treatment would not
be applied if the redemption is "not essentially equivalent to a dividend" with
respect to the holder under Section 302(b)(1) of the Code. A distribution to a
holder will be "not essentially equivalent to a dividend" if it results in a
"meaningful reduction" in the holder's stock interest in the Company. For this
purpose, a redemption of Series A-1 Preferred Stock that results in a reduction
in the proportionate interest in the Company (taking into account any actual
ownership of common stock of the Company and any stock constructively owned) of
a holder whose relative stock interest in the Company is sufficiently minimal
and who exercises no control over corporate affairs should be regarded as a
meaningful reduction in the holder's stock interest in the Company.
If the redemption of the Series A-1 Preferred Stock for cash is not treated
as a distribution taxable as a dividend, the redemption would result in capital
gain or loss equal to the difference between the amount of cash received and the
holder's adjusted tax basis in the Series A-1 Preferred Stock redeemed, except
to the extent that the redemption price includes dividends which have been
declared by the Board of Directors of the Company prior to the redemption (such
dividends being separately taxable as described above). Similarly, upon the sale
of the Series A-1 Preferred Stock, the difference between the sum of the amount
of cash and the fair market value of other property received and the holder's
adjusted basis in the Series A-1 Preferred Stock would result in capital gain or
loss. This gain or loss would be long-term capital gain or loss if the holder's
holding period for the Series A-1 Preferred Stock exceeds one year.
If a redemption of Series A-1 Preferred Stock is treated as a distribution
that is taxable as a dividend, the amount of the distribution will be measured
by the amount of cash received by the holder. The holder's adjusted tax basis in
the redeemed Series A-1 Preferred Stock will be transferred to any remaining
stock holdings in the Company. If the holder does not retain any actual stock
ownership in the Company (only having a stock interest constructively), the
holder may lose such basis entirely. Under the "extraordinary dividend"
provision of Section 1059 of the Code, a corporate holder may, under certain
circumstances, be required to reduce its basis in its remaining shares of stock
of the Company (and possibly recognize gain) to the extent the holder claims the
dividends-received deduction with respect to the dividend. See the discussion
above under "--Distributions on Series A-1 Preferred Stock."
EXCHANGE OF SERIES A-1 PREFERRED STOCK FOR 12% JUNIOR SUBORDINATED NOTES
If the Company elects to cause the exchange of shares of Series A-1
Preferred Stock for 12% Junior Subordinated Notes ("Junior Notes") of the
Company, the exchange will be treated as a redemption subject to rules similar
to the rules described above applicable to the redemption of the Series A-1
Preferred Stock for cash. If the exchange is treated as a sale or exchange of
the shares of Series A-1 Preferred Stock, and if at the time of the exchange
neither the Series A-1 Preferred Stock or the Junior Notes are publicly traded,
gain, if any, recognized upon such exchange may be eligible for installment sale
reporting for federal income tax purposes. Generally, the amount realized in
connection with an exchange of the shares of Series A-1 Preferred Stock for
Junior Notes will be equal to the principal amount of the Junior Notes received,
unless either Series A-1 Preferred Stock or the Junior Notes are publicly traded
at the time of the exchange. If the shares of Series A-1 Preferred Stock are
exchanged for Junior Notes prior
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to the time that interest on the Junior Notes is required to be paid in cash at
least as frequently as annually, the Junior Notes will likely be considered to
bear original issue discount for federal income tax purposes, with the effect
that holders will be required to include accruing interest in income as it
accrues, regardless of the holder's method of accounting for federal income tax
purposes. EACH STOCKHOLDER IS URGED TO CONSULT WITH HIS, HER OR ITS OWN TAX
ADVISOR WITH RESPECT TO THE POSSIBLE TAX EFFECTS OF AN EXCHANGE FOR NOTES AND OF
HOLDING NOTES.
BACKUP WITHOLDING
Owners of Shares should be aware that the Company will be required in
certain cases to withhold and remit to the United States Treasury 31% of amounts
payable in the Merger or as dividends on Series A-1 Preferred Stock to any
person (1) who has provided either an incorrect tax identification number or no
number at all, (2) who is subject to backup withholding by the Internal Revenue
Service for failure to report the receipt of interest or dividend income
properly, or (3) who has failed to certify to the Company that he is not subject
to backup withholding or that he is an "exempt recipient." Backup withholding is
not an additional tax, but rather may be credited against the taxpayer's tax
liability for the year.
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APPRAISAL RIGHTS
Each holder of record of Shares has the right to demand appraisal of his
Shares in connection with the Merger, to have his Shares appraised by the
Delaware Court of Chancery and to receive the fair value of his Shares as
determined by such Court, in cash, if such stockholder follows the procedures
set forth under Delaware law and summarized below.
Holders of record of Shares who desire to exercise appraisal rights must
satisfy all of the conditions contained in Section 262 of the DGCL. A written
demand for appraisal of the Shares owned by a Stockholder seeking appraisal must
be delivered to CORT by the record holder of such Shares before the taking of
the vote on the Merger Agreement at the Special Meeting. Any such demands should
be directed to: CORT Business Services Corporation, 4401 Fair Lakes Court, Suite
300, Fairfax, Virginia 22033, Attention: Secretary. This written demand for
appraisal must be separate from any proxy or vote abstaining from or voting
against adoption of the Merger Agreement. Voting against adoption of the Merger
Agreement, abstaining from voting or failing to vote with respect to adoption of
the Merger Agreement will not constitute a written demand for appraisal within
the meaning of Section 262.
STOCKHOLDERS ELECTING TO EXERCISE APPRAISAL RIGHTS UNDER SECTION 262 MUST
NOT VOTE FOR ADOPTION OF THE MERGER AGREEMENT. A VOTE BY A STOCKHOLDER AGAINST
ADOPTION OF THE MERGER AGREEMENT IS NOT REQUIRED IN ORDER FOR THAT STOCKHOLDER
TO EXERCISE APPRAISAL RIGHTS. HOWEVER, IF A STOCKHOLDER RETURNS A SIGNED PROXY
BUT DOES NOT SPECIFY A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT OR A
DIRECTION TO ABSTAIN, THE PROXY, IF NOT REVOKED, WILL BE VOTED FOR ADOPTION OF
THE MERGER AGREEMENT, WHICH WILL HAVE THE EFFECT OF WAIVING THAT STOCKHOLDER'S
APPRAISAL RIGHTS.
A demand for appraisal will be sufficient if it reasonably informs CORT of
the identity of the Stockholder and that such Stockholder intends thereby to
demand appraisal of such Stockholder's Shares.
Only a holder of record of Shares is entitled to assert appraisal rights for
the Shares registered in that holder's name. A demand for appraisal should be
executed by or on behalf of the holder of record fully and correctly, as the
holder's name appears on the stock certificates. If Shares are owned of record
in a fiduciary capacity, such as by a trustee, guardian or custodian, execution
of the demand for appraisal should be made in that capacity, and if the Shares
are owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand for appraisal should be executed by or on behalf of all joint
owners. An authorized agent, including one or more joint owners, may execute a
demand for appraisal on behalf of a holder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that in
executing the demand, the agent is agent for such owner or owners. A record
holder such as a broker who holds Shares as nominee for several beneficial
owners may exercise appraisal rights with respect to the Shares held for one or
more beneficial owners while not exercising such rights with respect to the
Shares held for other beneficial owners; in such case, the written demand should
set forth the number of Shares as to which appraisal is sought and where no
number of Shares is expressly mentioned the demand will be presumed to cover all
Shares held in the name of the record owner. Holders of Shares who hold their
shares in brokerage accounts or other nominee forms and who wish to exercise
appraisal rights are urged to consult with their brokers to determine the
appropriate procedures for the making of a demand for appraisal by such nominee.
Within 10 days after the Effective Time, the Surviving Corporation must send
a notice as to the effectiveness of the Merger to each person who has properly
demanded appraisal in accordance with the provisions of Section 262 of the DGCL.
Within 120 days after the Effective Time, but not thereafter, the Surviving
Corporation, or any record holder of shares entitled to appraisal rights under
Section 262 of the DGCL and who has complied with the foregoing procedures, may
file a petition in the Delaware Court of Chancery demanding a determination of
the fair value of the Shares. The Surviving Corporation is not under any
obligation, and CORT has no present intention, to file a petition with respect
to the appraisal of
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the fair value of the Shares. Accordingly, it is the obligation of the
Stockholders to initiate all necessary action to perfect their appraisal rights
within the time prescribed in Section 262 of the DGCL.
Within 120 days after the Effective Time, any record holder of Shares who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of Shares not voted in favor of the
Merger with respect to which demands for appraisal were received and the
aggregate number of holders of such Shares. Such statements must be mailed
within 10 days after a written request therefor has been received by the
Surviving Corporation.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the Stockholders
entitled to appraisal rights and will appraise the "fair value" of the Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders considering seeking
appraisal should be aware that the fair value of their Shares as determined
under Section 262 of the DGCL could be more than, the same as or less than the
value of the consideration that they would otherwise receive in the Merger if
they did not seek appraisal of their Shares. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceedings. In addition, the
Delaware courts have stated that the statutory appraisal remedy under Section
262 of the DGCL may not be a Stockholder's exclusive remedy, depending on the
factual circumstances. See "Certain Litigation".
The Delaware Court of Chancery will also determine the amount of interest,
if any, to be paid upon the amounts to be received by persons whose Shares have
been appraised. The costs of the action may be determined by the court and taxed
upon the parties as the court deems equitable. Upon application of a
Stockholder, the court may also order that all or a portion of the expenses
incurred by any holder of Shares in connection with an appraisal, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all of the Shares entitled to appraisal.
Any Stockholder who has duly demanded an appraisal in compliance with
Section 262 of the DGCL will not, after the Effective Time, be entitled to vote
the Shares subject to such demand for any purpose or be entitled to the payment
of dividends or other distributions on those Shares (except dividends or other
distributions payable to holders of record of Shares as of a date prior to the
Effective Time).
If any Stockholder who demands appraisal of Shares under Section 262 of the
DGCL fails to perfect, or effectively withdraws or loses, the right to
appraisal, as provided in the DGCL, the Shares of such holder will be converted
into the right to receive the Merger consideration without interest in
accordance with the Merger Agreement. A holder of Shares will fail to perfect,
or will effectively lose, the right to appraisal if no petition for appraisal is
filed within 120 days after the Effective Time. A holder may withdraw a demand
for appraisal by delivering to the Surviving Corporation a written withdrawal of
the demand for appraisal and acceptance of the Merger, except that any such
attempt to withdraw made more than 60 days after the Effective Time will require
the written approval of the Surviving Corporation and, after a petition for
appraisal has been filed, such appraisal proceeding may not be dismissed as to
any Stockholder without the approval of the Court.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
The foregoing is a summary of certain of the provisions of Section 262 of
the DGCL and is qualified in its entirety by reference to the full text of such
Section, a copy of which is attached hereto as Annex C.
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It is a condition to the obligations of CBF and CBF Sub to consummate the
Merger, which condition may be waived by CBF and CBF Sub, that the holders of
not more than five percent of the outstanding Shares on a fully-diluted basis
properly demand appraisal under the DGCL.
CERTAIN INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES
CBF is a newly formed Delaware limited liability company, and its
wholly-owned subsidiary, CBF Sub, is a newly formed Delaware corporation
organized at the direction of BRS for the purpose of consummating the Merger.
The address of CBF's and CBF Sub's principal executive offices is c/o Bruckmann,
Rosser, Sherrill & Co., Inc., 126 East 56(th) Street, New York, NY 10022. It is
not anticipated that, prior to the Merger, CBF or CBF Sub will have any
significant assets or liabilities (other than those obtained or incurred in
connection with the Merger, including the Financing) or will engage in any
activities other than those incident to their formation and capitalization, the
arrangement of the Financing and the Merger.
All of the outstanding capital stock of CBF Sub is owned by CBF. All of the
outstanding membership interests of CBF are, and immediately prior to the
consummation of the Merger are, expected to be owned by BRS and certain of its
affiliates. The Affiliated Stockholders include CVC, James Urry, Michael
Delaney, Bruce Bruckmann, Paul Arnold, Steven Jobes, Charles Egan, and Frances
Ann Ziemniak and certain other employees of the Company approved by CBF and the
Company.
Information regarding the directors and officers of CBF and CBF Sub is set
forth in "CERTAIN INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF
THE COMPANY FOLLOWING THE MERGER AND CBF."
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements (the "Pro
Forma Financial Statements") are based on the historical consolidated financial
statements of the Company.
The pro forma condensed consolidated balance sheet gives effect to the
Merger as if it was consummated on December 31, 1998. The pro forma condensed
consolidated statement of operations give effect to the Merger as if it was
consummated on January 1, 1998. The pro forma adjustments are described more
fully in the accompanying notes.
The Pro Forma Financial Statements are presented for informational purposes
only and do not purport to be indicative of the results of operations that
actually would have been achieved had the Merger been consummated on the date or
for the periods indicated and do not purport to be indicative of the financial
position or results of operations as of any future date or for any future
period. The Pro Forma Financial Statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
as amended, the Consolidated Financial Statements of the Company and related
notes thereto and the other financial information contained in the documents
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference."
The pro forma adjustments were applied to the respective historical
statements to reflect and account for the merger as a recapitalization.
Accordingly, the historical basis of the Company's assets and liabilities has
not been affected by the Merger.
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<PAGE>
CORT BUSINESS SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTED
----------- ----------- ---------
<S> <C> <C> <C>
Revenue:
Furniture rental......................................................... 265,871 -- 265,871
Furniture sales.......................................................... 53,093 -- 53,093
----------- ----------- ---------
Total revenue.......................................................... 318,964 -- 318,964
Operating costs and expenses:
Cost of furniture rental................................................. 47,863 -- 47,863
Cost of furniture sales.................................................. 32,354 -- 32,354
Selling, general and administrative expenses............................. 186,100 1,000(a) 187,100
----------- ----------- ---------
Total costs and expenses................................................. 266,317 1,000 267,317
----------- ----------- ---------
Operating earnings......................................................... 52,647 (1,000) 51,647
Interest expense, net...................................................... 7,837 26,088(b) 33,925
----------- ----------- ---------
Income before income taxes................................................. 44,810 (27,088) 17,722
Income tax expense......................................................... 18,907 (10,835)(c) 8,072
----------- ----------- ---------
Income before extraordinary loss......................................... 25,903 (16,253) 9,650
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
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<PAGE>
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(a) Reflects the $1.0 million annual management fee pursuant to the Management
Agreement. See "SPECIAL FACTORS--Interests of Certain Persons in the Merger,
Conflicts of Interest."
(b) Reflects the increased interest cost related to the New Credit Facility and
the Senior Subordinated Notes, as follows:
<TABLE>
<S> <C>
New Credit Facility:
Interest......................................................... $ 6,815
Unused Line Fee.................................................. 650
Senior Subordinated Notes.......................................... 25,000
Amortization of financing fees/debt issue costs over the period of
the related financing............................................ 1,460
---------
Total pro forma interest expense............................... $ 33,925
Historical interest costs.......................................... (7,837)
---------
Pro forma adjustment........................................... $ 26,088
---------
---------
</TABLE>
The New Credit Facility is assumed to bear interest at an annual rate of
LIBOR plus margins of 2.00% on amounts borrowed; bear interest at 2.00% for
amounts reserved for letters of credit; and bear a fee of 0.5% for the undrawn
portion of the unused commitments. LIBOR is based on the average rate for 1998
of 5.50%. $89.5 million was assumed to be utilized to consummate the Merger.
Approximately $5.0 million is assumed to be reserved for letters of credit. The
Senior Subordinated Notes are assumed to bear interest at 10.0%. A 0.125% change
in the interest rate on the above loans would increase or decrease annual
interest expense and net income as follows:
<TABLE>
<CAPTION>
ANNUAL INTEREST EXPENSE NET INCOME
------------------------- ---------------
<S> <C> <C>
New Credit Facility...................................... $ 112 $ 67
Senior Subordinated Notes................................ 313 188
</TABLE>
Deferred financing fees on the New Credit Facility and the Senior
Subordinated Notes are amortized over six and ten years, respectively.
(c) Reflects the effect on income tax expense of the pro forma adjustments
described in the footnotes herein at an incremental effective tax rate of
40%.
61
<PAGE>
CORT BUSINESS SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS ADJUSTED
------------ ---------------------- ----------
<S> <C> <C> <C>
Assets:
Cash and cash equivalents..................................... 703 -- 703
Accounts receivable, net...................................... 14,585 -- 14,585
Prepaid expenses.............................................. 5,918 -- 5,918
Rental furniture, net......................................... 189,059 -- 189,059
Property, plant and equipment, net............................ 43,861 -- 43,861
Investment.................................................... 3,000 -- 3,000
Other receivables and assets, net............................. 3,048 11,960(a)
7,541(f) 22,549
Goodwill, net................................................. 72,722 -- 72,722
------------ ----------- ----------
332,896 19,501 352,397
------------ ----------
------------ ----------
Liabilities
Accounts payable.............................................. 3,417 -- 3,417
Rental security deposits...................................... 9,581 -- 9,581
Accrued expenses.............................................. 21,076 -- 21,076
Deferred rental revenue....................................... 11,541 -- 11,541
Existing credit facility...................................... 90,800 (90,800)(b) --
New credit facility........................................... 89,450(c) 89,450
Senior subordinated notes..................................... 250,000(c) 250,000
Deferred income taxes......................................... 20,819 -- 20,819
------------ ----------- ----------
157,234 248,650 405,884
Mandatorily redeemable preferred stock:
Series A-1.................................................... -- 29,807(d) 29,807
Series A-2.................................................... -- 35,000(d) 35,000
Series B...................................................... -- 35,000(d) 35,000
Series C...................................................... -- 30,000(d) 30,000
Stockholders' equity:
Common stock.................................................. 131 50(d) --
(131)(e) 50
Additional paid in capital.................................... 105,940 (105,940)(e) --
4,950(d) 4,950
Retained earnings (deficit)................................... 69,591 (256,886)(e) --
-- (999)(f) (188,294)
------------ -----------
Total stockholders' equity (deficit).......................... 175,662 (358,956) (183,294)
------------ ----------- ----------
332,896 19,501 352,397
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
62
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a) Reflects the payment of deferred financing fees related to the New
Credit Facility and Senior Subordinated Notes. The Company has no
significant deferred financing fees in its historical balance sheet.
(b) Reflects the repayment of the borrowings outstanding under the existing
credit facility with a portion of the proceeds from the New Credit
Facility. The Company currently estimates that the amounts outstanding
under the existing credit facility at the Effective Time will be
approximately $84.7 million.
(c) Reflects the borrowings under the New Credit Facility and Senior
Subordinated Notes.
(d) Reflects the presently anticipated issuance of securities of the Company
to CVC, BRS and their affiliates (the "Investors") and Affiliated
Stockholders excluding the Investors (the "Management Stockholders") as
well as shares of Series A-1 Preferred Stock issued to holders of CORT
shares prior to the Effective Date, as follows:
<TABLE>
<CAPTION>
MANAGEMENT EXISTING
INVESTORS STOCKHOLDERS STOCKHOLDERS TOTAL
--------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Mandatorily Redeemable Preferred Stock:
Series A-1...................................................... $ 10,320 $ 2,079 $ 17,408 $ 29,807
Series A-2...................................................... 35,000 -- -- 35,000
Series B........................................................ 32,472 2,528 -- 35,000
Series C........................................................ 27,833 2,167 -- 30,000
Common Stock:
At Par........................................................ 42 8 50
Capital in Excess of Par...................................... 4,133 817 4,950
</TABLE>
(e) Reflects the purchase of CORT shares for the Merger, assuming that no
stockholders exercise appraisal rights in connection with the Merger.
(f) Reflects the fees and expenses anticipated to be paid to effect the
merger, including a management bonus that will be paid upon completion of
the Merger. These fees and expenses and related tax benefits are excluded
from the unaudited pro forma condensed consolidated statement of
operations since they are nonrecurring, result directly from the Merger
and will have no impact on the Company's future operations. The tax
benefits of the management bonus as well as the settlement of management,
directors and employees stock options are reflected as a receivable.
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<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of December 31, 1998, and the pro forma capitalization of the Company as of
December 31, 1998. The information set forth below should be read in conjunction
with the Pro Forma Financial Statements included elsewhere herein. See "PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
<S> <C> <C>
HISTORICAL AS ADJUSTED
----------- -----------
Debt:
Existing Credit Facility............................................................... 90,800
New Credit Facility.................................................................... -- 89,450
Senior Subordinated Notes.............................................................. -- 250,000
----------- -----------
Total Debt........................................................................... 90,800 339,450
Mandatorily Redeemable Preferred Stock:
Series A-1 (1)......................................................................... 29,807
Series A-2 (2)......................................................................... -- 35,000
Series B (3)........................................................................... -- 35,000
Series C (4)........................................................................... -- 30,000
Total Mandatorily Redeemable
-----------
Preferred Stock...................................................................... -- 129,807
Stockholders' equity (deficit)
Common Stock (5)....................................................................... 131 50
Capital in Excess of Par............................................................... 105,940 4,950
Retained Earnings (deficit)............................................................ 69,591 (188,294)
----------- -----------
Total Stockholders' Equity (Deficit)................................................. 175,662 (183,294)
----------- -----------
Total Capitalization..................................................................... 266,462 285,963
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Assumes that no stockholders exercise appraisal rights in connection with
the Merger. Upon the consummation of the Merger it is currently anticipated
that approximately 34.6% of these shares will be held by the Investors,
approximately 7.0% will be held by the Management Stockholders and
approximately 58.4% will be held by existing stockholders of the Company.
(2) Upon the consummation of the Merger it is currently anticipated that
approximately 100% of these shares will be held by the Investors.
(3) Upon the consummation of the Merger it is currently anticipated that
approximately 92.8% of these shares will be held by the Investors and
approximately 7.2% will be held by the Management Stockholders.
(4) Upon the consummation of the Merger it is currently anticipated that
approximately 92.8% of these shares will be held by the Investors and
approximately 7.2% will be held by the Management Stockholders.
(5) Upon the consummation of the Merger it is currently anticipated that
approximately 83.5% of these shares will be held by the Investors and
approximately 16.5% will be held by the Management Stockholders. Such
percentages do not give effect to any New Options which may be granted to
management or employees.
See "SECURITY OWNERSHIP IN THE SURVIVING COMPANY."
64
<PAGE>
BUSINESS OF THE COMPANY
OVERVIEW
CORT Business Services Corporation (the "Company" or "CORT") through its
wholly-owned subsidiary CORT Furniture Rental Corporation ("CFR") is the leading
national provider of rental furniture, accessories and related services in the
growing and fragmented "rent-to-rent" segment of the furniture rental industry.
The "rent-to-rent" segment serves both corporate and individual customers who
desire flexibility to meet their temporary and transitional needs. The Company
focuses on corporate customers by offering office and residential furniture and
related accessories through a direct sales force of approximately 900
salespeople and a network of 119 showrooms in 34 states and the District of
Columbia. The Company believes that approximately 80% of its rental revenue is
derived from its corporate customers, while the remainder is derived principally
from rentals to middle- and upper-income level individuals. The Company
maintains the showroom quality condition of its merchandise available for rent
by selling its previously rented merchandise through a network of 83
company-operated clearance centers, thereby enabling the Company to regularly
update its inventory with new styles and new merchandise. Sales of furniture
through clearance centers, at prices which for the last five years have averaged
108% of the furniture's original cost, allow the Company to maximize the
residual value of its rental merchandise. Furniture sales through clearance
centers and other sales accounted for approximately 17% of the Company's total
1998 revenue.
As the industry leader and the only "rent-to-rent" furniture rental company
with a national presence, CORT is well-positioned to take advantage of the
growing demand for furniture rental services. This demand is believed to be
driven by continued growth in management and professional employment, the
increasing importance to American business of flexibility and outsourcing and
the impact of a more mobile and transitory population. The Company is called
upon to meet furniture rental needs of a corporate customer base which includes
Fortune 500 companies, small businesses and professionals, owners and operators
of apartment communities, and corporate housing providers.
According to industry estimates, a significant portion of the "rent-to-rent"
furniture rental revenues is derived from single-location and small regional
rental businesses which present attractive consolidation opportunities for the
larger "rent-to-rent" furniture rental companies such as CORT. Since the
beginning of 1993, the Company has acquired two larger regional competitors,
General Furniture Leasing and Evans Rents, and has completed and successfully
integrated 21 lease portfolio acquisitions in addition to the four acquisitions
made in its trade show furnishings business. Management believes that CORT is
well-positioned to continue capitalizing on the industry's consolidation trend
due to its national presence, leading market share and financial capacity.
BUSINESS STRATEGY
Management believes that CORT's size, national presence, consistently
high-level customer service, product quality and broad product selection, depth
of management and efficient clearance centers have been key contributors to the
Company's success. The Company's objective is to build on these fundamentals and
increase further its revenue and operating earnings and expand its margins by
continuing to pursue its growth strategy. The key components of this strategy
are (i) making selective acquisitions; (ii) initiating operations in new markets
and adding showrooms and clearance centers in existing markets; (iii) expanding
its corporate customer base and (iv) continuing to invest in the development of
various new products and services.
ACQUISITIONS
The primary focus of the Company's growth strategy has been and will
continue to be the selective acquisition of small lease portfolios and regional
companies in new and existing markets. Since the beginning of 1993, the Company
has completed 21 lease portfolio acquisitions which include entrance into the
New York City, Salt Lake City, Pittsburgh and Cleveland markets. The purchase of
the rental furniture
65
<PAGE>
business of Instant Interiors Corporation expanded CORT's reach into the
Midwest, particularly in Michigan, Illinois, Indiana, and Ohio, and provided a
centralized distribution format that is cost effective in serving large
geographic areas containing many smaller cities. In a typical lease portfolio
acquisition, the Company acquires existing leases and rental furniture.
Additionally, the Company retains sales personnel with strong local customer
relationships. The Company generally does not acquire showrooms, distribution
facilities or clearance centers in existing markets. However, in new markets,
the Company may choose to retain such real estate. The Company also believes
that there are a select number of opportunities to acquire larger regional
companies in order to enter new markets and increase its market share in
existing markets. For example, the Company has acquired two larger regional
companies: General Furniture Leasing in September 1993, which had total revenues
of approximately $41.5 million for fiscal year 1992, and Evans Rents in April
1996, which had total revenues of approximately $30.5 million for fiscal year
1995. The acquisition of General Furniture Leasing provided CORT with immediate
access to new market areas and additional critical mass in CORT's existing
markets. Evans Rents provided CORT with additional critical mass in the greater
Los Angeles and San Francisco areas, increased the percentage of rental revenue
derived from the rental of higher-margin office furniture products and
contributed additional expertise in the supply of furniture for trade shows and
conventions.
The Company entered the trade show furnishings business through acquisition
of three businesses in 1997. These businesses have been integrated to create
CORT's trade show furnishings segment and will establish CORT as one of the
major players in this segment of the furniture rental industry. To further
expand this segment the Company purchased certain assets of the trade show
furnishings business of Aaron Rents, Inc. in October 1998. The trade show
furnishings business serves the major trade show contractors and corporate
exhibitors nationwide and provides specialty rental furniture for use at
conventions and trade shows. Major locations served include: Atlanta, Chicago,
Dallas, Las Vegas, Los Angeles, New Orleans, New York City, Orlando, San
Francisco, and Washington, D.C.
NEW MARKETS AND ADDITIONAL FACILITIES
The Company continues to expand the number of showrooms and clearance
centers within its existing markets as well as initiate new operations,
including showrooms, distribution facilities and clearance centers, in
strategically identified geographic locations where it currently does not
conduct business and where attractive acquisition opportunities do not exist. By
increasing the number of showrooms and clearance centers associated with
existing distribution facilities, the Company is able to distribute its real
estate, personnel and other fixed costs over a larger revenue base. Since the
beginning of 1995, CORT has begun operations in eight new metropolitan markets:
Huntsville, AL; Little Rock, AR; Des Moines, IA; St. Louis, MO; Las Vegas, NV;
Portland, OR; El Paso, TX and Milwaukee, WI.
EXPANDED CORPORATE CUSTOMER BASE
The Company seeks to increase its corporate customer base in order to
capitalize on the longer lease terms, higher average lease amounts and multiple
lease transactions associated with corporate customers. In addition, corporate
customers more frequently enter into higher-margin office furniture leases. The
Company intends to grow revenue by increasing its corporate customer base
through expanded emphasis on national accounts, further development of sales
personnel with business-to-business sales experience and continued advertising.
In addition, the Company has introduced the high quality brand of office systems
furniture by Herman Miller. The Company continues to increase awareness among
its sales force of the benefits and breadth of its office product offerings
through expanded training programs and to focus the efforts of its sales force
on these products by increased incentive compensation for office product
rentals.
DEVELOPMENT OF NEW PRODUCTS AND SERVICES
The Company continues to invest in the development of other products and
services. Products and services in various stages of development include the
rental of housewares amenity packages, the supply of
66
<PAGE>
furniture for trade shows and conventions, and a website that provides
information for relocating customers. Management believes that the gradual
introduction of new products and services allows the Company to experiment with
such products and services at a relatively low initial cost.
THE "RENT-TO-RENT" INDUSTRY
The "rent-to-rent" segment of the furniture rental industry serves both
corporate and individual customers who generally have immediate, temporary needs
for office or residential merchandise but who typically do not seek to own such
merchandise. Office product customers range from large corporations who desire
flexibility to meet their temporary and transitional needs, to small businesses
and professionals who require office furnishings but seek to conserve capital.
Residential product customers include corporations seeking to provide
furnishings for corporate employees who have been relocated or who are on
temporary assignment, apartment community managers and others seeking to provide
furnished apartments and individual residents seeking to rent furnishings for
their own homes and apartments.
Management believes the demand for rental products is driven by continued
growth in management and professional employment levels, the changing trends in
American business towards flexibility and outsourcing and the impact of a more
mobile and transitory population.
The "rent-to-rent" business is differentiated from the "rent-to-own"
business primarily by the terms of the rental arrangements and the type of
customer served. "Rent-to-rent" customers generally desire high quality
furniture to meet temporary needs, have established credit, and pay on a monthly
basis. Typically, these customers do not seek to acquire the property rented. In
the typical "rent-to-rent" transaction, the customer agrees to rent merchandise
generally for three to six months, subject to extension by the customer on a
month-to-month basis. By contrast, "rent-to-own" arrangements are generally made
by customers without established credit whose objective is to acquire ownership
of the property. "Rent-to-own" arrangements are typically entered into on a
month-to-month basis and require weekly rental payments.
OPERATING SEGMENTS
The Company has identified the following operating segments based on the
distinct products/services from which each derives revenue:
FURNITURE RENTAL--RENTAL OF RESIDENTIAL AND OFFICE FURNITURE AND ACCESSORIES
TO INDIVIDUAL AND CORPORATE CUSTOMERS.
FURNITURE SALES--SALE OF NEW OR PREVIOUSLY RENTED RESIDENTIAL AND OFFICE
FURNITURE TO THE GENERAL PUBLIC.
TRADE SHOW OPERATIONS--SHORT TERM RENTAL OF DISPLAY AND WORKPLACE
FURNISHINGS FOR TRADE SHOWS, CONVENTIONS AND SPECIAL EVENTS TO CORPORATE
CUSTOMERS AND TRADE SHOW ASSOCIATIONS.
HOUSEWARES OPERATIONS--RENTAL OF KITCHEN, BEDROOM AND BATHROOM ACCESSORIES
TO THE FURNITURE RENTAL SEGMENT.
Furniture rental and furniture sales segments represent the aggregation of
individual districts, all of which have similar economic characteristics and
distribution methods. Trade Show Operations and Housewares Operations do not
meet the quantitative thresholds and are aggregated with furniture rental and
furniture sales for reporting purposes.
The Company reports separately, in its Consolidated Statements of
Operations, the revenue and associated cost of revenue of its remaining
reportable segments. Operating segments are measured on the basis of gross
margin; operating expenses, goodwill amortization, interest expense, tax
expense, and extraordinary items are not allocated to the individual segments.
Assets and liabilities are not specifically allocated between Furniture
Rental and Furniture Sales. All rental furniture is available for rental or
sale.
67
<PAGE>
PRODUCTS
The Company rents a full line of furniture and accessories throughout the
United States for office and residential purposes. The Company classifies its
furniture leases based on the type of furniture leased and the expected use of
the furniture.
OFFICE PRODUCTS
In order to capitalize on the significant profit potential available from
the longer average rental periods and the higher average monthly rent for office
products, the Company's strategy is to emphasize office furniture rentals. The
Company offers a full range of office, conference room and reception area
furniture, including desks, chairs, tables, credenzas, panel systems and
accessories. In order to promote longer office lease terms, the Company leases
furniture to its corporate customers at rates that reflect a premium on leases
that are less than six months and a discount on leases of more than six months.
The Company's office furniture customers consist primarily of large
companies that desire flexibility to satisfy temporary and transitional needs
and small or start-up businesses that have immediate and changing furniture
requirements but seek to minimize capital outlay. The Company emphasizes its
ability to outfit an entire office with high quality furniture in two business
days, as well as its ability to provide consistent customer service and product
quality nationwide.
RESIDENTIAL PRODUCTS
The Company leases residential products to corporate customers who are
temporarily or permanently relocating employees, to apartment managers and
owners and others who are providing furnished apartments and to individual end
users of the furniture. The Company offers a broad range of household furniture,
including dining room, living room and bedroom pieces, as well as certain
electronic products.
A significant portion of the Company's residential furniture rentals are
derived from corporate relocations and temporary assignments, as new and
transferred employees of the Company's corporate customers enter into leases for
residential furniture. The Company's sales personnel maintain contact with
corporate relocation departments and present the possibility of obtaining
fully-furnished rental apartments as a lower cost alternative to hotel
accommodations. Thus, the Company offers its corporate rental customers a way to
reduce the costs of corporate relocations while developing residential business
with new and transferred employees. The Company's ability to service both
corporate and individual needs creates a broad corporate customer base
accompanied by an increasing pool of employees utilizing the Company's
residential services.
OTHER PRODUCTS AND SERVICES
CORT offers several other products and services. The Company offers
houseware amenity packages (such as linens, towels, dishes, cookware and other
kitchen, bedroom and bath accessories) for rent to its furniture rental
customers. The Company had generally distributed houseware amenity packages
through third-party contractors either under subcontract arrangements or direct
referrals. The Company continues to expand the distribution of its own houseware
amenity packages to capture profits currently realized by third-party
contractors.
The Company provides rental specialty furniture for short term use at trade
shows, conventions and special events through its tradeshow furnishings
operation. The Company had operations in New Orleans and California. The
tradeshow services business expanded through the acquisition of three tradeshow
businesses in March 1997 and one tradeshow business in October 1998. The
combination of CORT's national network with the experience of these
organizations should provide the Company with a competitive advantage in the
tradeshow and convention services business.
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<PAGE>
The Company established Relocation Central, a website that provides
information about major cities such as apartment finders, school systems, movers
and local recreation for relocating individuals. Relocation Central provides the
Company with an additional marketing tool while also providing valuable
information to potential customers. In addition, the Company has developed two
other websites, CORT 1 and CORT Tradeshow, as part of its internet strategy.
OPERATIONS
LEASE TERMS
The Company typically leases furniture to individuals and corporate accounts
for three-, six- and twelve-month terms, which may be and often are extended by
its customers on a month-to-month basis. Management believes that, on average,
furniture remains on lease for approximately nine months at a time. Although
rental contracts may give the customer the option to purchase the merchandise
rented, only a small percentage of the Company's rental leases lead to customer
ownership.
The Company's strategy is to price rentals to recover the original cost of
the furniture over a ten-month rental "payout period." However, pricing and
payout periods often vary with the length of the leases. The Company frequently
charges a delivery fee and, in the absence of proof of insurance, a waiver fee.
Within general company guidelines, each district has discretion to set prices
based upon local market factors.
The Company may also require a customer security deposit which will be
returned at the end of the lease upon satisfactory compliance with the terms of
the lease. The Company requires applications from prospective rental customers
and performs credit investigations before approving such applications. In each
of the last five years, the Company's bad debt losses have been limited to 0.7%
of revenue or less.
CUSTOMER SERVICES
CORT is dedicated to providing consistently high quality customer service
nationwide to its corporate and individual customers. Through its national
network, the Company more efficiently services its corporate clients by
providing a single point of contact for customers who have furniture needs in
multiple locations, offering consistent quality of products and services at all
CORT locations, and offering a broad spectrum of products to customers. Under
its Personal Service Guaranty, the Company ensures customers of CORT Furniture
Rental that they will be satisfied with the furniture they rent or the Company
will exchange it for similar furniture within two business days, free of charge.
Additionally, the Company's employees assist customers with space planning,
interior design and apartment location services.
FURNITURE SALES
For the last five years, the Company has derived 71% of its furniture sales
revenue from clearance centers sales. The remaining furniture sales revenue is
derived primarily from lease conversions and sales of new furniture. Sales of
rental furniture allow the Company to control inventory levels and maintain
showroom quality of rental inventory. On average, furniture is typically sold
through the clearance centers three years after its initial purchase by the
Company. For the last five years, sales of rental furniture through the
clearance centers have had an average recovery margin on the original cost of
furniture of approximately 108%, at a price which is usually considerably lower
than the price of comparable new merchandise. Management believes that its
ability to recover the original cost of its furniture through its clearance
centers is a key contributor to the Company's profitability.
SALES, MARKETING AND ADVERTISING
The Company employs a sales force of approximately 900 people, including
managers and supervisors, rental consultants, commercial account executives,
residential account executives, and clearance center personnel. In general,
rental consultants service walk-in showroom customers, clearance center sales
69
<PAGE>
personnel are responsible for walk-in clearance center customers and commercial
and residential account executives work to develop office and residential
customers in their markets. Utilizing the Company's national distribution
network to emphasize its ability to serve customers throughout the country, the
Company employs fourteen national account representatives who are responsible
for customers with business in more than one district.
CORT's sales representatives receive professional, business-to-business
sales training through the Company's CORT University program, which was
developed as part of the Company's continuing effort to increase rental revenue
and improve customer service. Management believes that the program's emphasis on
a problem solving, value-added approach to clients' needs enhances its
relationships with customers and provides CORT with a competitive advantage in
marketing to corporate customers.
The Company markets its services through brochures, newspapers, periodicals,
yellow pages, radio, television and direct response media and over the internet
(http://www.cort1.com, http:/ www.corttradeshow.com and
http://www.relocationcentral.com). The Company designs its marketing program
both to promote the business and to increase awareness of the advantages of
renting in the residential and office furniture markets.
PURCHASING AND DISTRIBUTION
The Company has a national product line chosen by its merchandising group.
Each district manager, in consultation with his or her regional merchandising
manager, selects from the national product line based on an analysis of customer
demand within such manager's specific market. Each district then places purchase
orders directly with the Company's vendors and shipment is arranged through the
Company's freight analyst directly to the district warehouse.
The Company acquires furniture from a large number of manufacturers and is
not dependent on any particular manufacturer as a source of supply. In 1998, no
furniture manufacturer accounted for more than 10% of the Company's furniture
purchases. Management believes that the Company is able to purchase furniture at
lower prices than its competitors due to the centralized selection of its
product line and large volume of purchases. The Company is generally able to
obtain prompt delivery of furniture from its suppliers and has not experienced
significant interruptions in its business resulting from delays in acquiring
furniture.
Merchandise is delivered to rental customers by Company employees via owned
or leased trucks after a rental agreement has been signed. At the end of the
lease term, rental furniture is returned to the Company's warehouses where it is
inspected, cleaned and/or repaired in preparation for future rental or sale. If
it is determined that the furniture is appropriate for sale rather than future
rental, the furniture is then transferred to a clearance center. Company
warehouses are typically located next to a clearance center, thereby allowing
the Company to reduce shipping expenses and realize efficiency gains.
COMPETITION
The "rent-to-rent" segment of the furniture rental industry is highly
competitive. Management believes that Aaron Rents, Globe Business Resources and
Brook Furniture Rental are the Company's most significant competitors. In
addition, there are numerous smaller regional and local "rent-to-rent" furniture
companies as well as retailers offering residential and office furniture.
Management believes that the principal competitive factors in the furniture
rental industry are product value, furniture condition, extent of furniture
selection, terms of rental agreement, speed of delivery, exchange privilege,
option to purchase, deposit requirements and customer service level.
With respect to sales of furniture through its clearance centers, the
Company competes with numerous used and new furniture retailers, some of which
are larger than the Company and have greater financial resources. Management
believes that price and value are the principal competitive factors in its
furniture sales.
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<PAGE>
EMPLOYEES
On December 31, 1998, the Company employed approximately 2,700 people, of
whom approximately 106 were employed at corporate headquarters. Approximately
900 people were employed as salespersons, 1,500 people were employed in the
warehouse and distribution portion of the business and the remainder in district
and regional administrative positions.
The Company's warehouse and delivery employees in Maryland (approximately 49
persons) are represented by an independent union under a contract which expires
in December 1999. Additionally, 16 of the Company's warehouse and delivery
employees in New York City are represented by the Local 840 of the International
Brotherhood of Teamsters under a contract which expires in June 1999.
The Company believes that its relationships with its employees are good.
TRADEMARKS AND NAME RECOGNITION
The Company engages in business primarily under the CORT Furniture Rental
tradename, which has been used in the furniture rental business for over 20
years. The Company has established its reputation as a provider of quality
furniture and customer service using this name. The Company feels that
reputation and name recognition are important to customers. Therefore, following
an acquisition in a new market, the Company may use a combination of the CORT
and acquired business name to maintain customer recognition for a period of
time.
REGULATORY MATTERS
Compliance with Federal, state and local laws and regulations governing
pollution and protection of the environment is not expected to have any material
effect upon the financial condition or results of operations of the Company.
PROPERTIES
As of December 31, 1998, the Company carried out its rental, sales and
warehouse operations through 277 facilities, of which 20 were owned and 257 were
leased. The leased facilities have lease terms with expiration dates ranging
from 1999 to 2014. Upon the expiration of its leases, the Company generally has
been able to either extend its leases or obtain suitable alternative facilities
on satisfactory terms. Management seeks to locate properties in new markets
where rental, clearance and warehouse operations can be combined in one
facility. As the Company expands in a particular district, the Company seeks to
open free-standing showrooms and clearance centers that can be serviced from
pre-existing warehouses. The Company's showrooms generally have 4,500 square
feet of floor space. The Company regularly reviews the presentation and
appearance of its furniture showrooms and clearance centers and periodically
improves or refurbishes them to enhance their attractiveness to customers.
The Company's decision to enter a new market is based upon its review of
current demographic information, short- and long-term population and business
growth projections and the level of existing competition. Once the decision is
made to enter a new market, management selects individual showroom locations by
reviewing demographic information, accessibility, visibility, customer traffic,
location of competitors and cost.
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<PAGE>
The metropolitan areas in which the Company operates, together with the
current number of showrooms in each metropolitan area, are set forth in the
table below:
<TABLE>
<CAPTION>
DISTRICT LOCATIONS NUMBER OF SHOWROOMS
- --------------------------------------------------------- -------------------------
<S> <C> <C>
ALABAMA Huntsville 1
ARIZONA Phoenix 2
ARKANSAS Little Rock 1
CALIFORNIA Orange County 2
Los Angeles 6
Sacramento 1
San Diego 1
San Francisco 5
Santa Clara 2
COLORADO Denver 2
DISTRICT OF COLUMBIA (1) 7
FLORIDA Ft. Lauderdale 2
Jacksonville 1
Miami 2
Orlando 3
Pensacola 1
Tampa 2
GEORGIA Atlanta 6
ILLINOIS Chicago 4
INDIANA Indianapolis 3
IOWA(3) Des Moines --
KANSAS Kansas City 1
KENTUCKY Louisville 2
LOUISIANA Baton Rouge 2
New Orleans 1
MASSACHUSETTS Boston 3
MICHIGAN Ann Arbor 1
Detroit 4
Grand Rapids 1
Kalamazoo 1
Lansing 1
MINNESOTA Minneapolis 2
MISSOURI St. Louis 1
NEVADA Las Vegas 1
NEW JERSEY Kearny 3
NEW MEXICO Albuquerque 1
NEW YORK New York 1
NORTH CAROLINA Raleigh 2
Charlotte 2
OHIO Cincinnati 2
Cleveland 2
Columbus 1
OKLAHOMA Oklahoma City 1
Tulsa 1
OREGON Portland 1
PENNSYLVANIA Philadelphia(2) 4
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
DISTRICT LOCATIONS NUMBER OF SHOWROOMS
- --------------------------------------------------------- -------------------------
<S> <C> <C>
Pittsburgh 1
TENNESSEE Memphis 1
Nashville 1
TEXAS Austin 1
Corpus Christi 1
Dallas 4
El Paso 1
Houston 4
San Antonio 2
UTAH Salt Lake City 1
VIRGINIA Richmond 1
Virginia Beach 1
WASHINGTON Seattle 3
WISCONSIN Milwaukee 1
---
TOTAL 119
</TABLE>
- ------------------------
(1) Includes locations in Washington, D.C., Maryland and Virginia.
(2) Includes locations in Pennsylvania, New Jersey and Delaware.
(3) Distribution center only.
The Company distributes its furniture using a fleet of approximately 352
leased and 47 company-owned delivery trucks. The trucks are usually rented for a
period of five to six years under operating leases and typically display CORT's
tradenames.
LEGAL PROCEEDINGS
At December 31, 1998, the Company was involved in certain legal proceedings
arising in the normal course of its business. The Company believes the outcome
of these matters will not have a material adverse effect on the Company. The
Company is also involved in certain litigation challenging the Merger. See
"SPECIAL FACTORS--Certain Litigation Challenging The Merger."
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<PAGE>
CERTAIN INFORMATION REGARDING THE DIRECTORS
AND EXECUTIVE OFFICERS OF THE COMPANY FOLLOWING
THE MERGER AND CBF
The Merger Agreement provides that the directors of CBF Sub shall become the
directors of the Surviving Corporation when the Merger occurs, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be. CBF, as the sole stockholder of CBF
Sub, is expected to elect a new slate of directors to the board of CBF Sub
immediately prior to the consummation of the Merger. Such board is anticipated
to include representatives designated by BRS, CVC and the Company's management.
The officers of the Company shall become the officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
Set forth below is certain information regarding the directors and executive
officers of the Company. Each individual listed below is a citizen of the United
States.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME PRESENT AGE POSITION WITH THE COMPANY
- ------------------------------------------------- --------------- -------------------------------------------------
<S> <C> <C>
Paul N. Arnold 52 President, Chief Executive Officer-Director
Robert Baker 44 Group Vice President--CORT/Instant
Anthony J. Bellerdine 50 Senior Group Vice President
Michael G. Connors 42 Vice President--Real Estate
Charles M. Egan 62 Chairman & Director
Kenneth W. Hemm 44 Executive Vice President & Chief Operating
Officer--Division II
Steven D. Jobes 49 Executive Vice President & Chief Marketing
Officer
Lloyd Lenson 48 Executive Vice President & Chief Operating
Officer--Division I
Victoria L. Stiles 44 Vice President--Human Resources & Corporate Risk
Management
William Swets 44 Vice President--Business Development
Maureen C. Thune 33 Vice President--Controller & Assistant Secretary
Frances Ann Ziemniak 48 Executive Vice President, Chief Financial Officer
& Secretary
Keith E. Alessi 44 Director
Bruce C. Bruckmann 45 Director
Michael A. Delaney 44 Director
Gregory B. Maffei 38 Director
James A. Urry 45 Director
</TABLE>
74
<PAGE>
PAUL N. ARNOLD, President, Chief Executive Officer and Director. Mr. Arnold
has been with CORT and Mohasco Corporation, its former parent, for 30 years and
has held group management positions within CORT since 1976. He has held his
current position since July 1992. He is also a Director of Town Sports
International, Inc.
ROBERT BAKER, Group Vice President--CORT/Instant. Mr. Baker joined the
Company in August 1998 with the acquisition of certain assets of Instant
Interiors Corporation. Mr. Baker was the co-founder and Chairman of Instant
Interiors Corporation from 1978 until the acquisition.
ANTHONY J. BELLERDINE, Senior Group Vice President. Mr. Bellerdine has been
with CORT since July 1991. He was appointed to Senior Group Vice President in
January 1999, having served as Group Vice President since December 1994, and
Area Vice President and Senior District Manager prior thereto. Prior to joining
CORT, Mr. Bellerdine was Senior Vice President of Sales and Marketing of Stern
Office Furniture for eight years.
MICHAEL G. CONNORS, Vice President--Real Estate. Mr. Connors joined CORT in
February 1986, after nearly eight years in Real Estate and Marketing with Mobil
Oil Corporation and has served in his current position since March 1991.
CHARLES M. EGAN, Chairman and Director. Mr. Egan has been Chairman of CORT
since the acquisition of General Furniture Leasing Company in September 1993.
Mr. Egan joined General Furniture Leasing Company in 1989 and became its
President and Chief Executive Officer in 1992. From 1985 to 1989, Mr. Egan was
Executive Vice President of Mohasco Corporation. Mr. Egan was President of CORT
from 1980 to 1985.
KENNETH W. HEMM, Executive Vice President and Chief Operating
Officer--Division II. Mr. Hemm has been with CORT for 17 years. He was appointed
Executive Vice President and Chief Operating Officer in January 1999, having
served as Group Vice President since June 1992, as Group Manager and District
Manager prior thereto.
STEVEN D. JOBES, Executive Vice President and Chief Marketing Officer. Mr.
Jobes has been with CORT for 27 years having served as Vice President-Marketing,
Merchandising, Sales and National Accounts since May 1993 and as Group Vice
President prior thereto. Mr. Jobes assumed his current position in January 1999.
LLOYD LENSON, Executive Vice President and Chief Operating Officer--Division
I. Mr. Lenson has been with CORT for 20 years serving in his current position
since January 1999. He previously served as Group Vice President since May 1993
and as Vice President--Marketing, Sales and Acquisitions prior thereto.
VICTORIA L. STILES, Vice President--Human Resources and Corporate Risk
Management. Ms. Stiles joined CORT in November 1987, after nearly eight years in
Personnel for the Hecht Company, a division of the May Company. She was
appointed to Vice President in July 1996, having served as Director of Human
Resources and Regional Manager of Human Resources.
WILLIAM SWETS, Vice President--Business Development. Mr. Swets joined the
Company in August 1998 with the acquisition of certain assets of Instant
Interiors Corporation. Mr. Swets was the co-founder and President of Instant
Interiors Corporation from 1978 until the acquisition.
MAUREEN C. THUNE, Vice President--Corporate Controller and Assistant
Secretary. Ms. Thune joined CORT in August 1992 as Controller after five years
with KPMG LLP. She assumed her current position in January 1999.
FRANCES ANN ZIEMNIAK, Executive Vice President, Chief Financial Officer and
Secretary. Ms. Ziemniak has been with CORT since March 1995. She was appointed
to her current position in January 1999 having served as Vice President--Finance
and Chief Financial Officer. Prior to joining
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<PAGE>
CORT, Ms. Ziemniak was an independent consultant focusing on risk-management and
retail acquisition analysis from 1992 to 1995. Ms. Ziemniak was previously Vice
President, Finance and Chief Financial Officer for Federated Merchandising, a
division of Federated Department Stores, Inc. from 1987 to 1992 and Corporate
Vice President, Financial Services for The GAP, Inc. from 1982 to 1987. Before
Ms. Ziemniak joined The GAP, Inc. in 1979, she was employed by Ernst & Young
LLP.
KEITH E. ALESSI, Director. Mr. Alessi is currently President, Chief
Executive Officer and Chairman of the Board of Directors of Telespecturm
Worldwide, Inc. Mr. Alessi was President and Chief Executive Officer of Jackson
Hewitt Inc. from June 1996 through March 1998. He was Vice Chairman and Chief
Financial Officer of Farm Fresh, Inc. (which filed voluntary bankruptcy as part
of a sale of the company in January 1998 and emerged from bankruptcy in February
1998) from June 1994 through June 1996. He had previously served in various
executive capacities, including President, with Farm Fresh from 1988 to 1992.
Mr. Alessi was Chairman and Chief Executive Officer of Virginia Supermarkets,
Inc. from 1992 to 1994. He is also a Director of Town Sports International, Inc.
BRUCE C. BRUCKMANN, Director. Mr. Bruckmann is currently Managing Director
of Bruckmann, Rosser, Sherrill & Co., Inc., Mr. Bruckmann was a Vice President
of Citicorp Venture Capital Ltd., which is an affiliate of the Company, through
1993 and a Managing Director from 1993 through 1994. He is also a Director of
Mohawk Industries, Inc., AmeriSource Health Corporation, Chromcraft-Revington,
Inc., Jitney-Jungle Stores of America, Inc., Anvil Knitwear, Inc., Town Sports
International, Inc., MEDIQ, Inc. and Penhall International, Inc.
MICHAEL A. DELANEY, Director. Mr. Delaney is currently a Managing Director
of Citicorp Venture Capital Ltd., which is an affiliate of the Company. From
1989 through 1997, he was a Vice President of Citicorp Venture Capital Ltd. and
from 1986 through 1989 he was Vice President of Citicorp Mergers and
Acquisitions. Mr. Delaney is also a Director of Allied Digital Technologies
Corporation, Aetna Industries, Inc., AmeriSource Health Corporation, CLARK
Material Handling Corporation, Delco Remy International, Inc., Enterprise Media
Inc., FabriSteel, Inc., Great Lakes Dredge & Dock Corporation, GVC Holdings, IKS
Corporation, JAC Holdings, MSX International, Palomar Technologies, Inc., SC
Processing, Inc. and Triumph Group, Inc.
GREGORY B. MAFFEI, Director. Mr. Maffei is the Chief Financial Officer of
Microsoft Corporation. He joined Microsoft in April 1993, served as Treasurer
from 1994 to 1996 and Vice President, Corporate Development from 1996 to 1997,
and was promoted to Chief Financial Officer in July 1997. Prior to January 1991,
Mr. Maffei was a Vice President of Citicorp Venture Capital Ltd., which is an
affiliate of the Company. Mr. Maffei is also a Director of Ragen MacKenzie Group
Inc., Skytel Communications, Inc. and Starbucks Corporation.
JAMES A. URRY, Director. Mr. Urry has been with Citibank, N.A. since 1981
serving as a Vice President since 1986. He has been a Vice President of Citicorp
Venture Capital Ltd., which is an affiliate of the Company, since 1989. He is
also a Director of Airxcel, Inc., AmeriSource Health Corporation, Brunner Mond
Holdings, CLARK Material Handling Corporation, Hancor Holding Corporation, IKS
Corporation, Palomar Technologies, Inc. and York International Corporation.
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<PAGE>
MARKET PRICES AND DIVIDENDS ON THE SHARES
The Company's Common Stock commenced trading on the New York Stock Exchange
(symbol "CBZ") on November 17, 1995. Prior to November 17, 1995, there was no
market for the Company's Common Stock. On March 25, 1999, the last trading day
before the public announcement of the execution of the Merger Agreement, the
reported closing sale price per Share was $16 3/4. On May , 1999, the last
full trading day prior to the date of this Proxy Statement/Prospectus, the
reported closing sale price per Share was $ . STOCKHOLDERS ARE URGED TO
OBTAIN A CURRENT PRICE QUOTATION FOR THE COMMON STOCK.
The Company has not paid any cash dividends on its Common Stock and does not
intend to pay cash dividends on its Common Stock for the foreseeable future. The
Company intends to retain future earnings to finance further development. The
terms of the Company's existing indebtedness restrict its ability to pay
dividends.
The following table sets forth, for the fiscal quarters indicated, the high
and low closing sales prices per Share, as quoted on the New York Stock
Exchange.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First Quarter.......................................................................... 19 1/2 15 3/8
Second Quarter......................................................................... 19 1/2 17
Third Quarter.......................................................................... 20 3/8 18 1/4
Fourth Quarter......................................................................... 22 7/8 19 3/8
1997
First Quarter.......................................................................... 25 1/2 20 3/4
Second Quarter......................................................................... 30 14/16 21 1/4
Third Quarter.......................................................................... 43 1/4 27 13/16
Fourth Quarter......................................................................... 41 6/16 32 7/16
1998
First Quarter.......................................................................... 47 1/2 33 3/4
Second Quarter......................................................................... 48 31 1/8
Third Quarter.......................................................................... 37 13/16 24 1/16
Fourth Quarter......................................................................... 26 5/8 15
1999
First Quarter.......................................................................... 25 6/16 15 9/16
</TABLE>
On July 26, 1999, the Company sold 1,865,100 Shares at a price per share of
$18.75 for aggregate proceeds to the Company of $32,672,000 pursuant to an
underwritten public offering.
DESCRIPTION OF CAPITAL STOCK PRIOR TO THE MERGER
The Company is authorized by its Restated Certificate of Incorporation to
issue an aggregate number of 40,000,000 shares of stock, divided into two
classes consisting of: 20,000,000 shares of Common Stock, par value $.01 per
share and 20,000,000 shares of Class B Common Stock, par value $.01 per share.
The following is a summary of certain of the rights and privileges pertaining to
the Company's capital stock.
Holders of Common Stock and Class B Common Stock are entitled to receive
such dividends as may be declared by the Board of Directors. Each record holder
of Common Stock is entitled to convert any or all of such holder's Common Stock
into the same number of shares of Class B Common Stock. Each record holder of
Class B Common Stock is entitled, if permitted by applicable law, to convert any
or all of the shares of such holder's Class B Common Stock into the same number
of shares of Common Stock.
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<PAGE>
The holders of Common Stock have the general right to vote for all purposes,
including the election of directors, as provided by law. Each holder of Common
Stock is entitled to one vote for each share thereof held. Except as otherwise
required by law, the holders of Class B Common Stock have no voting rights.
DESCRIPTION OF CAPITAL STOCK AFTER THE MERGER
GENERAL
Under the Merger Agreement, the Company's Restated Certificate of
Incorporation will be amended and restated as of the Effective Time (as amended
and restated, the "Surviving Corporation Charter") to provide for, among other
things, the reclassification of its capital stock into two classes of authorized
stock comprised of: (i) 11 million shares of common stock, of which 5.5 million
shares will be further designated as Class A common stock, par value $.01 per
share (the "New Class A Common") and 5.5 million shares will be further
designated as Class B Common Stock, par value $.01 per share (the "New Class B
Common" and together with the New Class A Common, the "New Common Stock"); and
(ii) 91.2 million shares of preferred stock, of which 12 million shares will be
further designated as Series A-1 Preferred Stock, 14 million shares will be
further designated as Series A-2 Preferred Stock, par value $.01 per share (the
"Series A-2 Preferred Stock" and together with the Series A-1 Preferred Stock,
the "Series A Preferred Stock"), 18.8 million shares will be further designated
as Series B-1 Preferred Stock, par value $.01 per share (the "Series B-1
Preferred Stock"), 16.3 million shares will be further designated as Series B-2
Preferred Stock, par value $.01 per share (the "Series B-2 Preferred Stock" and
together with the Series B-1 Preferred Stock, the "Series B Preferred Stock"),
16.1 million shares will be further designated as Series C-1 Preferred Stock,
par value $.01 per share (the "Series C-1 Preferred Stock"), and 14 million
shares will be further designated as Series C-2 Preferred Stock, par value $.01
per share (the "Series C-2 Preferred Stock," together with the Series C-1
Preferred Stock, the "Series C Preferred Stock" and together with the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, the
"Preferred Stock").
NEW COMMON STOCK
In connection with the Merger, BRS and CVC (together with certain of their
affiliates and employees) and each other holder of Retained Shares will receive
shares of New Common Stock. Except as described below, each class of New Common
Stock will be identical in all respects and will entitle the holders thereof to
the same rights and privileges, subject to the same qualifications, limitations
and restrictions. The New Class A Common will be entitled to one vote per share
and the New Class B Common will have no voting rights, except as required by law
or as otherwise provided in the Surviving Corporation Charter with respect to
certain amendments to the Surviving Corporation Charter and certain significant
transactions. In addition, each share of New Class A Common and New Class B
Common shall be convertible at the option of the holder at any time into one
share of New Class B Common or one share of New Class A Common, respectively as
provided in the Surviving Corporation Charter. In connection with the Merger,
the Company expects to issue up to 5,000,000 shares of New Class A Common.
PREFERRED STOCK
Following the Merger there will be three series of Preferred Stock, each of
which will be further designated into Series 1 and Series 2, with the rights and
preferences described below. Each series of Preferred Stock will have a
liquidation preference ahead of the Common Stock as described below. Under the
Surviving Corporation Charter, the board of directors of the Surviving
Corporation will be empowered without further stockholders' action to divide any
and all shares of the Preferred Stock into series and to fix and determine the
relative rights and preferences of the shares of any series so established.
However, no series of Preferred Stock with a preference to the Series A-1
Preferred Stock may be issued without the consent of holders of a majority of
the Series A-1 Preferred Stock.
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<PAGE>
SERIES A PREFERRED. In connection with the Merger, (i) each holder of
Shares will receive, in exchange for each Share (other than Shares held at the
Effective Time in the Company's treasury or by any subsidiary of the Company,
the Retained Shares or Shares in respect of which appraisal rights have been
properly perfected under Delaware law), in addition to cash consideration of
$24.00 (without interest), one share of Series A-1 Preferred Stock, and (ii)
each of BRS and CVC (together with certain of their respective affiliates and
employees) will receive up to 7,000,000 shares of Series A-2 Preferred Stock.
Under the Surviving Company Charter, 26,000,000 shares of Series A Preferred
Stock with a stated value of $2.50 per share and a liquidation preference of
$2.50 per share, plus accrued and unpaid dividends, will be authorized for
issuance. The Series A Preferred Stock will be, when issued, fully paid and
non-assessable and the holders thereof will have no preemptive rights in
connection therewith. In connection with the Merger, the Company expects to
issue up to 12,000,000 shares of Series A-1 Preferred Stock and up to 14,000,000
shares of Series A-2 Preferred Stock; PROVIDED, HOWEVER, that in the event
market conditions permit the aggregate initial advance under the New Credit
Facility to be increased to $121 million, it is anticipated that no shares of
Series A-2 Preferred Stock will be issued at such time. Except as described
below, each series of the Series A Preferred Stock will be identical in all
respects and will entitle the holders thereof to the same rights and privileges,
subject to the same qualifications, limitations and restrictions.
The Series A Preferred Stock will not be listed on the New York Stock
Exchange or any other securities exchange and will not be quoted on the NASDAQ.
Consequently, there can be no assurance that any trading market will exist or
develop for the Series A Preferred Stock after the Merger. Shares of the Series
A-1 Preferred Stock would trade only in the over-the-counter market. Although
prices in respect of trades of the Series A-1 Preferred Stock may be published
by the National Association of Securities Dealers, Inc. periodically in the
"pink sheets" quotes for such shares would not be readily available. As a
result, it is anticipated that the shares of the Series A-1 Preferred Stock will
trade much less frequently relative to the trading volume of the Company's
securities prior to Merger. Although the stated value of the Series A Preferred
Stock is set at its liquidation value of $2.50 per share, the valuation of the
Series A Preferred Stock is subject to uncertainties and contingencies, all of
which are difficult to predict, and the stated value of the Series A Preferred
Stock and the amounts at which the Series A Preferred Stock is reflected in the
pro forma financial information contained herein are not necessarily reflective
of the prices at which the Series A Preferred Stock will actually trade at or
after the time of their issuance, whether before or after such securities are
fully distributed. In addition, the liquidity of and the market prices for
Series A Preferred Stock can be expected to vary with changes in market and
economic conditions, the financial condition and prospects of the Surviving
Corporation and its subsidiaries and other factors that generally influence the
value of securities. In addition, the Series A Preferred Stock may trade at
prices that do not fully reflect the value of accrued but undeclared dividends.
RANK. Except for certain preferences described below, the Series A
Preferred Stock, will, with respect to dividend rights and rights on
liquidation, winding up and dissolution of the Surviving Corporation, rank (a)
senior to the New Common Stock, the Series B Preferred Stock, the Series C
Preferred Stock, and each other class of capital stock or class or series of
preferred stock issued by the Company after the Effective Date, the terms of
which specifically provide that such class or series will rank junior to the
Series A Preferred Stock as to dividend distributions or distributions upon the
liquidation, winding up and dissolution of the Surviving Corporation
(collectively referred to as "Series A Junior Securities"), (b) on a parity with
each other class of capital stock or class or series of preferred stock issued
by the Surviving Corporation after the Effective Date the terms of which do not
specifically provide that they rank junior to Series A Preferred Stock or senior
to Series A Preferred Stock as to dividend distributions or distributions upon
liquidation, winding up and dissolution of the Surviving Corporation
(collectively referred to as "Series A Parity Securities"), and (c) junior to
each other class of capital stock or other class or series of preferred stock
issued by the Surviving Corporation (with the consent of holders of a majority
of the Series A-1 Preferred Stock and holders of a majority of the Series A-2
Preferred Stock) that by its terms is senior to the Series A Preferred Stock
with respect to dividend distributions or distributions upon
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<PAGE>
the liquidation, winding up and dissolution of the Surviving Corporation
(collectively referred to as "Series A Senior Securities").
Although the Series A Preferred Stock will, with respect to dividend rights
and rights on liquidation, rank senior to Series A Junior Securities issued by
the Surviving Corporation (other than with respect to certain payments in
respect of the Series B-2 Preferred Stock and the Series C-2 Preferred Stock
described below), it will be junior in right of payment to all existing and
future indebtedness and obligations of the Surviving Corporation and any future
Series A Senior Securities. The indenture which will govern the Notes and the
New Credit Facility will restrict payment of cash dividends by the Surviving
Corporation. See "RISK FACTORS--Restrictions on the Payment of Dividends" and
"FINANCING OF THE MERGER."
DIVIDENDS. Each holder of Series A Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cash dividends on each share of Series A Preferred
Stock at a rate equal to $.30 per share per annum. All dividends will be
cumulative, whether or not earned or declared, and will accrue on a daily basis
from the date of issuance of Series A Preferred Stock, and will be payable
quarterly in arrears on each dividend payment date. Each dividend on Series A
Preferred Stock will be payable to the holders of record of Series A Preferred
Stock as they appear on the stock register of the Surviving Corporation on such
record date as may be fixed by the Board of Directors, which record date will
not be less than 10 nor more than 60 days prior to the actual dividend payment
date. Dividends will cease to accrue in respect of shares of Series A Preferred
Stock on the date of their repurchase by the Surviving Corporation unless the
Surviving Corporation has failed to pay the relevant repurchase price on the
date fixed for repurchase. Notwithstanding anything to the contrary set forth
above, unless and until such dividends are declared by the Board of Directors,
there will be no obligation to pay such dividends; provided, that such dividends
will be required to be paid at the time of repurchase of the Series A Preferred
Stock as provided herein if not earlier declared and paid. Accrued dividends on
the Series A Preferred Stock if not paid on the first or any subsequent dividend
payment date following accrual will thereafter accrue additional dividends
("Additional Dividends") in respect thereof, compounded quarterly, at the rate
of 12.0% per annum. All dividends paid with respect to shares of Series A
Preferred Stock will be paid pro rata to the holders entitled thereto.
In the event that after the fifth (5(th)) anniversary of the Effective Time
cash dividends in respect of the Series A-1 Preferred Stock are in arrears for
four (4) quarterly periods (whether or not consecutive) the holders of a
majority of the Series A-1 Preferred Stock voting as a class will be entitled to
elect one director to the board of directors of the Surviving Corporation.
As long as any Series A Preferred Stock is outstanding, no dividends will be
declared by the Board of Directors or paid or funds set apart for the payment of
dividends or other distributions on any Series A Parity Securities for any
period, and no Series A Parity Securities may be repurchased, redeemed or
otherwise acquired, nor may funds be set apart for such payment (other than
dividends, other distributions, redemptions, repurchases or acquisitions payable
in Series A Junior Securities and cash in lieu of fractional shares of such
Series A Junior Securities in connection therewith), unless (i) full accumulated
dividends have been paid or set apart for such payment on the Series A Preferred
Stock and Series A Parity Securities for all dividend periods terminating on or
prior to the date of payment of such dividends or distributions on, or such
repurchase or redemption of, such Series A Parity Securities (the "Series A
Parity Payment Date") and (ii) any such dividends are declared and paid pro rata
so that the amounts of any dividends declared and paid per share on outstanding
Series A Preferred Stock and each other share of Series A Parity Securities will
in all cases bear to each other the same ratio that accrued and unpaid dividends
(including any accumulated dividends) per share of outstanding Series A
Preferred Stock and such other outstanding shares of Series A Parity Securities
bear to each other.
The holders of Series A Preferred Stock will be entitled to receive
dividends in preference to and in priority over any dividends upon any of the
Series A Junior Securities, except as provided below. Such dividends on the
Series A Preferred Stock will be cumulative, whether or not earned or declared,
so that if
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at any time full accumulated dividends on all shares of Series A Preferred Stock
then outstanding have not been paid or set aside for all dividend periods then
elapsed, the amount of such unpaid dividends will be paid before any sum will be
set aside for or applied by the Surviving Corporation to the purchase,
redemption or other acquisition for value of any shares of Series A Junior
Securities (either pursuant to any applicable sinking fund requirement or
otherwise) or any dividend or other distribution will be paid or declared and
set apart for payment on any Series A Junior Securities; PROVIDED, HOWEVER, that
the foregoing will not: (i) prohibit the Surviving Corporation from repurchasing
shares of Series A Junior Securities from a holder who is, or was an employee of
the Surviving Corporation; (ii) prohibit the Surviving Corporation from making
dividends, other distributions, redemptions, repurchases or acquisitions in
respect of the Series B-2 Preferred Stock or the Series C-2 Preferred Stock in
an amount not to exceed $4.0 million in the aggregate in the first year
following the Merger, and $1.0 million in the aggregate in each year thereafter;
or (iii) prohibit the Surviving Corporation from making dividends, other
distributions, redemptions, repurchases or acquisitions in respect of Series A
Junior Securities payable in Series A Junior Securities.
Dividends payable on Series A Preferred Stock for any period less than one
year will be computed on the basis of a 360-day year consisting of twelve 30-day
months and the actual number of days elapsed in the period for which such
dividends are payable.
The additional indebtedness incurred by the Surviving Corporation in
connection with the Merger may have an adverse effect on the Surviving
Corporation's ability to declare and pay accrued dividends on the Series A
Preferred Stock or to redeem the Series A Preferred Stock. See "RISK FACTORS."
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of all shares of Series A
Preferred Stock then outstanding will be entitled to be paid out of the assets
of the Surviving Corporation available for distribution to its stockholders an
amount in cash equal to $2.50 per share (the "Series A Liquidation Preference"),
plus an amount equal to full cumulative dividends (whether or not earned or
declared) accrued and unpaid thereon, including Additional Dividends, to the
date of the final distribution and no more, before any distribution is made on
any Series A Junior Securities (other than distributions made (x) in respect of
the Series B-2 Preferred Stock, for amounts accrued in respect of the Series B-2
Liquidation Premium and (y) in respect of the Series C-2 Preferred Stock, for
amounts accrued in respect of any unpaid Series C-2 Annual Dividends, which
amounts, if any, shall be paid after any distributions described in the
immediately preceding clause (x) and prior to any distributions made in respect
of the Series A Preferred Stock; PROVIDED, that any amounts paid in priority to
the Series A Preferred Stock pursuant to clause (x) or this clause (y) shall not
exceed $4.0 million in the aggregate in the first year following the Merger, and
$1.0 million in the aggregate in each year thereafter). If upon any voluntary or
involuntary liquidation, dissolution or winding up of the Surviving Corporation,
the application of all amounts available for payments with respect to Series A
Preferred Stock and all other Series A Parity Securities would not result in
payment in full of Series A Preferred Stock and such other Series A Parity
Securities, the holders of Series A Preferred Stock and holders of Series A
Parity Securities will share equally and ratably in any distribution of assets
of the Surviving Corporation in proportion to the full liquidation preference to
which each is entitled. After payment in full in accordance with the preceding
sentence, the holders of the Series A Preferred Stock shall not be entitled to
any further participation in any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Surviving Corporation with
respect to the shares of Series A Preferred Stock.
OPTIONAL REDEMPTION. The Surviving Corporation may, at its option, redeem
at any time or from time to time, from any source of funds legally available
therefor, in whole or in part any or all of the shares of the Series A-1
Preferred Stock, at redemption prices set forth below, plus an amount equal to
full
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<PAGE>
cumulative dividends (whether or not earned or declared) accrued and unpaid
thereon, including Additional Dividends, prior to the redemption date. The
redemption prices for optional redemptions are as follows:
<TABLE>
<CAPTION>
REDEMPTION PRICE PER SHARE
AS A % OF THE SERIES A
REDEMPTION DATE LIQUIDATION PREFERENCE
- ---------------------------------------------------------------------------- --------------------------
<S> <C>
on or before December 31, 2000.............................................. 109.25%
on or after January 1, 2001, but before January 1, 2003..................... 104.625%
on or after January 1, 2003................................................. 100%
</TABLE>
No partial redemption of Series A-1 Preferred Stock may be authorized or
made unless prior thereto, full accrued and unpaid dividends thereon for all
dividend periods terminating on or prior to the redemption date and an amount
equal to a prorated dividend thereon for the period from the dividend payment
date immediately prior to the redemption date to the redemption date have been
or immediately prior to the redemption notice are declared and paid in cash or
are declared and there has been a sum set apart sufficient for such cash payment
to the redemption date.
In the event of a redemption of only a portion of the then outstanding
shares of Series A-1 Preferred Stock, the Surviving Corporation will effect such
redemption pro rata according to the number of shares held by each holder of
Series A-1 Preferred Stock. The Surviving Corporation will not be entitled to
redeem the Series A-2 Preferred Stock prior to the date which is thirty days
after the twentieth (20(th)) anniversary of the date of issuance of the Series
A-2 Preferred Stock.
MANDATORY REDEMPTION. All outstanding shares of the Series A-1 Preferred
Stock will be redeemed from funds legally available therefor on the twelfth
(12(th)) anniversary of the date of issuance of the Series A-1 Preferred Stock,
at a price per share equal to the Series A Liquidation Preference, plus an
amount equal to full cumulative dividends (whether or not earned or declared)
accrued and unpaid thereon, including Additional Dividends, prior to the
redemption date. All outstanding shares of the Series A-2 Preferred Stock will
be redeemed from funds legally available therefor on the date which is thirty
days after the twentieth (20(th)) anniversary of the date of issuance of the
Series A-2 Preferred Stock, at a per share price equal to the Series A
Liquidation Preference, plus an amount equal to full cumulative dividends
(whether or not earned or declared) accrued and unpaid thereon, including
Additional Dividends, prior to the redemption date.
NOTICE OF REDEMPTION. At least 30 days and not more than 60 days prior to
the date fixed for any redemption of Series A Preferred Stock, written notice
(the "Redemption Notice") will be given by first class mail, postage prepaid, to
each holder of record of Series A Preferred Stock on the record date fixed for
such redemption of Series A Preferred Stock at such holder's address as set
forth on the stock register of the Surviving Corporation on such record date. If
a Redemption Notice has been properly mailed, unless the Surviving Corporation
defaults in the payment in full of the redemption price, then, notwithstanding
that the certificates evidencing any shares of Series A Preferred Stock so
called for redemption have not been surrendered, (x) on the redemption date, the
shares represented thereby so called for redemption will be deemed no longer
outstanding and will have the status of authorized but unissued shares of
Preferred Stock, undesignated as to series, (y) dividends with respect to the
shares so called for redemption will cease to accrue after the redemption date
and (z) all rights with respect to the shares so called for redemption will
forthwith after such date cease and terminate, except for the right of the
holders to receive the funds, if any, payable without interest upon surrender of
their certificates therefor.
VOTING RIGHTS. The holders of Series A Preferred Stock will not be entitled
or permitted to vote on any matter required or permitted to be voted upon by the
stockholders of the Surviving Corporation, except as otherwise required by
Delaware law except that: (i) without the written consent of the holders of
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<PAGE>
a majority of the outstanding shares of Series A-1 Preferred Stock or the vote
of the holders of a majority
of the outstanding shares of Series A-1 Preferred Stock at a meeting of the
holders of Series A-1 Preferred Stock called for such purpose, the Surviving
Corporation will not (a) create, authorize or issue any other class or series of
stock entitled to a preference prior to Series A-1 Preferred Stock upon any
dividend or distribution or any liquidation, distribution of assets, dissolution
or winding up of the Surviving Corporation, or (b) amend, alter or repeal any
provision of the Surviving Corporation Charter so as to materially adversely
affect the relative rights and preferences of the Series A-1 Preferred Stock;
(ii) without the written consent of the holders of a majority of the outstanding
shares of Series A-2 Preferred Stock or the vote of the holders of a majority of
the outstanding shares of Series A-2 Preferred Stock at a meeting of the holders
of Series A-2 Preferred Stock called for such purpose, the Surviving Corporation
will not (a) create, authorize or issue any other class or series of stock
entitled to a preference prior to Series A-2 Preferred Stock upon any dividend
or distribution or any liquidation, distribution of assets, dissolution or
winding up of the Surviving Corporation, or (b) amend, alter or repeal any
provision of the Surviving Corporation Charter so as to materially adversely
affect the relative rights and preferences of the Series A-2 Preferred Stock;
and (iii) in the event that after the fifth (5(th)) anniversary of the date of
issuance of the Series A-1 Preferred Stock, cash dividends in respect of the
Series A-1 Preferred Stock are in arrears for periods beginning on or after such
fifth (5(th)) anniversary for four (4) quarterly periods (whether or not
consecutive), the holders of a majority of the outstanding Series A Preferred
Stock voting as a class will be entitled to elect one director to the board of
directors of the Surviving Corporation. In any case in which the holders of any
series of Series A Preferred Stock will be entitled to vote, each holder of such
series of Series A Preferred Stock will be entitled to one vote for each share
of such series of Series A Preferred Stock held thereby unless otherwise
required by applicable law. Without limiting the generality of the foregoing, in
no event will the holders of Series A-1 Preferred Stock be entitled to vote
(individually or as a class) on any merger or consolidation involving the
Surviving Corporation, any sale of all or substantially all of the assets of the
Surviving Corporation or any similar transaction.
CONVERSION AND EXCHANGE. The holders of Series A Preferred Stock will not
have any right to convert such shares into or exchange such shares at their
option for shares of any other class or classes or of any other series of any
class or classes of capital stock of the Surviving Corporation. At any time,
however, the Surviving Corporation may cause the holders of any series of the
Series A Preferred Stock to convert all of such shares or exchange all of such
shares into a new issue of 12% junior subordinated debt securities of the
Surviving Corporation (the "JSDs") having an aggregate principal amount equal to
the aggregate Series A Liquidation Preference of such shares to be converted or
exchanged, provided that at the time of such exchange all accrued and unpaid
dividends thereon are paid in cash. The JSDs will mature on the mandatory
redemption date of the applicable series of Series A Preferred Stock so
converted or exchanged. Interest on the JSDs will be payable, prior to the fifth
(5th) anniversary of the date of issuance of the Series A-1 Preferred Stock in
kind, and thereafter, in cash, quarterly in arrears.
NO PREEMPTIVE RIGHTS. No holder of Series A Preferred Stock will possess
any preemptive rights to subscribe or acquire any unissued shares of capital
stock of the Surviving Corporation (whether now or hereafter authorized) or
securities of the Surviving Corporation convertible into or carrying a right to
subscribe to or acquire shares of capital stock of the Surviving Corporation.
Dividends, including dividends with respect to the Series A Preferred Stock,
can only be paid by the Surviving Corporation to the extent funds are legally
available therefor under the DGCL. See "RISK FACTORS--Restrictions on the
Payment of Dividends."
SERIES B PREFERRED STOCK
GENERAL. In connection with the Merger, (i) the BRS Holders and the
Management Stockholders will receive shares of the Series B-1 Preferred Stock,
and (ii) the CVC Holders will receive shares of Series B-2 Preferred Stock.
Under the Surviving Corporation Charter, up to 35,000,000 shares of Series B
Preferred Stock with a stated value of $1.00 per share and liquidation
preference of $1.00 per share, plus accrued and
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<PAGE>
unpaid dividends, will be authorized for issuance. The Series B Preferred Stock
will be, when issued, fully paid and non-assessable and holders thereof will
have no preemptive rights in connection therewith. In connection with the
Merger, the Company expects to issue up to 18,800,000 shares of Series B-1
Preferred Stock and up to 16,300,000 shares of Series B-2 Preferred Stock.
Except as described below, each series of the Series B Preferred Stock will be
identical in all respects and will entitle the holders thereof to the same
rights and privileges, subject to the same qualifications, limitations and
restrictions.
Neither the stated value nor the liquidation preference of the Series B
Preferred Stock is necessarily indicative of the actual value of the shares of
Series B Preferred Stock at or after the time of their issuance. The value of
the Series B Preferred Stock can be expected to fluctuate with changes in market
and economic conditions, the financial condition and prospects of the Company
and other factors that generally influence the value of securities.
RANK. Except for certain preferences described herein, the Series B
Preferred Stock will, with respect to dividend rights and rights on liquidation,
winding up and dissolution of the Surviving Corporation, rank junior to the
Series A Preferred Stock and senior to the Series C Preferred Stock as to
dividend distributions or distributions upon the liquidation, winding up and
dissolution of the Surviving Corporation.
Although the Series B Preferred Stock will, with respect to dividend rights
and rights on liquidation, rank senior to Series C Preferred Stock issued by the
Surviving Corporation, it will be junior in right of payment to all existing and
future indebtedness and obligations of the Surviving Corporation. As described
in "FINANCING OF THE MERGER," the indenture which will govern the Notes and the
New Credit Facility will restrict payment of cash dividends by the Surviving
Corporation.
DIVIDENDS. Each holder of Series B Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cash dividends on each share of Series B Preferred
Stock at a rate equal to $.125 per share per annum. The holders of Series B
Preferred Stock will be entitled to receive dividends in preference to and in
priority over any dividends upon any of the Series C Preferred Stock (other than
dividends paid in respect of the Series C-2 Preferred Stock for amounts accrued
in respect of any unpaid Series C-2 Annual Dividends). Such dividends on the
Series B Preferred Stock will be cumulative, whether or not earned or declared,
and will accrue on a daily basis from the date of issuance of Series B Preferred
Stock, and will be payable quarterly in arrears. The Series B-2 Liquidation
Premium from the date of issuance of Series B Preferred Stock and accrued
dividends on the Series B Preferred Stock if not paid on the first or any
subsequent dividend payment date following accrual, will thereafter accrue
additional dividends in respect thereof, compounded quarterly, at a rate of
12.5% per annum.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Surviving Corporation, the holders of all
shares of Series B Preferred Stock then outstanding will be entitled to be paid
out of the assets of the Surviving Corporation available for distribution to its
stockholders an amount in cash equal to $1.00 per share (the "Series B
Liquidation Preference"), plus (x) an amount equal to full cumulative dividends
(whether or not earned or declared) accrued and unpaid thereon, including
additional dividends, and (y) with respect to the Series B-2 Preferred Stock, an
amount, in the aggregate, equal to approximately $3.4 million (together with any
additional dividends thereon, the "Series B-2 Liquidation Premium"), in each
case to the date of final distribution, after distributions are made on the
Series A Preferred Stock and before any distribution is made on any Series C
Preferred Stock; PROVIDED, that distributions in respect of the Series B-2
Preferred Stock and the Series C-2 Preferred Stock may be made prior to any
distributions in respect of the Series A Preferred Stock in an amount not to
exceed $4.0 million in the aggregate in the first year following the Merger and
$1.0 million in the aggregate in each year thereafter. After payment in full in
accordance with the preceding sentence, the holders of the Series B Preferred
Stock shall not be entitled to any further participation in any distribution in
the event of
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<PAGE>
liquidation, dissolution or winding up of the affairs of the Surviving
Corporation with respect to the shares of Series B Preferred Stock.
MANDATORY REDEMPTION. All outstanding shares of Series B Preferred Stock
will be redeemed from funds legally available therefor on the date which is
thirty days after the twentieth (20(th)) anniversary of the date of issuance of
the Series B Preferred Stock at a price per share equal to the Series B
Liquidation Preference, plus (x) an amount equal to full cumulative dividends
(whether or not earned or declared) accrued and unpaid thereon, including
additional dividends, and (y) with respect to the Series B-2 Preferred Stock, an
amount, in the aggregate, equal to the Series B-2 Liquidation Premium.
VOTING RIGHTS. The holders of Series B Preferred Stock will not be entitled
or permitted to vote on any matter required or permitted to be voted upon by the
stockholders of the Surviving Corporation, except as otherwise required by
Delaware law.
NO RIGHT OF CONVERSION OR EXCHANGE. The holders of Series B Preferred Stock
will not have any rights hereunder to convert such shares into or exchange such
shares for shares of any other class or classes or of any other series of any
class or classes of capital stock of the Surviving Corporation.
NO PREEMPTIVE RIGHTS. No holder of Series B Preferred Stock will possess
any preemptive rights to subscribe or acquire any unissued shares of capital
stock of the Surviving Corporation (whether now or hereafter authorized) or
securities of the Surviving Corporation convertible into or carrying a right to
subscribe or to acquire shares of capital stock of the Surviving Corporation.
SERIES C PREFERRED STOCK
GENERAL. In connection with the Merger, (i) the BRS Holders and the
Management Stockholders will receive shares of Series C-1 Preferred Stock, and
(ii) the CVC Holders will receive shares of Series C-2 Preferred Stock. Under
the Surviving Corporation Charter, up to 30,000,000 shares of Series C Preferred
Stock with a stated value of $1.00 per share and liquidation preference of $1.00
per share, plus accrued and unpaid dividends, will be authorized for issuance.
The Series C Preferred Stock will be, when issued, fully paid and non-assessable
and holders thereof will have no preemptive rights in connection therewith. In
connection with the Merger, the Company expects to issue up to 16,000,000 shares
of Series C-1 Preferred Stock and up to 14,000,000 shares of Series C-2
Preferred Stock. Except as described below, each series of the Series C
Preferred Stock will be identical in all respects and will entitle the holders
thereof to the same rights and privileges, subject to the same qualifications,
limitations and restrictions.
Neither the stated value nor the liquidation preference of the Series C
Preferred Stock is necessarily indicative of the actual value of the shares of
Series C Preferred Stock at or after the time of their issuance. The value of
the Series C Preferred Stock can be expected to fluctuate with changes in market
and economic conditions, the financial condition and prospects of the Surviving
Corporation and other factors that generally influence the value of securities.
RANK. Except for certain preferences described herein, the Series C
Preferred Stock will, with respect to dividend rights and rights on liquidation,
winding up and dissolution of the Surviving Corporation, rank junior to the
Series A Preferred Stock and the Series B Preferred Stock as to dividend
distributions or distributions upon the liquidation, winding up and dissolution
of the Surviving Corporation. The Series C Preferred Stock will also be junior
in right of payment to all existing and future indebtedness and obligations of
the Surviving Corporation. As described in "FINANCING OF THE MERGER," the
indenture which will govern the Notes and the New Credit Facility will restrict
payment of cash dividends by the Surviving Corporation.
DIVIDENDS. Each holder of Series C Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cash dividends on each share of Series C Preferred
Stock at a rate equal to $.13 per share per annum. In addition, the holders of
the
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Series C-2 Preferred Stock will be entitled to receive, in the aggregate, an
annual cash dividend (the "Series C-2 Annual Dividend") in an amount equal to
the greater of (x) $1.0 million and (y) 1.5% of the Surviving Corporation's
earnings before interest, tax, depreciation (other than rental depreciation) and
amortization for the year with respect to which such dividend will be paid. All
dividends will be cumulative and compounding, whether or not earned or declared,
and will accrue on a daily basis from the date of issuance of Series C Preferred
Stock, and will be payable quarterly in arrears. Accrued dividends on the Series
C Preferred Stock if not paid on the first or any subsequent dividend payment
date following accrual will thereafter accrue additional dividends in respect
thereof, compounded quarterly at a rate of 13.0% per annum.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Surviving Corporation, the holders of all
shares of Series C Preferred Stock then outstanding will be entitled to be paid
out of the assets of the Surviving Corporation available for distribution to its
stockholders an amount in cash equal to $1.00 per share (the "Series C
Liquidation Preference"), plus an amount equal to full cumulative dividends
(whether or not earned or declared) accrued and unpaid thereon, including
additional dividends, to the date of final distribution, after distributions are
made on the Series A Preferred Stock and the Series B Preferred Stock; PROVIDED
that distributions made in respect of the Series B-2 Preferred Stock and the
Series C-2 Preferred Stock may be paid prior to any distributions made in
respect of the Series A Preferred Stock in an amount not exceed $4.0 million in
the aggregate in the first year following the Merger and $1.0 million in the
aggregate in each year thereafter. After payment in full in accordance with the
preceding sentence, the holders of the Series C Preferred Stock shall not be
entitled to any further participation in any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Surviving
Corporation with respect to the shares of Series C Preferred Stock.
NO RIGHT OF CONVERSION OR EXCHANGE. The holders of Series C Preferred Stock
will not have any rights hereunder to convert such shares into or exchange such
shares for shares of any other class or classes or of any other series of any
class or classes of capital stock of the Surviving Corporation.
NO PREEMPTIVE RIGHTS. No holder of Series C Preferred Stock will possess
any preemptive rights to subscribe or acquire any unissued shares of capital
stock of the Surviving Corporation (whether now or hereafter authorized) or
securities of the Surviving Corporation convertible into or carrying a right to
subscribe to or acquire shares of capital stock of the Surviving Corporation.
MANDATORY REDEMPTION. All outstanding shares of the Series C Preferred
Stock will be redeemed from funds legally available therefor on the date which
is thirty days after the twentieth (20(th)) anniversary of the date of issuance
of the Series C Preferred Stock at a price per share equal to the Series C
Liquidation Preference, plus an amount equal to full cumulative dividends
(whether or not earned or declared) accrued and unpaid thereon, including
additional dividends.
VOTING RIGHTS. The holders of Series C Preferred Stock will not be entitled
or permitted to vote on any matter required or permitted to be voted upon by the
stockholders of the Surviving Corporation, except as otherwise required by
Delaware law.
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CERTAIN TRANSACTIONS IN THE COMMON STOCK
On March 25, 1999, Citicorp Venture Capital Ltd. converted 4,350,411 shares
of voting common stock into non-voting common stock. Pursuant to notice to the
Company on April 29, 1999, CVC converted all of its shares of non-voting common
stock into voting common stock.
Except as set forth above, there were no transactions in the Shares that
were effected during the past 60 days by (i) the Company, (ii) any director or
executive officer of the Company, (iii) any persons controlling the Company or
(iv) any director or executive officer of the persons ultimately in control of
the Company, CBF or CBF Sub.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND DIRECTORS AND OFFICERS
The following table sets forth certain information with respect to
beneficial ownership of Common Stock as of April 15, 1999 by (i) each of the
Company's directors and certain of its executive officers, (ii) each person who
is known by the Company to own beneficially more than 5% of the Company's common
stock and (iii) by all of the Company's directors and executive officers as a
group. The Company owns all of the issued and outstanding capital stock of CORT
Furniture Rental Corporation (CFR).
<TABLE>
<CAPTION>
COMMON STOCK(1)
----------------------------------------
NUMBER OF SHARES PERCENTAGE OF CLASS
----------------- ---------------------
<S> <C> <C>
Directors:
Paul N. Arnold........................................................... 209,429(2) 1.6%
Bruce C. Bruckmann....................................................... 182,506(2) 1.4%
Keith E. Alessi.......................................................... 51,660(2) *
Gregory B. Maffei........................................................ 42,526(2) *
Charles M. Egan.......................................................... 31,382(2) *
James A. Urry............................................................ 13,934(2) *
Michael A. Delaney....................................................... 10,501(2) *
Certain Executive Officers:
Lloyd Lenson............................................................. 122,987(2) *
Kenneth W. Hemm.......................................................... 88,916(2) *
Steven D. Jobes.......................................................... 78,796(2) *
Frances Ann Ziemniak..................................................... 71,475(2) *
Five Percent Stockholders:(3)
Citicorp Venture Capital, Ltd. ..........................................
399 Park Avenue, 14th Floor
New York, New York 10043 5,778,518 44.1%
T. Rowe Price Associates, Inc.(4) .......................................
100 E. Pratt Street
Baltimore, MD 21202 1,366,400 10.4%
All Directors and Executive Officers as a group
(17 persons) 983,610(2) 7.2%
</TABLE>
- ------------------------
* Less than 1%.
(1) The Company has two authorized classes of common stock: Common Stock
(voting) and Class B Common Stock (nonvoting). There are no shares of the
Company's Class B Common Stock issued and outstanding.
(2) Includes shares under option which are exercisable or will become
exercisable within 60 days of April 15, 1999 of 182,023; 8,001; 3,667;
9,001; 16,068; 8,001; 8,001; 74,741; 65,017; 75,446; 49,498 for
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Messrs. Arnold, Bruckmann, Alessi, Maffei, Egan, Urry, Delaney, Lenson,
Hemm, Jobes and Ms. Ziemniak, respectively, and 572,044 in total for all
Directors and Executive Officers as a group.
(3) The Board of Directors and Management are not aware of any other person or
entity who holds beneficially more than 5% of the outstanding Common Stock
of the Corporation.
(4) These securities are owned by various individual and institutional investors
including T. Rowe Price Small Cap Value Fund, Inc. (which owns 670,000
shares, representing 5.0% of the shares outstanding), which T. Rowe Price
Associates, Inc. ("Price Associates") serves as an investment adviser with
power to direct investments and/or sole power to vote the securities. For
the purposes of the reporting requirements of the Securities Exchange Act of
1934, Price Associates is deemed to be a beneficial owner of such
securities; however, Price Associates expressly disclaims that it is, in
fact, the beneficial owner of such securities.
SECURITY OWNERSHIP OF THE SURVIVING CORPORATION
The following table sets forth certain information with respect to the
presently anticipated beneficial ownership of the securities of the Surviving
Corporation immediately following consummation of the Merger. The amounts set
forth below assume an overall Equity Contribution of $105 million of which
approximately $50 million is assumed to have been provided by each of BRS
(together with certain of its employees and affiliates, the "BRS Holders") and
CVC (together with certain of its employees and affiliates, the "CVC Holders")
and $5.5 million of which is assumed to have been provided by the Management
Stockholders of $5.5 million. Such amounts do not reflect the issuance of
additional shares of Surviving Corporation Common Stock which may be purchased
by certain persons after the Effective Time or the issuance of any options to
acquire securities of the Surviving Corporation which may be granted to the
employees of the Company. See "SPECIAL FACTORS--Interests of Certain Persons in
the Merger." BRS and CVC have committed to CBF to invest (directly or
indirectly) up to $52.5 million each in securities of the Surviving Corporation.
See "FINANCING OF THE MERGER." The actual investments by BRS, CVC and the
Management Stockholders have not been definitively determined by BRS and CVC and
remain subject to change.
<TABLE>
<CAPTION>
NUMBER AND PERCENT OF SHARES IN THE SURVIVING CORPORATION
------------------------------------------------------------------------------------
SERIES A-2 SERIES B SERIES C
NAME OF BENEFICIAL OWNER COMMON STOCK (1) PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
- ------------------------- ------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
BRS Holders (2), (3)..... 2,087,500/41.75% 7,000,000/50.00% 16,236,111/46.39% 13,916,667/46.39%
CVC Holders (2), (4)..... 2,087,500/41.75% 7,000,000/50.00% 16,236,111/46.39% 13,916,667/46.39%
Management Stockholders
(5).................... 825,000/16.50% 2,527,778/7.22% 2,166,667/7.22%
</TABLE>
- ------------------------
(1) Does not include certain additional options which may be issued after the
Effective Time. See Note 5. Assumes the Company does not issue any warrants
pursuant to the debt financing transactions described in "FINANCING OF THE
MERGER."
(2) Pursuant to the terms of the Financing Letter in respect of the New Credit
Facility, in the event that the bank's syndication efforts permit in excess
of $86 million to be available at Closing, the total drawing under the New
Credit Facility may be increased at the Borrower's discretion and the amount
of the equity contribution by BRS and CVC may be reduced by the same amount.
(3) Does not include shares of Series A-1 Preferred Stock which may be received
by BRS Holders as Merger Consideration.
(4) Does not include shares of Series A-1 Preferred Stock which may be received
by CVC Holders as Merger Consideration.
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(5) Does not include shares of Series A-1 Preferred Stock which may be received
by Management Stockholders as Merger Consideration. Includes 825,000 shares
of Surviving Corporation Common Stock acquired pursuant to the Management
Stockholders' investment. Does not include issuance of any options to
certain employees of the Company to be designated by the Company and BRS and
CVC to acquire securities of the Surviving Corporation (representing
approximately 5% of the outstanding Surviving Corporation Common Stock on a
fully diluted basis) which may be granted in the future, See "THE
MERGER--Interests of Certain Persons in the Merger."
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Securities and Exchange Commission (the "Commission") pursuant to the Exchange
Act (File No. 1-14146), are incorporated in this Proxy Statement/Prospectus by
reference and shall be deemed to be a part hereof for purposes of the Exchange
Act:
(a) The Company's Annual Report on Form 10-K for the year ended December 31,
1998 (the "Company's Form 10-K") and amendment thereto (the "Company's
Form 10-K/A");
(b) The Company's Report on Form 8-K dated March 29, 1999.
(c) The Company's Report on Form 8-K dated April 29, 1999.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the Special Meeting and any adjournment or
postponement thereof, shall be deemed to be incorporated by reference in this
Proxy Statement/Prospectus and to be a part hereof for purposes of the Exchange
Act from the date of the filing of such documents. Any statement contained in
this Proxy Statement/Prospectus, in a supplement to this Proxy
Statement/Prospectus or in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any subsequently filed supplement to this Proxy Statement/Prospectus or in
any document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Proxy Statement/Prospectus.
ADDITIONAL AVAILABLE INFORMATION
The Company, CBF, CBF Sub, BRS and CVC have filed with the Commission a Rule
13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") under the
Exchange Act with respect to the transactions described in this Proxy
Statement/Prospectus. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus omits certain information and
exhibits contained in the Schedule 13E-3. The Schedule 13E-3 (including
exhibits) and any amendments thereto may be inspected and copied at, or obtained
from, the Commission's offices as set forth below. For further information,
reference is hereby made to the Schedule 13E-3 and the exhibits thereto.
Statements contained in this Proxy Statement/Prospectus concerning documents
filed with the Commission as exhibits to the Schedule 13E-3 or attached as
Annexes to this Proxy Statement/Prospectus are not necessarily complete and, in
each instances, reference is made to the copy of the document filed as an
exhibit to the Schedule 13E-3 or attached as an Annex to this Proxy
Statement/Prospectus. Each statement in this Proxy Statement/ Prospectus
concerning such a document is qualified in its entirety by reference to such
document.
The Company is currently subject to the informational and reporting
requirements of the Exchange Act, and in accordance therewith files periodic
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
7 World Trade Center, New York, New York 10048 and Citicorp Center, 500 Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such reports and other
information may also be obtained upon payment of the Commission's prescribed
rates by writing to the Commission's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
Commission also maintains a Web site at http://www.sec.gov that contains reports
and other information regarding registrants that file electronically with the
Commission.
Certain documents discussed in this Proxy Statement/Prospectus, including,
without limitation, the Schedule 13 E-3 and all exhibits thereto and the opinion
of STES, are also available for inspection and
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<PAGE>
copying at the principal executive offices of the Company at 4401 Fair Lakes
Court, Fairfax, Virginia, 22033, (703) 968-8524, during its regular business
hours, by any Stockholder or his or her representative so designated in writing.
Upon the written request of a Stockholder directed to the Secretary of the
Company at the above address, the Company will mail to such Stockholder a copy
of any such document at the expense of such Stockholder.
If the Merger is consummated, the Company will deregister the Shares and
will no longer be subject to the requirements of the Exchange Act with respect
to such securities. See "SPECIAL FACTORS-- Certain Effects of the Merger."
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1998 and 1997 and for each of the years in the three-year period
ended December 31, 1998 have been incorporated by reference herein in reliance
upon the reports of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. Representatives of KPMG LLP are expected to be
present at the Special Meeting, may make a statement if they desire to do so and
will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
If the Merger is not consummated, the next Annual Meeting of Stockholders of
the Company is expected to be held shortly after termination of the Merger
Agreement. Any Stockholder who wishes to present a proposal for action at such
meeting must comply with the applicable rules and regulations of the Commission
then in effect and the Company's By-Laws. In accordance with regulations issued
by the Commission, Stockholder proposals intended for presentation at the next
Annual Meeting of Stockholders must be received by the Secretary of the Company
within a reasonable period [before the Company begins to print and mail its
proxy materials] if such proposals are to be considered for inclusion in the
Company's Proxy Statement for the next Annual Meeting of the Stockholders.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained or incorporated by reference
in this Proxy Statement/ Prospectus, the matters discussed or incorporated by
reference herein are forward-looking statements. Although the Company believes
that its expectations are based on reasonable assumptions within the bounds of
its knowledge of its business and operations, there can be no assurance that
actual results will not differ materially from its expectations. The
forward-looking statements contained herein involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by these
forward-looking statements. The material factors known to the Company are
general economic and business conditions, competition with other companies and
other factors set forth in "RISK FACTORS" and elsewhere in this Proxy
Statement/Prospectus and in the documents incorporated by reference herein.
The Company hereby identifies the following additional factors which could
cause the Company's actual financial results to differ materially from any such
results which might be projected, forecast, estimated or budgeted by the Company
in forward-looking statements; (i) heightened competition, including
specifically price competition, the entry of new competitors, or the
introduction of new products by new and existing competitors; (ii) adverse state
and federal legislation and regulation; (iii) the termination of contracts with
major customers or renegotiation of these contracts at less cost-effective rates
or with longer payment terms; (iv) unanticipated price increases; (v) higher
service, administrative or general expenses occasioned by the need for
additional advertising, marketing, administrative, or management information
systems expenditures; and (vi) the inability to consummate proposed and future
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acquisitions or to successfully integrate any consummated acquisition with the
Company's other operations.
OTHER MATTERS
The Company knows of no other business that will be presented for action by
the Stockholders at the Special Meeting. No other business may be transacted at
the Special Meeting unless written notice thereof is first given to Stockholders
in the manner prescribed by Delaware law and the Company's By-Laws.
Frances Ann Ziemniak
Secretary
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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ANNEX A
93
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
CBF HOLDING LLC
CBF MERGERCO INC.
AND
CORT BUSINESS SERVICES CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I.
THE MERGER............................................................................................ 2
SECTION 1.1 The Merger.............................................................................. 2
SECTION 1.2 Closing................................................................................. 2
SECTION 1.3 Effective Time.......................................................................... 2
SECTION 1.4 Effects of the Merger................................................................... 2
SECTION 1.5 Certificate of Incorporation; By-laws................................................... 2
SECTION 1.6 Directors............................................................................... 3
SECTION 1.7 Officers................................................................................ 3
ARTICLE II.
EFFECT OF THE MERGER ON THE SECURITIES
OF THE CONSTITUENT CORPORATIONS..................................................................... 3
SECTION 2.1 Effect on Capital Stock................................................................. 3
SECTION 2.2 Stock Options........................................................................... 4
SECTION 2.3 Exchange of Certificates................................................................ 5
ARTICLE III.
REPRESENTATIONS AND WARRANTIES........................................................................ 7
SECTION 3.1 Representations and Warranties of the Company 7
SECTION 3.2 Representations and Warranties of Parent and Sub 12
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER............................................. 15
SECTION 4.1 Conduct of Business of the Company...................................................... 15
SECTION 4.2........................................................................................... 17
ARTICLE V.
ADDITIONAL AGREEMENTS................................................................................. 17
SECTION 5.1 Meeting of Stockholders................................................................. 17
SECTION 5.2 Proxy Statement; Schedule 13E-3......................................................... 17
SECTION 5.3 Access to Information; Confidentiality.................................................. 18
SECTION 5.4 Commercially Reasonable Efforts......................................................... 19
SECTION 5.5 Financing............................................................................... 20
SECTION 5.6 Indemnification; Directors' and Officers' Insurance..................................... 20
SECTION 5.7 Public Announcements.................................................................... 22
SECTION 5.8 Acquisition Proposals................................................................... 22
SECTION 5.9 Stockholder Litigation.................................................................. 23
SECTION 5.10 Board Action Relating to Stock Option Plans and Options................................. 23
SECTION 5.11 Notices of Certain Events............................................................... 23
SECTION 5.13 Purchase of Common Stock................................................................ 24
ARTICLE VI.
CONDITIONS PRECEDENT.................................................................................. 24
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger.............................. 24
SECTION 6.2 Conditions to Obligations of Parent and Sub............................................. 25
SECTION 6.3 Conditions to Obligations of the Company................................................ 26
ARTICLE VII.
TERMINATION, AMENDMENT AND WAIVER..................................................................... 26
SECTION 7.1 Termination............................................................................. 26
SECTION 7.2 Effect of Termination................................................................... 28
SECTION 7.3 Expenses................................................................................ 29
SECTION 7.4 Amendment............................................................................... 29
</TABLE>
i
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<TABLE>
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PAGE
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<S> <C> <C>
SECTION 7.5 Extension; Waiver....................................................................... 29
SECTION 7.6 Procedure for Termination, Amendment, Extension or Waiver............................... 30
ARTICLE VIII.
GENERAL PROVISIONS.................................................................................... 30
SECTION 8.1 Nonsurvival of Representations and Warranties........................................... 30
SECTION 8.2 Fees and Expenses....................................................................... 30
SECTION 8.3 Definitions............................................................................. 30
SECTION 8.4 Notices................................................................................. 31
SECTION 8.5 Interpretation.......................................................................... 32
SECTION 8.6 Counterparts............................................................................ 32
SECTION 8.7 Entire Agreement; Third-Party Beneficiaries............................................. 32
SECTION 8.8 Governing Law........................................................................... 32
SECTION 8.9 Assignment.............................................................................. 32
SECTION 8.10 Enforcement............................................................................. 33
SECTION 8.11 Severability............................................................................ 33
SECTION 8.12 WAIVER OF JURY TRIAL.................................................................... 33
SECTION 8.13 Time is of the Essence.................................................................. 33
</TABLE>
<TABLE>
<S> <C> <C>
Exhibits
Schedule I -- Affiliated Stockholders
Exhibit 2.1(c) -- Retained Shares
Exhibit A -- Restated Charter
Exhibit B -- Series A-1 Preferred Terms
Exhibit C -- Equity Commitment Letters
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated March , 1999 (this "Agreement"),
by and among CBF HOLDING LLC, a Delaware limited liability company ("Parent"),
CBF MERGERCO, INC., a Delaware corporation ("Sub"), and CORT BUSINESS SERVICES
CORPORATION, a Delaware corporation (the "Company"). Capitalized terms used
herein have the meanings ascribed to them in Section 8.3.
WHEREAS, the Board of Directors of each of Parent, Sub and the Company have
adopted resolutions approving this Agreement, and deem it advisable and in the
best interests of their respective companies and stockholders to consummate the
merger of Sub with and into the Company (the "Merger") upon the terms and
subject to the conditions set forth herein; and
WHEREAS, as of the date hereof, the stockholders listed on Schedule I hereto
(the "Affiliated Stockholders") own or have the power to vote the number of the
shares of the common stock of the Company set forth thereon (representing
approximately the percentage of the total number of outstanding shares of the
Company's common stock as of the date hereof set forth thereon);
WHEREAS, in accordance with applicable law, the Company's Restated
Certificate of Incorporation, (as in effect from time to time, the "Restated
Charter") and the terms of this Agreement, the affirmative vote of the holders
of a majority of the outstanding voting common stock of the Company and the
affirmative vote of holders of a majority of the outstanding shares of voting
common stock that are not beneficially owned by the Affiliated Stockholders or
by persons that are Affiliates or Associates (as such terms are defined in
Section 8.3) of the Affiliated Stockholders are required to adopt this
Agreement; and
WHEREAS, pursuant to the Merger, shares of the Company's common stock will
be converted into the right to receive the Merger Consideration or the Retained
Share Merger Consideration (each, as defined below), as the case may be, in the
manner set forth herein;
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes;
NOW, THEREFORE, in consideration of the foregoing premises and the represen
tations, warranties, covenants and agreements contained in this Agreement, and
intending to be legally bound, the parties agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement and Plan of Merger (the "Agreement"), and in accordance
with the Delaware General Corporation Law (the "DGCL") Sub shall be merged with
and into the Company at the Effective Time (as hereinafter defined). Upon the
Effective Time, the separate existence of Sub shall cease, and the Company shall
continue as the surviving corporation (the "Surviving Corporation").
SECTION 1.2 CLOSING. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 7.1, and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the closing of the Merger (the "Closing") will take place
at 10:00 a.m. New York City time on the third business day following the date on
which the last to be fulfilled or waived of the conditions set forth in Article
VI shall be fulfilled or waived in accordance with this Agreement (the "Closing
Date"), at the offices of Kirkland & Ellis, 153 East 53rd Street, New York, New
York 10022, or such other date, time or place as agreed to in writing by the
Parties.
SECTION 1.3 EFFECTIVE TIME. The Company, with the consent of Parent, will
file with the Secretary of State of the State of Delaware (the "Delaware
Secretary of State") on the date of the Closing (or on such other date as Parent
and the Company may agree) a certificate of merger or other appropriate
documents, executed in accordance with the relevant provisions of the DGCL, and
make all other filings or recordings required under the DGCL in connection with
the Merger. The Merger shall become effective
<PAGE>
upon the filing of the certificate of merger with the Delaware Secretary of
State, or at such later time as is specified in the certificate of merger and is
agreed to by the parties (the "Effective Time").
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of the Company and Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.5 CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) At the Effective Time, the Restated Charter shall be amended so as to
read in its entirety as set forth in Exhibit A to this Agreement and as so
amended shall become the certificate of incorporation of the Surviving
Corporation.
(b) The By-Laws of Sub as in effect at the Effective Time shall be, from and
after the Effective Time, the By-Laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.6 DIRECTORS. The directors of Sub at the Effective Time shall
become, from and after the Effective Time, the directors of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
SECTION 1.7 OFFICERS. At the Effective Time, the officers of the Company
shall become the officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
ARTICLE II.
EFFECT OF THE MERGER ON THE SECURITIES
OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of any holder:
(a) COMMON STOCK OF SUB. Each share of common stock and preferred stock
of Sub issued and outstanding immediately prior to the Effective Time shall
be converted into one share of Series A Preferred Stock, one share of Series
B Preferred Stock, one share of Series C Preferred Stock and one share of
Common Stock of the Surviving Company ("Surviving Company Securities"),
which Surviving Company Securities shall be validly issued, fully paid and
nonassessable upon such conversion.
(b) CANCELLATION OF TREASURY STOCK. Each share of the Common Stock (as
defined in Section 8.3) issued or outstanding immediately prior to the
Effective Time that is owned by the Company or any of its wholly-owned
Subsidiaries shall be canceled automatically and shall cease to exist, and
no cash or other consideration shall be delivered or deliverable in exchange
therefor.
(c) CONVERSION OF COMPANY SHARES. Each share of Common Stock that is
then issued and outstanding (such shares of Common Stock being hereinafter
referred to collectively as the "Company Shares", other than shares to be
canceled pursuant to subsection 2.1(b) above and other than Dissenting
Shares and Retained Shares (each as hereinafter defined), which shares will
not constitute "Company Shares" hereunder) shall be converted into and
become the right to receive, upon surrender of the certificate representing
such Company Shares in accordance with Section 2.3, $24 in cash, without
interest thereon (the "Per Share Cash Amount") and one (1) share of Senior
Preferred (as defined in Section 8.3) (together with the Per Share Cash
Amount, the "Merger Consideration"). Each Person set forth on the attached
Exhibit 2.1(c), shall have the right to elect, by notice to the Company and
Parent prior to the Effective Time, to exchange up to the number of shares
of Common
2
<PAGE>
Stock set forth on Exhibit 2.1(c) (each a "Retained Share" and collectively,
the "Retained Shares") into the right to receive, in lieu of the Merger
Consideration, the quantities and classes of Surviving Company Securities as
set forth on such Exhibit 2.1(c) (the "Retained Share Merger
Consideration").
(d) DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, shares of Common Stock issued and outstanding immediately prior to
the Effective Time held by a holder (a "Dissenting Shareholder") (if any)
who has the right to demand, and who properly demands, an appraisal of such
shares in accordance with Section 262 of the DGCL (or any successor
provision) ("Dissenting Shares") shall not be converted into a right to
receive the Merger Consideration unless such Dissenting Shareholder fails to
perfect or otherwise loses such Dissenting Shareholder's right to such
appraisal, if any. If, after the Effective Time, such Dissenting Shareholder
fails to perfect or loses any such right to appraisal, each such share of
such Dissenting Shareholder shall be treated as a share that had been
converted as of the Effective Time into the right to receive the Merger
Consideration in accordance with this Section 2.1, without interest or
dividends thereon. The Company shall give prompt notice to Parent of any
demands received by the Company for appraisal of any Company Shares, and
Parent shall have the right to participate in and direct all negotiations
and proceedings with respect to such demands. The Company shall not, except
with the prior written consent of Parent, make any payment with respect to,
or settle or offer to settle, any such demands.
(e) CANCELLATION AND RETIREMENT OF COMMON STOCK. As of the Effective
Time, all certificates representing shares of Common Stock, issued and
outstanding immediately prior to the Effective Time, shall no longer be
outstanding and shall automatically be canceled and shall cease to exist,
and each holder of a certificate representing any such shares of Common
Stock shall cease to have any rights with respect thereto, except the right
to receive the Merger Consideration or the Retained Share Merger
Consideration, as the case may be, upon surrender of such certificate in
accordance with Section 2.3, or, in the case of Dissenting Shares, the
rights, if any, accorded under Section 262 of the DGCL.
SECTION 2.2 STOCK OPTIONS. For purposes of this Agreement, the term
"Option" means each unexercised option, warrant or other security (including
without limitation any Company Stock Option, as hereafter defined) pursuant to
which the holder thereof has the right to purchase Common Stock from the Company
(whether or not such option is vested or exercisable) that is outstanding at the
Effective Time. The term "Company Stock Options" means each outstanding option
to purchase shares of Common Stock (a "Company Stock Option") issued under the
Company Stock Option Plans (as defined in Section 3.1(c), as amended from time
to time. The Company shall use its commercially reasonable efforts to modify or
amend each Company Stock Option Plan or take such other action as may be
reasonably necessary or appropriate in order that as of the Effective Time, each
Option that by its terms is exercisable from and after the Effective Time and
has an exercise price which is less than $26.50 per share, (each, an "In the
Money Option") shall be extinguished and represent at the Effective Time the
right to receive one (1.0) share of Senior Preferred for each share of Common
Stock issuable upon exercise of such In the Money Option, and a cash amount
equal to the product of (x) the excess, if any, of (a) the Per Share Cash Amount
over (b) the exercise price of such Option (the "Cash Option Amount") multiplied
by (y) the aggregate number of shares of Common Stock issuable upon the exercise
in full of such Option as of the Effective Time; provided, however, that each In
the Money Option with an exercise price in excess of the Per Share Cash Amount
shall entitle the holder thereof to receive only a number of shares of Senior
Preferred equal to the product of (x) a fraction, the numerator of which is
equal to $26.50 minus the exercise price and the denominator of which is $2.50
(the initial liquidation preference of the Senior Preferred), multiplied by (y)
the aggregate number of shares of Common Stock issuable upon the exercise in
full of such Option as of the Effective Time; provided that each holder shall be
entitled to receive cash in lieu of any fractional shares of Senior Preferred
held thereby. Except as otherwise agreed to by the parties, (i) the Company
Stock Option Plans shall terminate as of the Effective Time and the provisions
in any other plan, program or arrangement providing for the issuance or grant of
any other interest in respect of the capital stock of
3
<PAGE>
the Company or any Subsidiary shall be terminated as of the Effective Time, and
(ii) the Company shall take all action necessary to ensure that following the
Effective Time no participant in the Company Stock Option Plans or other plans,
programs or arrangements shall have any right thereunder to acquire or
participate in changes in value of equity securities of the Company, the
Surviving Corporation, Sub or any of their respective subsidiaries and to
terminate all such plans effective as of the Effective Time; provided that for
avoidance of doubt, any such termination shall not affect the rights of any
outstanding Option, except as otherwise provided in the Company Stock Option
Plans.
SECTION 2.3 EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. As of the
Effective Time, Sub (or the Company, as the Surviving Corporation) shall
deposit, or shall cause to be deposited, with or for the account of a bank or
trust company designated prior to the Effective Time by Sub, which shall be
reasonably satisfactory to the Company (the "Exchange Agent"), for the benefit
of the holders of Certificates (as defined herein) (i) cash in an aggregate
amount (the "Exchange Fund") equal to the sum of (x) the product of (A) the
number of Company Shares issued and outstanding at the Effective Time multiplied
by (B) the Per Share Cash Amount plus (y) the product of (A) the aggregate
number of shares of Common Stock issuable upon exercise in full of all of the In
the Money Options as of the Effective Time multiplied by (B) the Cash Option
Amount (as defined in Section 2.2 above) with respect to such In the Money
Options and (ii) a stock certificate issued in the name of the Exchange Agent or
its nominee) representing the number of shares of Senior Preferred deliverable
pursuant to Section 2.2 (including any fractional shares).
(b) EXCHANGE PROCEDURES. As soon as practicable following the Effective
Time, the Surviving Corporation shall cause the Exchange Agent to mail or
deliver to each record holder, as of the Effective Time, of an outstanding
certificate or certificates or option grant which immediately prior to the
Effective Time represented shares of either Common Shares or Retained Shares or
In the Money Options (the "Certificates"), a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender to the Exchange Agent of a
Certificate, together with a duly executed letter of transmittal and any other
reasonably required documents, the holder of such Certificate shall promptly
receive in exchange therefor (i) with respect to Certificates representing
Retained Shares, the form of a certificate or certificates representing the
number of shares of Surviving Company Securities, to which such holder is
entitled pursuant to Section 2.1(c), and (ii) with respect to any other
Certificates, the amount of cash to which such holder is entitled pursuant to
Section 2.1(c) or Section 2.2 (as applicable), without interest, less any
required withholding of U.S. federal income taxes and a certificate or
certificates for the shares of Senior Preferred to which such holder is entitled
in accordance with the terms hereof, with an issuance date of the Effective
Time, and in each case, such Certificate shall be canceled. If payment or
delivery is to be made to a Person other than the Person in whose name a
Certificate so surrendered is registered, it shall be a condition of payment
that the Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer, that the signatures on the certificate or any related
stock power shall be properly guaranteed and that the Person requesting such
payment either pay any transfer or other Taxes required by reason of the payment
to a Person other than the registered holder of the Certificate so surrendered
or establish to the satisfaction of the Surviving Corporation that such Tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.3, each Certificate (other than Certificates
canceled pursuant to Section 2.1(b), and Dissenting Shares) shall represent for
all purposes only the right to receive the Merger Consideration, the Retained
Share Merger Consideration or the consideration payable pursuant to Section 2.2
(the "Option Consideration"), as the case may be, in the form provided for by
this Agreement, without interest.
(c) TERMINATION OF EXCHANGE FUND. If Certificates are not surrendered prior
to the date that is one year after the Effective Time, unclaimed amounts
(including interest thereon) remaining in the Exchange Fund shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free
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and clear of all claims or interest of any Person previously entitled thereto.
Any stockholders or optionholders of the Company who have not theretofore
complied with the provisions of this Section 2.3 shall thereafter look only to
the Surviving Corporation and only as general creditors thereof for payment for
their claims in the form and amounts to which such stockholders or optionholders
are entitled.
(d) NO FURTHER RIGHTS IN COMMON STOCK. After the Effective Time, there shall
be no transfers on the stock transfer books of the Surviving Corporation of the
shares of Common Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for the Merger Consideration,
Retained Share Merger Consideration or Option Consideration, as the case may be,
as provided for and in accordance with the provisions of this Section 2.3.
(e) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest the
Exchange Fund, as directed by the Surviving Corporation, in (i) direct
obligations of the United States of America, (ii) obligations for which the full
faith and credit of the United States of America is pledged to provide for the
payment of principal and interest, (iii) commercial paper rated the highest
quality by either Moody's Investors Services, Inc. or Standard & Poor's
Corporation, or (iv) certificates of deposit, bank repurchase agreements or
bankers acceptances, of commercial banks with capital exceeding $100 million,
and any net earnings with respect thereto shall be paid to the Surviving
Corporation as and when requested by the Surviving Corporation; provided that
any such investment or any such payment of earnings shall not delay the receipt
by holders of Certificates of the Merger Consideration, Retained Share Merger
Consideration or Option Consideration, as the case may be, or otherwise impair
such holders' respective rights hereunder.
(f) WITHHOLDING RIGHTS. The Surviving Corporation, Parent or Sub shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Company Shares or Options such
amounts (each a "Withholding Amount") as the Surviving Corporation, Parent or
Sub is required to deduct and withhold with respect to the making of such
payment under the Code (as hereinafter defined), or any provision of state,
local or foreign tax law, including, without limitation, withholdings required
in connection with payments with respect to Company Stock Options held by
employees of the Company. To the extent that amounts are so withheld by the
Surviving Corporation, Parent or Sub, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder in respect of
which such deduction and withholding was made.
(g) No dividends or other distributions with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Senior Preferred represented thereby until the
surrender of such Certificate in accordance with this Section 2.3. Subject to
the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the holder of the Certificate representing shares of
Senior Preferred issued in connection therewith, without interest, (i) at the
time of such surrender or as promptly thereafter as practicable, the
proportionate amount of dividends or other distributions with a record date
after the Effective Time of the Merger theretofore paid with respect to such
shares of Senior Preferred, and (ii) at the appropriate payment date, the
proportionate amount of dividends or other distributions, with a record date
after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable, with respect to such number of shares of
Senior Preferred.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Parent and Sub as follows:
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(a) ORGANIZATION, STANDING AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
corporate authority to carry on its business as now being conducted. The
Company is duly qualified or licensed to do business and is in good standing
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) would not have a material
adverse effect on the business, financial condition, or results of
operations of the Company and its Subsidiaries (as defined in subsection
3.1(b) hereof) taken as a whole (a "Material Adverse Effect"). The Company
has delivered to Parent complete and correct copies of its Restated Charter
and Bylaws, as amended to the date of this Agreement.
(b) SUBSIDIARIES. SECTION 3.1(b) of the disclosure schedule attached
hereto (the "Disclosure Schedule") sets forth the name, jurisdiction of
incorporation, total capitalization and number of shares of outstanding
capital stock of each class owned, directly or indirectly, by the Company of
each corporation of which the Company owns, directly or indirectly, a
majority of the outstanding capital stock (individually, a "Subsidiary" and,
collectively, the "Subsidiaries"). All the issued and outstanding shares of
capital stock of each Subsidiary are validly issued, fully paid and
nonassessable. All such shares owned, directly or indirectly, by the Company
are owned by the Company beneficially and of record, free and clear of all
liens, pledges, encumbrances or restrictions of any kind. No Subsidiary has
outstanding any securities convertible into or exchangeable or exercisable
for any shares of its capital stock, there are no outstanding options,
warrants, stock appreciation rights, phantom stock or stock equivalents.
Except as set forth in Section 3.1(c) of the Disclosure Schedule, the
Company has no outstanding stock appreciation rights, phantom stock or stock
equivalents or other rights to purchase or acquire any capital stock of any
Subsidiary, there are no irrevocable proxies with respect to such shares,
and there are no contracts, commitments, understandings, arrangements or
restrictions by which any Subsidiary or the Company is bound to issue
additional shares of the capital stock of a Subsidiary. Except for the
Subsidiaries, and as otherwise disclosed in Section 3.1(b) of the Disclosure
Schedule, the Company does not own, directly or indirectly, any capital
stock or other equity securities of any corporation or have any direct or
indirect equity interest in any business. Each Subsidiary (i) is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation; (ii) has all requisite corporate
power and authority and any necessary governmental authority to carry on its
business as it is now being conducted and to own, operate and lease its
properties; and (iii) is qualified or licensed to do business as a foreign
corporation and is in good standing in each of the jurisdictions in which
(A) the ownership or leasing of real property or the conduct of its business
requires such qualification or licensing and (B) the failure to be so
qualified or licensed, either singly or in the aggregate, would have a
Material Adverse Effect. The Company has previously delivered to Parent and
Sub complete and correct copies of the Certificates or Articles of
Incorporation and By-Laws of each Subsidiary, each as amended to date. All
such Certificates or Articles of Incorporation and By-Laws are in full force
and effect.
(c) CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company consists of 40,000,000 shares of Common Stock comprised of
20,000,000 shares of Voting Common and 20,000,000 shares of Non-Voting
Common. At the close of business on March 24, 1999 (the "Stock Reference
Date"), 13,094,585 shares of Voting Common were issued and outstanding,
1,359,071 shares of Voting Common were reserved for issuance upon the
exercise of outstanding Options, no shares of Voting Common were reserved
for issuance upon the conversion of any outstanding shares of Non-Voting
Common, no shares of Non-Voting Common were issued and outstanding,
13,094,585 shares of Non-Voting Common were reserved for issuance upon the
conversion of any outstanding shares of Voting Common, and no shares of
Common Stock were held by the Company in its treasury. Except as set forth
above, at the close of business on the Stock Reference Date, no shares of
capital stock or other equity securities of the Company were issued,
reserved for issuance or outstanding.
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Schedule 3.1(c) of the Disclosure Schedule sets forth each plan
(collectively, the "Company Stock Option Plans") pursuant to which any
options or warrants to acquire Common Stock have been, or may be, granted.
All outstanding shares of capital stock of the Company are, and all shares
which may be issued pursuant to the Company Stock Option Plans will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except as set forth above or in Section
3.1(c) of the Disclosure Schedule, the Company has no outstanding option,
warrant, stock appreciation rights, phantom stock, stock equivalents,
subscription or other right, agreement or commitment which either (i)
obligates the Company to issue, sell or transfer, repurchase, redeem or
otherwise acquire or vote any shares of the capital stock of the Company or
(ii) restricts the transfer of Common Stock. As of the Stock Reference Date
Section 3.1(c) of the Disclosure Schedule accurately sets forth the number
of shares of Common Stock issuable upon exercise of each outstanding Option,
and the applicable exercise price with respect to each such Option. Other
than as set forth in Section 3.1(c) of the Disclosure Schedule, the Company
has not granted, nor is obligated to grant, registration rights to any
stockholders of the Company in respect of any of the Common Stock.
(d) AUTHORITY; ENFORCEABILITY; NONCONTRAVENTION. The Company has the
requisite corporate power and authority to enter into this Agreement and,
subject to the adoption of this Agreement by its stockholders as set forth
in subsection 6.1(a) with respect to the consummation of the Merger, to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Company, subject to the
adoption of this Agreement by its stockholders as set forth in subsection
6.1(a). This Agreement has been duly executed and delivered by the Company
and, assuming this Agreement constitutes the valid and binding agreement of
Parent and Sub, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms except that the
enforceability hereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and that the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. Except as disclosed in Section
3.1(d) of the Disclosure Schedule, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions hereof will not, (i)
violate any of the provisions of the Restated Charter or By-laws of the
Company, (ii) subject to the governmental filings and other matters referred
to in the following sentence, conflict with, result in a breach of or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or loss of a material benefit under, or require the consent of
any person under, any indenture or other agreement, permit, concession,
franchise, license or similar instrument or undertaking to which the Company
is a party or by which the Company or any of its assets is bound or
affected, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, contravene any law, rule or
regulation of any state of the United States or any political subdivision
thereof or therein, or any order, writ, judgment, injunction, decree,
determination or award currently in effect, which, in the case of clauses
(ii) and (iii) above, alone or in the aggregate, would have a Material
Adverse Effect or prevent consummation of the transactions contemplated
hereby. No consent, approval or authorization of, or declaration or filing
with, or notice to, any governmental agency or regulatory authority (a
"Governmental Entity"), which has not been received or made, is required by
or with respect to the Company in connection with the execution and delivery
of this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for (i) the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); (ii) the
filing of the certificate of merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business; (iii) such filings and consents as
may be required under any
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environmental law pertaining to any notification, disclosure or required
approval triggered by the Merger or the transactions contemplated by this
Agreement other than such filings or consents which the failure to obtain
would not have a Material Adverse Effect; (iv) any filings with the New York
Stock Exchange (the "NYSE") and the Securities and Exchange Commission (the
"SEC") with respect to the delisting and deregistration of the shares of
Voting Common; (v) such other consents, approvals, authorizations, filings
or notices as are set forth in Section 3.1(d)(v) of the Disclosure Schedule
and (vi) any applicable filings under state antitakeover laws, or filings,
authorizations, consents or approvals the failure to make or obtain which,
in the aggregate, would not have a Material Adverse Effect or otherwise
materially interfere with the consummation of the transactions contemplated
hereby.
(e) FINANCIAL STATEMENTS; SEC REPORTS. The Company has previously
furnished Parent and Sub with true and complete copies of (i) its Annual
Report on Form 10-K for the year ended December 31, 1997 (the "Annual
Report") filed by the Company with the SEC, (ii) its Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September
30, 1998 (collectively, the "Quarterly Reports" and, together with the
Annual Report, the "Reports") filed by the Company with the SEC, (iii) proxy
statements relating to all of the Company's meetings of shareholders
(whether annual or special) held or scheduled to be held since December 31,
1997 and (iv) each other registration statement, proxy or information
statement or current report on Form 8-K filed since September 30, 1998 by
the Company with the SEC. Since January 1, 1994, the Company has complied in
all material respects with its SEC filing obligations under the Exchange
Act. The financial statements and related schedules and notes thereto of the
Company contained in the Reports (or incorporated therein by reference) were
prepared in accordance with generally accepted accounting principles applied
on a consistent basis except as noted therein, and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and, if applicable, the cash flows for the
periods then ended, subject (in the case of interim unaudited financial
statements) to normal year-end audit adjustments, and such financial
statements complied as of their respective dates in all material respects
with applicable rules and regulations of the SEC. Each such registration
statement, proxy statement and Report was prepared in accordance with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as applicable, and did not, on the date of
effectiveness in the case of such registration statements, on the date of
mailing in the case of such proxy statements and on the date of filing in
the case of such Reports, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be disclosed in
the Reports or as otherwise disclosed in Section 3.1(f) of the Disclosure
Schedule, since September 30, 1998 there has not been (i) any change in the
business, assets, financial condition or results of operations of the
Company or its Subsidiaries or any other event which in any such case has
had or could reasonably be expected to have a Material Adverse Effect; (ii)
any damage, destruction or loss, whether covered by insurance or not, having
a material adverse effect upon the properties or business of the Company and
the Subsidiaries taken as a whole; (iii) any declaration, setting aside or
payment of any dividend, or other distribution in respect of the capital
stock of the Company or any redemption or other acquisition by the Company
of any of its capital stock; (iv) any issuance by the Company, or commitment
of the Company to issue, any shares of its Common Stock or securities
convertible into or exchangeable for shares of its Common Stock; (v) any
increase in the rate or terms of compensation payable or to become payable
by the Company or any Subsidiary to its directors, officers or key
employees, except increases occurring in the ordinary course of business in
accordance with its customary past practices; (vi) any grant or increase in
the rate or terms of any bonus, insurance, pension, severance or other
employee benefit plan, payment or arrangement made to, for or with any
directors, officers or key employees, except increases occurring in the
ordinary course of business in
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accordance with its customary past practices; (vii) any change by the
Company in accounting methods, principles or practices except as required by
generally accepted accounting principles; (viii) an entry into any
agreement, commitment or transaction by the Company or any Subsidiary which
is material to the Company and its Subsidiaries taken as a whole, except
agreements, commitments or transactions in the ordinary course of business;
(ix) any stock split, reverse stock split, combination or reclassification
of the Common Stock; (x) any change in the terms and conditions of the
Company Stock Option Plans except as contemplated hereby; or (xi) any
agreement or commitment, whether in writing or otherwise, to take any action
described in this subsection 3.1(f). Since December 31, 1997, the Company
and the Subsidiaries have conducted their respective businesses in all
material respects only in the ordinary course, consistent with past custom
and practice, except as contemplated by this Agreement and except to the
extent such conduct would not have a Material Adverse Effect.
(g) COMPANY SCHEDULE 13E-3 AND PROXY MATERIALS. All of the information
supplied by the Company for inclusion in the Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Schedule 13E-3") referred to in Section
5.2 hereof will not, on the date the Schedule 13E-3 is first filed, and all
of the information supplied by the Company for inclusion in the Definitive
Proxy Statement referred to in Section 5.2 hereof will not, on the date when
the Definitive Proxy Statement is first mailed to the Company's
shareholders, and the Schedule 13E-3 and the Definitive Proxy Statement, as
then amended or supplemented, will not, on the date of the Company's
stockholders' meeting referred to in Section 5.1 hereof or on the Closing
Date (as defined in Section 1.2 hereof), contain any statement which is
false or misleading with respect to any material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Notwithstanding the foregoing, the Company makes no
representation or warranty regarding information furnished by Parent or Sub
for inclusion in the Schedule 13E-3 or the Definitive Proxy Statement (or
any amendment or supplement thereto). The Definitive Proxy Statement will
comply as to form and, with respect to information supplied or to be
supplied in writing by or on behalf of the Company for inclusion in the
Definitive Proxy Statement, substance in all material respects with the
requirements of the Exchange Act and the applicable rules and regulations of
the SEC thereunder.
(h) BOARD RECOMMENDATION. As of the date hereof, the Board of Directors
of the Company has recommended that the stockholders of the Company vote for
adoption of this Agreement, subject to Section 5.8.
(i) UNDISCLOSED LIABILITIES. Neither the Company nor any of its
Subsidiaries has any material liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due, including any liability for taxes), except for (i) liabilities,
obligations or contingencies that are reserved or accrued against the
unaudited consolidated balance sheet of the Company and its Subsidiaries
dated as of December 31, 1997 (ii) liabilities which have arisen after
December 31, 1997 in the ordinary course of business, none of which is a
liability and (iii) liabilities which individually or in the aggregate would
not have a Material Adverse Effect.
(j) TAKEOVER PROVISIONS INAPPLICABLE. The Restated Charter provides
that Section 203 of the GCL is inapplicable to the Merger.
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(k) BROKERS. No broker, investment banker, financial advisor or other
person, the fees and expenses of which will be paid by the Company, is
entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this
Agreement.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and
Sub represent and warrant to the Company as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Parent is a limited
liability company duly organized and validly existing under the laws of the
State of Delaware. Sub is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware. Each of Parent
and Sub has the requisite power (corporate or otherwise) and authority
(corporate or otherwise) to carry on its business as now being conducted.
Each of Parent and Sub is duly qualified or licensed to do business and is
in good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed (individually or in the aggregate) would not
have a Material Adverse Effect.
(b) CAPITALIZATION. As of the date of this Agreement, the authorized
units of Parent consists of 1,000 common units, none of which are presently
issued and outstanding. As of the date of this Agreement, the authorized
capital stock of Sub consists of (i) 1,000 shares of common stock, par value
$.01 per share, 1,000 shares of which are presently issued and outstanding
which constitutes all of the issued and outstanding capital stock of Sub.
All of the issued and outstanding units and shares of capital stock of
Parent and Sub, as applicable, are validly issued, fully paid and
nonassessable. As of the Effective Time, the capitalization of Parent and
Sub and the ownership of the issued and outstanding shares of the capital
stock or other interests of each of Parent and Sub will be as provided to
the Company for inclusion in the Definitive Proxy Statement.
(c) AUTHORITY; ENFORCEABILITY; NONCONTRAVENTION. Parent and Sub have
all requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Parent and Sub and the consummation by
Parent and Sub of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate action on the part of Parent and
Sub. This Agreement has been duly executed and delivered by and, assuming
this Agreement constitutes the valid and binding agreement of the Company,
constitutes a valid and binding obligation of each of Parent and Sub,
enforceable against such party in accordance with its terms, except that the
enforceability hereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and that the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. The execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated
by this Agreement and compliance with the provisions of this Agreement will
not (i) violate any of the provisions of the charter documents of Parent, or
the Certificate of Incorporation or By-laws of Sub, (ii) subject to the
governmental filings and other matters referred to in the following
sentence, conflict with, result in a breach of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or require the consent of any person under, any
indenture, or other agreement, permit, concession, franchise, license or
similar instrument or undertaking to which Parent or any of its subsidiaries
is a party or by which Parent or any of its subsidiaries or any of their
assets is bound or affected, or (iii) subject to the governmental filings
and other matters referred to in the following sentence, contravene any law,
rule or regulation of any state or of the United States or any political
subdivision thereof or therein, or any order, writ, judgment, injunction,
decree, determination or award currently in effect, which, in the case of
clauses (ii) and (iii) above, singly or in the aggregate,
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would have a material adverse effect on the business, financial condition or
results of operations of Parent and Sub taken as a whole or prevent
consummation of the transactions contemplated hereby. No consent, approval
or authorization of, or declaration or filing with, or notice to, any
Governmental Entity which has not been received or made is required by or
with respect to Parent or Sub in connection with the execution and delivery
of this Agreement by Parent or Sub or the consummation by Parent or Sub, as
the case may be, of any of the transactions contemplated by this Agreement,
except for (i) the requirements or the Exchange Act, (ii) the filing of the
certificate of merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which the Company
is qualified to do business, (iii) such other consents, approvals,
authorizations, filings or notices as are set forth in Section 3.1(d)(v) of
the Disclosure Schedule and (iv) any applicable filings under state
antitakeover laws, or filings, authorizations, consents or approvals the
failure to make or obtain which, in the aggregate, would not have a material
adverse effect on the business, financial condition or results of operations
of Parent and Sub taken as a whole or prevent consummation of the
transactions contemplated hereby.
(d) SCHEDULE 13E-3 AND PROXY MATERIALS. All of the information to be
furnished by Parent or Sub for inclusion in the Schedule 13E-3 and the
Definitive Proxy Statement (or any amendment or supplement thereto) will
not, in the case of the Schedule 13E-3, on the date it is first filed, and
in the case of the Definitive Proxy Statement, on the date it is first
mailed to the Company's shareholders, and in the case of the Schedule 13E-3
and the Definitive Proxy Statement, as then amended or supplemented, on the
date of the Company's stockholders' meeting referred to in Section 5.1
hereof or on the Closing Date, contain any statement which is false or
misleading with respect to any material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. Notwithstanding the foregoing, Parent and Sub make no
representation or warranty regarding information furnished by the Company
for inclusion in the Schedule 13E-3 (or any amendment or supplement
thereto). The information supplied or to be supplied in writing by or on
behalf of Parent or Sub for inclusion in the Schedule 13E-3 will comply as
to form and substance in all material respects with the requirements of the
Exchange Act and the applicable rules and regulations of the SEC thereunder.
(e) BROKERS. No broker, investment banker, financial advisor or other
person, the fees and expenses of which will be paid by Parent of Sub, is
entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this
Agreement.
(f) FINANCING. Attached hereto as Exhibit C are true and correct copies
of (collectively, the "Equity Letters"); (i) a commitment letter dated the
date hereof from Bruckmann, Rosser, Sherrill & Co., L.P. ("BRSLP") pursuant
to which BRSLP has committed, subject to the terms and conditions set forth
therein, to provide or cause to be provided equity funding of up to
$52,500,000; and (ii) a commitment letter dated the date hereof from
Citicorp Venture Capital, Ltd. ("CVC") pursuant to which CVC has committed,
subject to the terms and conditions set forth therein, to provide or cause
to be provided Equity Funding of up to $52,500,000.
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS
PRIOR TO MERGER
SECTION 4.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated or
otherwise permitted by this Agreement, during the period from the date of this
Agreement to the Effective Time, the Company shall use its reasonable best
efforts to operate, and shall cause each Subsidiary to use its reasonable best
efforts to operate, its business in the ordinary course in all material respects
and comply
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with applicable laws in all material respects. Without limiting the generality
of the foregoing, during the period from the date of this Agreement to the
Effective Time, except as expressly contemplated by this Agreement and except as
set forth in Section 4.1 of the Disclosure Schedule, the Company shall not,
without the prior written consent of Parent:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
the Company's outstanding capital stock, (y) split, combine or
reclassify any of its outstanding capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its outstanding capital stock, or (z)
purchase, redeem or otherwise acquire any shares of its outstanding
capital stock or any rights, warrants or options to acquire any such
shares;
(ii) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities, except for
the issuance of shares of Common Stock upon exercise of Options
outstanding prior to the date of this Agreement and disclosed in
Section 3.1(c), or take any action that would make the Company's
representations and warranties set forth in Section 3.1(c) not true and
correct in all material respects;
(iii) amend its Restated Charter or By-laws or other comparable charter or
organizational documents;
(iv) acquire any business or any corporation, partnership, joint venture,
association or other business organization or division thereof (or any
interest therein) in a transaction or series of transactions involving
aggregate consideration in excess of $25 million or form any
subsidiaries;
(v) sell or otherwise dispose of any of its substantial assets, except in
the ordinary course of business or in a transaction or series of
transactions involving assets with an aggregate value of less than
$5,000,000;
(vi) make any capital expenditures or commitments with respect thereto,
except capital expenditures or commitments not exceeding the Company's
budget (which capital expenditures budget is described in Section 4.1
of the Disclosure Schedule) by more than $1,000,000 in the aggregate as
the Company may, in its discretion, deem appropriate;
(vii) (x) incur any indebtedness for borrowed money or guaranty any such
indebtedness of another person, other than (A) borrowings in the
ordinary course under existing lines of credit (or under any
refinancing of such existing lines), (B) indebtedness owing to, or
guaranties of indebtedness owing to, the Company or (C) in connection
with the Financing, or (y) make any loans or advances to any other
person, other than to the Company and other than routine advances to
employees, except in the case of either (x) or (y) as disclosed in
Section 4.1 of the Disclosure Schedule;
(viii) grant or agree to grant to any employee any increase in wages or bonus
(other than any increase in the ordinary course of business consistent
with past practices), severance, profit sharing, retirement, deferred
compensation, insurance or other compensation or benefits, or establish
any new compensation or benefit plans or arrangements, or amend or
agree to amend any existing Company Stock Option Plans, except as may
be required under existing agreements disclosed in Section 3.1(a)(viii)
of the Disclosure Schedule;
(ix) merge, amalgamate or consolidate with any other entity in any
transaction, sell all or substantially all of its business or assets;
(x) enter into or amend any employment, consulting, severance or similar
agreement with any individual which provides for the payment of an
annual base salary in excess of $125,000;
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(xi) change its accounting policies in any material respect, except as
required by generally accepted accounting principals;
(xii) cancel, terminate, amend, modify or waive any of the terms of any
confidentiality or standstill agreement executed with respect to a
proposed acquisition of the capital stock or substantially all of the
assets of the Company or any of its Subsidiaries by any other party
prior to the date of this Agreement;
(xiii) except as contemplated by Section 5.8 and Section 7.1(d) hereof,
authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into an agreement in principle or an
agreement with respect to any merger, consolidation or business
combination (other than the Merger), any acquisition or disposition of
a material amount of assets or securities (including, without
limitation, the assets or securities of any Subsidiary and other than
inventory in the ordinary course); or
(xiv) except as contemplated by Section 5.8 and Section 7.1(d) hereof, commit
or agree to take any of the foregoing actions except as contemplated by
Section 5.8 and Section 7.1(d) hereof.
SECTION 4.2 PLANS. Other than in connection with the Merger, Parent and
Sub hereby covenant and agree that (a) they shall not sell, dispose of or
otherwise transfer, or cause to be sold, disposed of or otherwise transferred,
directly or indirectly, within one year of the Effective Time (i) more than 50%
of the beneficial ownership of the outstanding voting capital stock of the
Surviving Corporation or (ii) assets constituting more than 50% of the earning
power of the Company and its subsidiaries or with a book value in excess of 50%
of the book value of all assets of the Company and its subsidiaries and (b) the
Surviving Corporation shall not engage in any public offering of its common
equity securities (other than in connection with any offering of an "equity
kicker" which is part of the Financing) within one year of the Effective Time.
ARTICLE V.
ADDITIONAL AGREEMENTS
SECTION 5.1 MEETING OF STOCKHOLDERS. Upon receipt of the Financing
Letters, the Company will take all action necessary in accordance with
applicable law and its Restated Charter and By-laws to duly call, give notice
of, and convene a meeting of its stockholders (the "Stockholders' Meeting") to
consider and vote upon the adoption of this Agreement. The board of directors of
the Company shall recommend such adoption and approval, and subject to fiduciary
obligations under applicable law, shall not withdraw or modify such
recommendation other than in compliance with Section 5.8 and Section 7.1(d) or
if the Fairness Opinion (as defined in Section 5.2) is withdrawn by Sun Trust
Equitable Securities Corporation, and shall take all lawful action necessary to
obtain such approval.
SECTION 5.2 PROXY STATEMENT; SCHEDULE 13E-3. Parent will prepare and file
after consultation with the Company, and the Company will cooperate with Parent
in the preparation and filing of, the Schedule 13E-3 with the SEC with respect
to the transactions contemplated by this Agreement. Parent shall pay the filing
fee for such Schedule 13E-3 and Form S-4. In connection with the Stockholders'
Meeting contemplated by Section 5.1 above, the Company will prepare and file
(after consultations with Parent) a preliminary proxy statement relating to the
transactions contemplated by this Agreement (the "Preliminary Proxy Statement")
which shall be included as part of the registration statement on Form S-4 (the
"Form S-4") with the SEC and will use its commercially reasonable efforts to
respond to the comments of the SEC thereon, and to cause a final proxy statement
and the Form S-4 (such proxy statement together with the Form S-4, "the
Definitive Proxy Statement") to be mailed to the Company's stockholders, in each
case as soon as reasonably practicable after providing Parent with reasonable
opportunity to comment thereon. Each party to this Agreement will notify the
other parties promptly of the receipt of the comments of the SEC, if any, and of
any request by the SEC for amendments or
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supplements to the Schedule 13E-3, the Preliminary Proxy Statement or the
Definitive Proxy Statement or for additional information, and will supply the
others with copies of all correspondence between such party or its
representatives, on the one hand, and the SEC or members of its staff, on the
other hand, with respect to the Schedule 13E-3, the Preliminary Proxy Statement,
the Definitive Proxy Statement or the Merger. If at any time prior to the
Stockholders' Meeting, (i) any event should occur relating to the Company or any
of the Subsidiaries which should be set forth in an amendment of, or a
supplement to, the Schedule 13E-3 or the Definitive Proxy Statement, or (ii) any
event should occur relating to Parent or Sub or any of their respective
Associates or Affiliates, or relating to the plans of any such persons for the
Surviving Corporation after the Effective Time of the Merger, or relating to the
Financing, in either case that should be set forth in an amendment of, or a
supplement to, the Schedule 13E-3 or the Definitive Proxy Statement, then the
Company or Parent (as applicable), will, upon learning of such event, promptly
inform the other of such event and the Company shall prepare, file and, if
required, mail such amendment or supplement to the Company's stockholders;
provided that, prior to such filing or mailing the Company shall consult with
Parent with respect to such amendment or supplement and shall afford Parent
reasonable opportunity to comment thereon. Parent will furnish to the Company
the information relating to Parent and Sub, their respective Associates and
Affiliates and the plans of such persons for the Surviving Corporation after the
Effective Time of the Merger, and relating to the Financing, which is required
to be set forth in the Schedule 13E-3, the Preliminary Proxy Statement or the
Definitive Proxy Statement under the Exchange Act and the rules and regulations
of the SEC thereunder. The Definitive Proxy Statement shall contain a copy of
the written opinion (the "Fairness Opinion") of Sun Trust Equitable Securities
Corporation that the Merger Consideration is fair from a financial point of view
to the Company's stockholders, other than the Affiliate Stockholders.
SECTION 5.3 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) From the date hereof, the Parent, Sub and their financing sources shall
be entitled to make or cause to be made such reasonable investigation of the
Company and its Subsidiaries, and the financial and legal condition thereof, as
Parent, Sub and their financing sources deem reasonably necessary or advisable,
and the Company shall reasonably cooperate with any such investigation. In
furtherance of the foregoing, but not in limitation thereof, the Company will,
and will cause each of its Subsidiaries to, provide the Parent, Sub and their
financing sources and their respective agents and representatives, or cause them
to be provided, with reasonable access to any and all of its management
personnel, accountants, representatives, premises, properties, contracts,
commitments, books, records and other information of the Company and each of its
Subsidiaries upon reasonable notice during regular business hours and shall
furnish such financial and operating data, projections, forecasts, business
plans, strategic plans and other data relating to the Company and its
Subsidiaries and their respective businesses as the Parent, Sub, its financing
sources and their respective agents and representatives shall reasonably request
from time to time, including all information necessary to satisfy closing
conditions for obtaining Financing for the transactions contemplated hereby;
provided, that until the Closing Date all information provided to Parent, Sub
and their financing sources and representatives pursuant hereto (other than the
information (i) contained in any offering memorandum prepared in connection with
the registration, offering, placement, or syndication of any of the Financing or
the Senior Preferred, (ii) disclosed in the process of marketing the Financing
or the Senior Preferred, or (iii) contained in any filing with the SEC, the NYSE
or any other national securities exchange), shall be subject to the
confidentiality provisions set forth in Section 5.3(b). The Company agrees to
cause its and its Subsidiaries' officers, employees, consultants, agents,
accountants and attorneys to cooperate with the Parent, Sub and their financing
sources and representatives in connection with such review and the Financing,
including the preparation by the Parent, Sub and their financing sources of any
offering memorandum or related documents related to such Financing. No
investigation by the Parent or Sub heretofore or hereafter made shall modify or
otherwise affect any representations and warranties of the Company, which shall
survive any such investigation, or the conditions to the obligation of the
Parent and Sub to consummate the transactions contemplated hereby.
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(b) Subject to Section 5.7 and Section 5.3(a), all information disclosed,
whether before or after the date hereof, pursuant to this Agreement or in
connection with the transactions contemplated by, or the discussions and
negotiations preceding, this Agreement to any other party (or its
representatives) shall constitute "Evaluation Material" within the meaning of
that certain Confidentiality and Standstill Agreement dated March 23, 1999,
between the Company and certain affiliates of the Parent (the "Confidentiality
Agreement") and without limiting the foregoing, shall be kept confidential by
such other party and its representatives and shall not be used by any Person,
other than in connection with evaluating and giving effect to the Merger and the
other the transactions contemplated by this Agreement including, without
limitation, in connection with procurement of the Financing and in connection
with Parent and Sub's filings under the Exchange Act. If the Merger is not
consummated and this Agreement is terminated in accordance with its terms, at
the request of the Company, Parent or Sub (as applicable) shall return or
destroy any information provided hereunder.
SECTION 5.4 COMMERCIALLY REASONABLE EFFORTS. Upon the terms and subject to
the conditions and other agreements set forth in this Agreement, each of the
parties agrees to use commercially reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by this Agreement, including the
satisfaction of the respective conditions set forth in Article VI. Subject to
the terms and provisions of the Confidentiality Agreement, the Company and
Parent shall each furnish to one another and to one another's counsel all such
information as may be required in order to accomplish the foregoing actions. If
any state takeover statute or similar statute or regulation becomes applicable
to the Merger, this Agreement or any of the other transactions contemplated
hereby, the Company and Parent will take all commercially reasonable action
necessary to ensure that the Merger and the other transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated
by this Agreement and otherwise to minimize the effect of such statute or
regulation on the Merger and the other transactions contemplated by this
Agreement.
SECTION 5.5 FINANCING. Each of Parent and Sub shall use their commercially
reasonable efforts to obtain the Financing on terms and conditions reasonably
satisfactory to them and to deliver to the Company true and correct copies of
the fully executed and delivered Definitive Financing Agreements with respect
thereto on or before the Closing Date. In furtherance thereof, not later than
thirty (30) calendar days after the date hereof, Parent or Sub will provide the
Company with true and correct copies of one or more highly confident letters
and/or commitment letters in respect of bank financing, in each case, which are
in customary, executable form, from one or more reputable commercial or
investment banks indicating the willingness to underwrite, syndicate or
otherwise provide, subject to the terms and conditions set forth therein, debt
financing to the Surviving Company, the net proceeds of which shall not be less
than $335,000,000 in the aggregate (the "Financing Letters"). Parent and Sub
shall use their commercially reasonable efforts to satisfy on or before the
Closing Date all requirements of the Financing Letters which are conditions to
closing the transactions constituting the Financing and to drawing the cash
proceeds thereunder; provided, that in no event shall Parent or Sub be required
to pay any additional fees or offer an "equity kicker" in excess of those
explicitly provided for in the Financing Letters. The obligations contained
herein are not intended, nor shall they be construed, to benefit or confer any
rights upon any person, firm or entity other than the Company.
SECTION 5.6 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) From and after the Effective Time, Parent shall, and shall cause the
Surviving Corporation to, indemnify and hold harmless each person who is now, at
any time has been or who becomes prior to the Effective Time a director,
officer, employee or agent of the Company or any of its subsidiaries (the
"Indemnified Parties") against any and all losses, claims, damages, liabilities,
costs, expenses (including reasonable fees and expenses of legal counsel),
judgments, fines or amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation (each a "Claim") arising in whole or
in
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part out of or pertaining to any action or omission occurring prior to the
Effective Time (including, without limitation, any which arise out of or relate
to the transactions contemplated by this Agreement), regardless of whether such
Claim is asserted or claimed prior to, at or after the Effective Time, to the
full extent permitted under Delaware law or the Surviving Corporation's
Certificate of Incorporation or By-laws in effect as of the Effective Date;
provided, however, that in no event shall the Surviving Corporation be required
to indemnify, defend or hold harmless any director, officer or employee of the
Company or any of its Subsidiaries in respect of any loss, cost, damage, expense
or liability incurred by such party in respect of any Common Stock or Options
held by such persons prior to or after the Effective Time. Without limiting the
generality of the preceding sentence, in the event any Indemnified Party becomes
involved in any Claim, after the Effective Time, Parent shall, and shall cause
the Surviving Corporation to, periodically advance to such Indemnified Party its
legal and other expenses (including the cost of any investigation and
preparation incurred in connection therewith), subject to the provisions of
paragraph (b) of this Section 5.6, and subject to the providing by such
Indemnified Party of an undertaking to reimburse all amounts so advanced in the
event of a final and non-appealable determination by a court of competent
jurisdiction that such Indemnified Party is not entitled thereto.
(b) The Indemnified Party shall control the defense of any Claim with
counsel selected by the Indemnified Party, which counsel shall be reasonably
acceptable to Parent, provided that Parent and the Surviving Corporation shall
be permitted to participate in the defense of such Claim at their own expense,
and provided further that if any D&O Insurance (as defined in paragraph (c) of
this Section 5.6) in effect at the time shall require the insurance company to
control such defense in order to obtain the full benefits of such insurance and
such provision is consistent with the provisions of the Company's D&O Insurance
existing as of the date of this Agreement, then the provisions of such policy
shall govern the selection of counsel. Neither Parent nor the Surviving
Corporation shall be liable for any settlement effected without its written
consent, which consent shall not be withheld unreasonably.
(c) For a period of six years after the Effective Time (the "Insurance
Carry-Over Period"), Parent or the Surviving Corporation shall provide officers'
and directors' liability insurance ("D&O Insurance") covering each Indemnified
Party who is presently covered by the Company's officers' and directors'
liability insurance or will be so covered at the Effective Time with respect to
actions or omissions occurring prior to the Effective Time, on terms no less
favorable than such insurance maintained in effect by the Company as of the date
hereof in terms of coverage and amounts, provided that Parent and the Surviving
Corporation shall not be required to pay in the aggregate an annual premium for
D&O Insurance in excess of 200% of the last annual premium paid prior to the
date hereof, but in such case shall purchase as much coverage as possible for
such amount.
(d) The Certificate of Incorporation and By-laws of the Surviving
Corporation shall contain substantially similar provisions with respect to
indemnification, personal liability and advancement of fees and expenses as set
forth in the Restated Charter and By-laws of the Company as of the Effective
Time, which provisions shall not be amended, repealed or otherwise modified
during the Insurance Carry-Over Period in any manner that would adversely affect
the rights thereunder of the Indemnified Parties in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by law. Parent, Sub and the Company agree that all
rights existing in favor of any Indemnified Party under any indemnification
agreement in effect as of the date hereof (each of which shall be listed on
Section 5.6(d) of the Disclosure Schedule hereto shall survive the Merger and
shall continue in full force and effect, without any amendment thereto. In the
event any Claim is asserted or made, any determination required to be made with
respect to whether an Indemnified Party's conduct complies with standards set
forth under such provisions of the Restated Charter or By-laws or under the
DGCL, as the case may be, shall be made by independent legal counsel selected by
such Indemnified Party and reasonably acceptable to Parent unless the DGCL, the
Restated Charter or By-laws provide otherwise; and provided, that nothing in
this Section 5.6 shall impair any rights or obligations of any current or former
director or officer of the
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Company or any of its subsidiaries, including pursuant to the respective
certificates of incorporation or bylaws of Parent, the Surviving Corporation or
the Company, or their respective subsidiaries, under the DGCL or otherwise.
(e) The provisions of this Section 5.6 are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, his or her
heirs and his or her personal representatives and shall be binding on all
successors and assigns of Parent, Sub, the Company and the Surviving
Corporation.
SECTION 5.7 PUBLIC ANNOUNCEMENTS. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation; provided, that any
such party may make any public statement which it in good faith believes, based
on advice of counsel, is necessary or advisable in connection with any
requirement of applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange, it being understood and
agreed that each party shall promptly provide the other parties hereto with
copies of such public statement.
SECTION 5.8 ACQUISITION PROPOSALS.
(a) The Company shall not, nor shall it authorize or permit any of its
Representatives to, directly or indirectly, (i) solicit, initiate or encourage
the submission of any Acquisition Proposal (as hereinafter defined); (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal; provided, however,
that the foregoing shall not prohibit the Independent Directors from furnishing
information or requiring the Company to furnish information to, or entering into
discussions or negotiations with, any person in connection with an unsolicited
bona fide Acquisition Proposal by such person if, and to the extent that such
person first enters into a standstill and confidentiality agreement with the
Company on terms no less favorable to the Company than those contained in the
Confidentiality Agreement; provided, that in no event shall the Company waive or
amend any restriction contained in any such agreement. Prior to furnishing
information to, or entering into discussions or negotiations with, such person
or entity, the Company shall provide prompt written notice to Parent to such
effect, such written notice shall include the material terms and conditions (to
the extent known to the Company) of such Acquisition Proposal or inquiry, and
the identity of the person making any such Acquisition Proposal or inquiry. For
purposes of this Agreement, "Acquisition Proposal" means any proposal with
respect to a merger, consolidation, share exchange, business combination or
similar transaction involving the Company or any of its Subsidiaries, or any
purchase of all or any significant portion of the assets of the Company or any
of its Subsidiaries, or any equity interest in the Company or any of its
Subsidiaries, other than the transactions contemplated hereby.
(b) The Company shall not enter into any agreement with respect to any
Acquisition Proposal or enter into any agreement, arrangement or understanding
requiring it to abandon, terminate or fail to consummate the Merger or any other
transactions contemplated by this Agreement unless: (i) the Company's Board of
Directors determines in good faith by a majority vote, after consultation with
its financial and legal advisors that such transaction (the "Alternative
Transaction") (A) is more favorable to the stockholders of the Company from a
financial point of view than the transactions contemplated by this Agreement
(including any adjustment to the terms and conditions of such transaction
proposed in writing by Parent in response to such Acquisition Proposal), (B) is
not subject to any material contingency, to which the other party thereto has
not reasonably demonstrated (as determined in good faith by the Board of
Directors of the Company) its ability to obtain, including the receipt of
government consents or approvals (including any such approval required under the
HSR Act), and (C) is reasonably likely to be consummated and is in the best
interest of the stockholders of the Company; and (ii) the Company has received
both advice from its outside legal counsel (which may be the Company's regularly
retained
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outside counsel) that there is a material risk that failure to approve such an
Alternative Proposal will constitute a breach of the Board of Directors'
fiduciary duties under applicable law, and (y) a written opinion (a copy of
which has been delivered to Parent and Sub) from Sun Trust Equitable Securities
Corporation (or any other nationally recognized investment banking firm) that
the Alternative Transaction is fair from a financial point of view to the
stockholders of the Company, other than any stockholders participating in the
buying group in such transaction; provided, that the Company shall immediately
prior to entering into such agreement have complied with the provisions of
Section 7.1(d) hereof, including, without limitation, the payment to Parent of
its expenses as provided for in Section 7.3.
SECTION 5.9 STOCKHOLDER LITIGATION. The Company shall give Parent, at its
own cost and expense, the opportunity to participate in the defense or
settlement of any stockholder litigation against the Company and its directors
relating to the transactions contemplated by this Agreement; provided, however,
that no such settlement shall be agreed to without Parent's consent, which
consent shall not be unreasonably withheld.
SECTION 5.10 BOARD ACTION RELATING TO STOCK OPTION PLANS AND OPTIONS. As
soon as reasonably practicable following the date of this Agreement, to the
extent permitted by the Company Stock Option Plans and applicable law, the Board
of Directors of the Company (or, if appropriate, any committee administering a
Company Stock Option Plans) shall adopt such resolutions or take such actions as
may be necessary or appropriate to adjust the terms of all outstanding Company
Stock Options in accordance with Section 2.2, and shall make such other changes
to the Company Stock Option Plans as it deems necessary or appropriate to give
effect to the Merger. In addition, prior to the Effective Time, the Board of
Directors of the Company shall adopt such resolutions and take such actions as
may be required to amend the terms of all outstanding Options in accordance with
Section 2.2, to the extent permitted by the Company Stock Option Plans and
applicable law, and shall make such other changes to the Options as it deems
appropriate to give effect to the Merger.
SECTION 5.11 NOTICES OF CERTAIN EVENTS. The Company and Parent shall
promptly notify the other of:
(a) the receipt of any notice or other communication from any person
alleging that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement;
(b) the receipt of any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(c) any actions, suits, claims, investigations or proceedings commenced
or, to the best of its actual knowledge, threatened against, relating to or
involving or otherwise affecting the Company or any Subsidiary, on the one
hand, or Parent or Sub, on the other hand, which, in either case, could
materially interfere with the consummation of the transactions contemplated
by this Agreement; and
(d) any action, event or occurrence that would constitute a breach of
any representation, warranty, covenant or agreement of it set forth in this
Agreement which could reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.12 EXCHANGE ACT AND STOCK EXCHANGE FILINGS. Unless an exemption
shall be expressly applicable to the Company, or unless Parent agrees otherwise
in writing, the Company will file with the SEC and the NYSE all reports required
to be filed by it pursuant to the rules and regulations of the SEC and the NYSE
(including, without limitation, all required financial statements).
SECTION 5.13 PURCHASE OF COMMON STOCK. The Company agrees that it will not
object to the purchase by Parent or Sub of shares of Common Stock from
stockholders of the Company listed on Exhibit 2.1(c) or Affiliates or Associates
thereof, prior to the Effective Time so long as the purchase price for such
shares does not exceed the Merger Consideration.
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ARTICLE VI.
CONDITIONS PRECEDENT
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been adopted by (i)
the affirmative vote of holders of a majority of the outstanding shares of
Voting Common and (ii) the affirmative vote of holders of a majority of the
outstanding shares of Voting Common that are not beneficially owned by the
Affiliated Stockholders or by persons that are Affiliates or Associates of
the Affiliated Stockholders.
(b) GOVERNMENTAL AND REGULATORY CONSENTS. All filings required to be
made prior to the Effective Time with, and all consents, approvals, permits
and authorizations required to be obtained prior to the Effective Time from,
Governmental Entities, including, without limitation, those set forth in
Section 3.1(d)(iii) of the Disclosure Schedule, in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Company, Parent and Sub, and which,
either individually or in the aggregate, if not obtained would have a
Material Adverse Effect or would prevent consummation of the Merger, will
have been made or obtained (as the case may be).
(c) NO INJUNCTIONS, RESTRAINTS OR LITIGATION. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; provided,
however, that the parties invoking this condition shall use reasonable
efforts to have any such order or injunction vacated. There shall not be
threatened, instituted or pending any action, proceeding, application or
counterclaim by any Governmental Entity before any court or governmental
regulatory or administrative agency, authority or tribunal (i) which if
adversely determined would have a Material Adverse Effect on the Surviving
Corporation or the ability of any party to this Agreement to perform its
obligations hereunder or (ii) which challenges or seeks to challenge,
restrain or prohibit the consummation of the Merger.
(d) FORM S-4. (a) The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order; (b) any material "blue sky" and other state securities
laws applicable to the registration and qualification of, and any rules or
regulations of any self-regulatory organization applicable to, the Senior
Preferred to be issued in connection with the Merger shall have been
complied with; and (c) the Definitive Proxy Statement and the Schedule 13E-3
shall have been disseminated to the extent, and for the minimum time period
required by, the Exchange Act and the rules and regulations promulgated
thereunder.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The obligations
of Parent and Sub to effect the Merger are further subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in Section 3.1 shall be true and correct in all
respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date, except (i) to the
extent such representations and warranties speak as of an earlier date (ii)
for changes permitted or contemplated by this Agreement and (iii) for
matters or circumstances or events which, individually or in the aggregate,
would not have a Material Adverse Effect, provided that for purposes of
determining whether any such representation or warranty has been breached,
any materiality qualifier therein shall be disregarded, and Parent shall
have received an officers' certificate signed on behalf of the Company to
the effect set forth in this paragraph.
19
<PAGE>
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all material obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
Parent shall have received an officers' certificate signed on behalf of the
Company to such effect.
(c) FINANCING. On or prior to the Effective Time, Parent and/or Sub
shall have completed their arrangements for the Financing and received the
cash proceeds thereof in an amount necessary to consummate the transactions
contemplated hereby and to pay all fees and expenses in connection
therewith, each on terms and conditions reasonably satisfactory to the
Parent.
(d) DISSENTING SHARES. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that the number of Dissenting
Shares shall constitute no greater than 5% of the total number of shares of
Voting Stock outstanding immediately prior to the Effective Time, on a
fully-diluted basis.
SECTION 6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of
the Company to effect the Merger is further subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and Sub set forth in Section 3.2 that are qualified by materiality
shall be true and correct and such representations and warranties of Parent
and Sub set forth in Section 3.2 that are not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date, except (i) to the extent such representations and warranties speak as
of an earlier date and (ii) for changes permitted or contemplated by this
Agreement, and the Company shall have received a certificate signed on
behalf of Parent by the chief executive officer and the chief financial
officer of Parent to the effect set forth in this paragraph.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND SUB. Parent and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of Parent by
the chief executive officer and the chief financial officer of Parent to
such effect.
ARTICLE VII.
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 TERMINATION. This Agreement may be terminated and abandoned at
any time prior to the Effective Time, whether before or after adoption of this
Agreement by the stockholders of the Company or the Sub:
(a) automatically without further action by any party, in the event that
the Financing Letters referred to in Section 5.5 shall not have been
delivered within the time period specified therein;
(b) by mutual written consent of Parent and the Company; or
(c) by either Parent or the Company:
(i) if, upon a vote at the Stockholders Meeting, or any adjournment
thereof, the adoption of this Agreement by the stockholders of the
Company required by Delaware law, the Company's Restated Charter or the
terms of this Agreement (which vote in any event shall include the
affirmative vote of both (A) the holders of a majority of the outstanding
shares of Voting Common and (B) the holders of a majority of the
outstanding shares of Voting Common, that are not beneficially owned by
the Affiliated Stockholders or by Persons that are Affiliates or
Associates of the Affiliated Stockholders) shall not have been obtained;
or
20
<PAGE>
(ii) if the Merger shall not have been consummated on or before
October 31, 1999, provided that the failure to consummate the Merger is
not attributable to the failure of the terminating party to fulfill its
obligations pursuant to this Agreement; or
(iii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and nonappealable; or
(d) by the Company, if: (i) the Board of Directors of the Company shall
have approved an Alternative Transaction after determining, in good faith,
after consultation with its financial and legal advisors, that such
transaction Alternative Transaction (A) is more favorable to the
stockholders of the Company from a financial point of view than the
transactions contemplated by this Agreement (including any adjustment to the
terms and conditions of such transaction proposed in writing by Parent in
response to such Acquisition Proposal), (B) is not subject to any material
contingency as to which the other party thereto has not reasonably
demonstrated (as determined in good faith by the Board of Directors of the
Company) its ability to obtain, including the receipt of government consents
or approvals (including any such approval required under the HSR Act), and
(C) is reasonably likely to be consummated and is in the best interest of
the stockholders of the Company; and (ii) the Company has received both (x)
advice from its outside legal counsel (which may be the Company's regularly
retained outside counsel) there is a material risk that failure to approve
such an Acquisition Proposal will constitute a breach of the Board of
Directors' fiduciary duties under applicable law and (y) a written opinion
(a copy of which has been delivered to Parent and Sub) from Sun Trust
Equitable Securities Corporation (or any other nationally recognized
investment banking firm) that the Alternative Transaction is fair from a
financial point of view to the stockholders of the Company, other than any
stockholders participating in the buying group in such transaction; provided
that, any such termination shall not be effective unless, (i) the Company
has provided Parent written notice (the "Termination Intention Notice") that
it intends to terminate this Agreement pursuant to this Section 7.1(d),
which notice shall also identify the Alternative Transaction then determined
to be more favorable and the parties thereto and include a copy of the
acquisition agreement or other similar agreement for such Alternative
Transaction in the form to be entered into, (ii) at least five full business
days after the Company has delivered the Termination Intention Notice
(provided that the opinions referred to in clauses (x) and (y) above shall
continue in effect without revision or modification), the Company delivers
to Parent and Sub a written notice (the "Termination Notice") of termination
of this Agreement pursuant to this Section 7.1(d), and (iii) upon delivery
of Termination Notice, the Company reimburses Parent for its expenses as
provided in Section 7.3 by delivery to Parent of a check or wire transfer of
immediate available funds to such account as is designated by Parent. The
payment of such expenses shall be accompanied by a written acknowledgment
from the Company and from the other party to the Alternative Transaction
that the Company and such other party have irrevocably waived any right to
contest such payment; or
(e) by Parent, if the Company or the Board of Directors of the Company
shall have (i) breached any provision of Section 5.8, (ii) withdrawn or
modified, in a manner materially adverse to Parent or Sub, the approval or
recommendation by the Board of Directors of the Company of this Agreement or
the transactions contemplated hereby or (iii) approved another Acquisition
Proposal or Alternative Transaction; or
(f) by Parent, if any of the conditions set forth in Section 6.2 shall
have become incapable of fulfillment, and shall not have been waived by
Parent; or
(g) by the Company, if any of the conditions set forth in Section 6.3
shall have become incapable of fulfillment, and shall not have been waived
by the Company; or
21
<PAGE>
(h) by the Parent, if there shall have occurred a material disruption of
or a material adverse change in conditions in the banking or capital markets
which has a material adverse effect on the syndication of bank credit
facilities or consummation of high yield debt offerings:
provided, however, that the party seeking termination pursuant to clause (f) or
(g) above is not in material breach of any of its material representations,
warranties, covenants or agreements contained in this Agreement.
SECTION 7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, other than the last
three sentences of Section 5.3(b) and Sections 7.2, 7.3 and 8.2. Nothing
contained in this Section shall relieve any party from any liability resulting
from any wilful and material breach of the covenants or agreements set forth in
this Agreement.
SECTION 7.3 EXPENSES. In the event that this Agreement is terminated by
(i) the Company pursuant to subsection 7.1(d) or (ii) the Parent pursuant to
clauses (i) or (iii) of subsection 7.1(e), the Parent and Sub shall be entitled
to reimbursement by the Company for their out-of-pocket expenses incurred in
connection with the negotiation, execution, delivery and performance of this
Agreement and the Financing; provided, that (A) such reimbursement for expenses
shall not exceed the sum of (x) $2,000,000, plus (y) any fees and expenses
incurred in connection with obtaining the Financing if the Company requests one
or more executed Financing Letters, which in any event shall not exceed 2.0% of
the maximum amount of any such Financing and (B) such reimbursement for expenses
shall become payable promptly upon delivery by Parent to the Company of a
certificate of an officer of the Parent setting forth in reasonable detail the
true and correct amount of costs and expenses (whether paid or payable) incurred
by Parent or Sub in connection with the transactions contemplated by this
Agreement; provided, that any payment to Parent or Sub in respect of costs or
expenses paid to an Affiliate of Parent or Sub will be limited to actual
out-of-pocket expenses incurred by such affiliate. In addition, in the event
that (x) this Agreement is terminated by the Parent pursuant to clause (ii) of
subsection 7.1(e), or by either the Parent or the Company pursuant to Section
7.1(c)(i) or Section 7.1(c)(ii) and (y) within six months of such termination
the Company consummates or enters into an agreement to consummate an Alternative
Transaction which involves aggregate consideration greater than or equal to the
aggregate consideration which would otherwise be received by the stockholders of
the Company pursuant to this Agreement, upon the consummation of such
transaction, the Company shall be required to pay and reimburse Parent for its
out-of-pocket expenses in accordance with the preceding sentence.
SECTION 7.4 AMENDMENT. Subject to the applicable provisions of the DGCL,
at any time prior to the Effective Time, whether before or after adoption of
this Agreement by the stockholders of the Company, the parties hereto may modify
or amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties; provided, however, that after
adoption of this Agreement by the stockholders of the Company or the Sub, no
amendment shall be made which by law would require the further approval of such
stockholders, without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties;
provided, further, that no amendment affecting the rights of the Independent
Directors pursuant to the first proviso in the first sentence of Section 5.8
shall be effective without the consent of the Independent Directors.
SECTION 7.5 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to Section 7.4, waive compliance with any of the agreements or conditions of the
other parties contained in this Agreement. Any agreement on the part of a party
to any such extension or waiver shall be valid only if set forth in an
22
<PAGE>
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
SECTION 7.6 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Section 7.1 (other than Section
7.1(a)), an amendment of this Agreement pursuant to Section 7.4 or an extension
or waiver pursuant to Section 7.5 shall, in order to be effective and in
addition to requirements of applicable law, require, in the case of Parent, Sub
or the Company, action by its Board of Directors or the duly authorized designee
of its Board of Directors.
ARTICLE VIII.
GENERAL PROVISIONS
SECTION 8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time, including, without
limitation, Section 5.7.
SECTION 8.2 FEES AND EXPENSES. Except as provided otherwise in Sections
5.2 and 7.3, whether or not the Merger shall be consummated, each party hereto
shall pay its own expenses incident to preparing for, entering into and carrying
out this Agreement and the consummation of the transactions contemplated hereby.
SECTION 8.3 DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act;
(b) "Common Stock" means collectively, the Voting Common and the
Non-Voting Common;
(c) "Definitive Financing Agreements" means collectively any of the
documents pursuant to which the Financing is given effect.
(d) "Financing" means the financing pursuant to the terms of the Equity
Letters and the Financing Letters.
(e) "Independent Director" shall mean each of Keith E. Alessi and
Gregory B. Maffei.
(f) "Non-Voting Common" means the Class B Common Stock, par value $.01
per share, of the Company.
(g) "person" or "Person" means an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other
entity;
(h) "Senior Preferred" means the 12.0% Exchangeable Preferred Stock of
the Surviving Corporation, $0.01 par value, having an initial liquidation
preference of $2.50 per share, and the other material terms set forth in
Exhibit B hereto.
(i) "Voting Common" means the Common Stock, par value $.01 per share, of
the Company.
SECTION 8.4 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) or telecopy to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
CBR Acquisition, L.L.C.
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
23
<PAGE>
126 East 56th Street
New York, New York 10022
Attention: Bruce Bruckmann
with a copy (which shall not constitute notice to Parent or Sub) to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Kirk A. Radke
(b) if to the Company, to
CORT Business Service Corporation
4401 Fair Lakes Court
Fairfax, VA 22033
Attention: Paul N. Arnold
with a copy (which shall not constitute notice to the Company) to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103-2793
Attention: G. Daniel O'Donnell
SECTION 8.5 INTERPRETATION. When a reference is made in this Agreement to
a Section or Schedule, such reference shall be to a Section of, or a Schedule
to, this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
SECTION 8.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.7 ENTIRE AGREEMENT; THIRD-PARTY BENEFICIARIES. This Agreement,
the Confidentiality Agreement and the other agreements referred to herein
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement. This Agreement is not intended to confer upon
any person, other than the parties hereto and the third party beneficiaries
referred to in the following sentence, any rights or remedies. The parties
hereto expressly intend the provisions of Section 5.6 and Article II to confer a
benefit upon and be enforceable by, as third party beneficiaries of this
Agreement, the third persons referred to in, or intended to be benefitted by,
such provisions.
SECTION 8.8 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.9 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent, not to be unreasonably withheld, of the other parties, and any
such assignment that is not consented to shall be null and void, except that
Parent may assign this Agreement without the consent of the Company (i) to any
wholly owned Subsidiary or Parent, (ii) together with all of the outstanding
capital stock of Sub, to an entity organized under the corporate or limited
24
<PAGE>
liability laws of a jurisdiction of one of the United States of America, the
ownership interests of which entity are substantially identical to the ownership
interests of Parent and which entity specifically and expressly assumes by
written agreement the obligations of Parent under this Agreement, in either case
without Parent being released from liability hereunder, or (iii) for collateral
security purposes to any source of financing to the Parent, Sub or Surviving
Company. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
SECTION 8.10 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
(without requirement to post a bond) the terms and provisions of this Agreement,
this being in addition to any other remedy to which they are entitled at law or
in equity.
SECTION 8.11 SEVERABILITY. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
SECTION 8.12 Waiver of jury trial each of the parties hereto waives any
right it may have to trial by jury in respect of any litigation based on,
arising out of, under or in connection with this agreement or any course of
conduct, course of dealing, verbal or written statement or action of any party
hereto.
SECTION 8.13 TIME IS OF THE ESSENCE. Parent and Sub agree that time is of
the essence with respect to every covenant, condition to be satisfied, and
action to be taken hereunder within a specified period of time, and shall
proceed accordingly with respect to every action necessary, proper or advisable
to make effective the transactions contemplated by this Agreement.
25
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
<TABLE>
<S> <C> <C>
CORT BUSINESS SERVICES CORPORATION
By: /s/ PAUL N. ARNOLD
-----------------------------------------
Name: Paul N. Arnold
Title: President
Attest:
-----------------------------------------
Name:
Title:
CBF HOLDING LLC
By: /s/ STEPHEN C. SHERRILL
-----------------------------------------
Name: Stephen C. Sherrill
Title: President
Attest:
-----------------------------------------
Name:
Title:
CBF MERGERCO INC.
By: /s/ STEPHEN C. SHERRILL
-----------------------------------------
Name: Stephen C. Sherrill
Title: President
Attest:
-----------------------------------------
Name:
Title:
</TABLE>
26
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
SHARES OF
VOTING SHARES OF NON- % OF TOTAL
STOCKHOLDER COMMON VOTING COMMON TOTAL COMMON
- ---------------------------------------------------- --------------- --------------- -------------- -----------
<S> <C> <C> <C> <C>
Citicorp Venture Capital, Ltd. ..................... 1,428,107.00 4,350,411.00 5,778,518.00 44.1291%
James A. Urry....................................... 5,933.00 0.00 5,933.00 0.0453%
Michael Delaney..................................... 2,500.00 0.00 2,500.00 0.0191%
Bruce Bruckmann..................................... 174,505.00 0.00 174,505.00 1.3327%
Paul Arnold......................................... 27,406.00 0.00 27,406.00 0.2093%
Steven Jobes........................................ 3,350.00 0.00 3,350.00 0.0256%
Charles Egan........................................ 15,314.00 0.00 15,314.00 0.1169%
Frances Ann Ziemniak................................ 21,977.00 0.00 21,977.00 0.1678%
--------------- --------------- -------------- -----------
TOTAL........................................... 1,679,092.00 4,350,411.00 6,029,503.00 45.0458%
--------------- --------------- -------------- -----------
--------------- --------------- -------------- -----------
</TABLE>
<PAGE>
EXHIBIT 2.1(C)
1. Citicorp Venture Capital, Ltd., and its Affiliates and Associates
(collectively, the "CVC Holders") shall have the right to exchange up to
1,981,132.08 shares of Common Stock in the aggregate, for the number of shares
of each series or class of stock of the Surviving Corporation set forth below,
provided, that the ratio of the total number of shares of the Series A
Preferred, Series B Preferred, Series C Preferred and Common Stock of the
Surviving Corporation (the "Surviving Company Stock") shall be adjusted if and
to the extent that the Company's Managers (as defined below) elect to retain
shares pursuant to item 3 below, such that the total number of shares of each
such series or class of Surviving Company Stock shall be equal to the number of
shares to which such CVC Holder would be entitled to receive based on the ratio
set forth below, minus one half of the total number of shares of such series or
class of Surviving Company Stock issued to the Managers.
<TABLE>
<CAPTION>
ASSUMES EACH SHARE
ISSUED AT $1.00 PER SERIES A SERIES B SERIES C
SHARE PREFERRED PREFERRED PREFERRED COMMON STOCK
- ------------------------------------------------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
per share of Common Stock.............................. 8.83333 8.83333 7.57142 1.261905
Total Shares if 1,981,132.08 Exchanged................. 17,500,000 17,500,000 15,000,000 2,500,000
</TABLE>
2. Parent, Sub, and Bruckmann, Rosser, Sherrill & Co., L.P., and their
respective Affiliates and Associates (collectively, the "BRS Holders") shall
have the right to exchange up to 1,981,132.08 shares of Common Stock in the
aggregate, for the number of shares of each series or class of Surviving Company
Stock set forth below, provided, that the ratio of the total number of shares of
each such class or series of Surviving Company Stock shall be adjusted if and to
the extent that the Company's Managers (as defined below) elect to retain shares
pursuant to item 3 below, such that the total number of shares of each such
series or class of Surviving Company Stock shall be equal to the number of
shares to which such BRS Holder would be entitled to receive based on the ratio
set forth below, minus one half of the total number of shares of such series or
class of Surviving Company Stock issued to the Managers.
<TABLE>
<CAPTION>
ASSUMES EACH SHARE
ISSUED AT $1.00 PER SERIES A SERIES B SERIES C
SHARE PREFERRED PREFERRED PREFERRED COMMON STOCK
- ------------------------------------------------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
per share of Common Stock.............................. 8.83333 8.83333 7.57142 1.261905
Total Shares if 1,981,132.08 Exchanged................. 17,500,000 17,500,000 15,000,000 2,500,000
</TABLE>
3. The officers, directors and employees of the Company approved by Parent
and the Company (collectively, the "Managers"), shall have the right to exchange
up to 208,280.92 shares of Common Stock in the aggregate, for the number of
shares of Surviving Company Stock set forth below in the aggregate:
<TABLE>
<CAPTION>
ASSUMES EACH SHARE
ISSUED AT $1.00 PER SERIES A SERIES B SERIES C
SHARE PREFERRED PREFERRED PREFERRED COMMON STOCK
- ------------------------------------------------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total Shares if 208,280.92 Exchanged................... 0.0 2,527,777.78 2,166,666.67 825,000
</TABLE>
<PAGE>
EXHIBIT A
RESTATED
CERTIFICATE OF INCORPORATION
OF
CORT BUSINESS SERVICES CORPORATION
1. NAME. The name of the Corporation is CORT Business Services Corporation.
2. REGISTERED OFFICE AND AGENT. The address of the Corporation's registered
office in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
3. PURPOSE. The purposes for which the Corporation is formed are to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware and to possess and exercise all of the
powers and privileges granted by such law and any other law of Delaware.
4. AUTHORIZED CAPITAL. The aggregate number of shares of stock which the
Corporation shall have authority to issue is 132,000,000 shares, divided into
three (3) classes consisting of: 120,000,000 shares of Preferred Stock, par
value $.01 per share ("Preferred Stock"), 6,000,000 shares of Class A Common
Stock, par value $.01 per share ("Class A Common Stock") and 6,000,000 shares of
Class B Common Stock, par value $.01 per share ("Class B Common Stock"). Class A
Common Stock and Class B Common Stock are hereinafter sometimes collectively
referred to as "Common Stock."
The following is a statement of the designations, preferences,
qualifications, limitations, restrictions and the special or relative rights
granted to or imposed upon the shares of each such class.
A. PREFERRED STOCK
1. ISSUE IN SERIES. Preferred Stock may be issued from time to time in one
or more series, each such series to have the terms stated herein and in the
resolution of the Board of Directors of the Corporation providing for its issue.
All shares of any one series of Preferred Stock will be identical, but shares of
different series of Preferred Stock need not be identical or rank equally except
insofar as provided by law or herein.
2. CREATION OF SERIES. The Board of Directors will have authority by
resolution to cause to be created one or more series of Preferred Stock, and to
determine and fix with respect to each series prior to the issuance of any
shares of the series to which such resolution relates:
a. The distinctive designation of the series and the number of shares
which will constitute the series, which number may be increased or decreased
(but not below the number of shares then outstanding) from time to time by
action of the Board of Directors;
b. The dividend rate and the times of payment of dividends on the
shares of the series, whether dividends will be cumulative or participating,
and if so, from what date or dates;
c. The price or prices at which, and the terms and conditions on which,
the shares of the series may be redeemed at the option of the Corporation;
d. Whether or not the shares of the series will be entitled to the
benefit of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if so entitled, the amount of such fund and
the terms and provisions relative to the operation thereof;
e. Whether or not the shares of the series will be convertible into, or
exchangeable for, any other shares of stock of the Corporation or other
securities, and if so convertible or exchangeable, the conversion price or
prices, or the rates of exchange, and any adjustments thereof, at which such
conversion or exchange may be made, and any other terms and conditions of
such conversion or exchange;
f. The rights of the shares of the series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
<PAGE>
g. Whether or not the shares of the series will have priority over or
be on a parity with or be junior to the shares of any other series or class
in any respect or will be entitled to the benefit of limitations restricting
the issuance of shares of any other series or class having priority over or
being on a parity with the shares of such series in any respect, or
restricting the payment of dividends on or the making of other distributions
in respect of shares of any other series or class ranking junior to the
shares of the series as to dividends or assets, or restricting the purchase
or redemption of the shares of any such junior series or class, and the
terms of any such restriction;
h. Whether the series will have voting rights, in addition to any
voting rights provided by law, and, if so, the terms of such voting rights;
and
i. Any other preferences, qualifications, privileges, options and other
relative or special rights and limitations of that series.
3. DIVIDENDS. Holders of Preferred Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of funds legally available for
the payment thereof, dividends at the rates fixed by the Board of Directors for
the respective series, and no more, before any dividends shall be declared and
paid, or set apart for payment, on Common Stock with respect to the same
dividend period.
4. PREFERENCE ON LIQUIDATION. In the event of the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, holders of each
series of Preferred Stock will be entitled to receive the amount fixed for such
series plus, in the case of any series on which dividends will have been
determined by the Board of Directors to be cumulative, an amount equal to all
dividends accumulated and unpaid thereon to the date of final distribution
whether or not earned or declared before any distribution shall be paid, or set
aside for payment, to holders of Common Stock. If the assets of the Corporation
are not sufficient to pay such amounts in full, holders of all shares of
Preferred Stock will participate in the distribution of assets ratably in
proportion to the full amounts to which they are entitled or in such order or
priority, if any, as will have been fixed in the resolution or resolutions
providing for the issue of the series of Preferred Stock. Neither the merger nor
consolidation of the Corporation into or with any other corporation, nor a sale,
transfer or lease of all or part of its assets, will be deemed a liquidation,
dissolution or winding up of the corporation within the meaning of this
paragraph except to the extent specifically provided for herein.
5. REDEMPTION. The Corporation, at the option of the Board of Directors, may
redeem all or part of the shares of any series of Preferred Stock on the terms
and conditions fixed for such series.
6. VOTING RIGHTS. Except as otherwise required by law, as otherwise provided
herein or as otherwise determined by the Board of Directors as to the shares of
any series of Preferred Stock prior to the issuance of any such shares, the
holders of Preferred Stock shall have no voting rights and shall not be entitled
to any notice of meeting of stockholders.
B. COMMON STOCK. Except as otherwise provided herein, all shares of Class A
Common Stock and Class B Common Stock will be identical and will entitle the
holders thereof to the same rights and privileges.
1. DIVIDENDS. Holders of Common Stock will be entitled to receive ratably
such dividends as may be declared by the Board of Directors, PROVIDED that if
dividends are declared which are payable in shares of Common Stock, dividends
will be declared which are payable at the same rate on each class of Common
Stock and the dividends payable to holders of Class A Common Stock will be
payable in shares of Class A Common Stock and the dividends payable to holders
of Class B Common Stock will be payable in shares of Class B Common Stock.
2. CONVERSION. Each record holder of Class A Common Stock will be entitled
to convert any or all of such holder's Class A Common Stock into the same number
of shares of Class B Common Stock and each record holder of Class B Common Stock
will be entitled to covert any or all of the shares of such
2
<PAGE>
holder's Class B Common Stock into the same number of shares of Class A Common
Stock; PROVIDED, HOWEVER, that at the time of conversion of shares of Class B
Common Stock into shares of Class A Common Stock such holder would be permitted,
pursuant to applicable law, to hold the total number of shares of Class A Common
Stock which he would hold after giving effect to such conversion; and PROVIDED,
FURTHER, that the determination of a holder of Class B Common Stock that such
holder is permitted pursuant to applicable law to convert Class B Common Stock
into Class A Common Stock pursuant to this Section 2 shall be final and binding
upon the Company.
Each conversion of shares of a class of Common Stock into shares of another
class of Common Stock, will be effected by the surrender of the certificate or
certificates representing the shares to be converted at the principal office of
the Corporation at any time during normal business hours, together with a
written notice by the holder of such shares stating the number of shares that
any such holder desires to convert into the other class. Such conversion will be
deemed to have been effected as of the close of business on the date on which
such certificate or certificates have been surrendered and such notice has been
received by the Corporation, and at such time the rights of any such holder with
respect to the converted class of Common Stock will cease and the person or
persons in whose name or names the certificate or certificates for shares of the
other class of Common Stock are to be issued upon such conversion will be deemed
to have become the holder or holders of record of the shares of such other class
of Common Stock represented thereby.
Promptly after such surrender and the receipt by the Corporation of the
written notice from the holder hereinbefore referred to, the Corporation will
issue and deliver in accordance with the surrendering holder's instructions the
certificate or certificates for the other class of Common Stock issuable upon
such conversion and a certificate representing any shares of Common Stock which
were represented by the certificate or certificates delivered to the Corporation
in connection with such conversion but which were not converted. The issuance of
certificates for the other class of Common Stock upon conversion will be made
without charge to the holder or holders of such shares for any issuance tax
(except stock transfer taxes) in respect thereof or other cost incurred by the
Corporation in connection with such conversion.
3. TRANSFERS. The Corporation will not close its books against the transfer
of any share of Common Stock, or of any share of Common Stock issued or issuable
upon conversion of shares of the other class of Common Stock, in any manner that
would interfere with the timely conversion of such shares of Common Stock.
4. SUBDIVISION AND COMBINATIONS OF SHARES. If the Corporation in any manner
subdivides or combines the outstanding shares of any class of Common Stock, the
outstanding shares of the other class of Common Stock will be proportionately
subdivided or combined.
5. RESERVATION OF SHARES FOR CONVERSION. So long as any shares of any class
of Common Stock are outstanding, the Corporation will at all times reserve and
keep available out of its authorized but unissued shares of Class A Common Stock
and Class B Common Stock (or any shares of Class A Common Stock or Class B
Common Stock which are held as treasury shares), the number of shares sufficient
for issuance upon conversion of all outstanding shares of the other class of
Common Stock.
6. VOTING RIGHTS. The holders of Class A Common Stock shall have the general
right to vote for all purposes, including the election of directors, as provided
by law. Each holder of Class A Common Stock shall be entitled at all elections
of directors to as many votes as shall equal the number of votes which such
holder would be entitled to cast for the election of directors with respect to
his shares of stock multiplied by the number of directors to be elected, and
such holder may cast all of such votes for a single director or may distribute
them among the number to be voted for, or for any two or more of them as he may
see fit, and to one vote for each share upon all other matters. Except as
otherwise required by law, the holders of Class B Common Stock shall have no
voting rights.
3
<PAGE>
7. MERGER, ETC. In connection with any merger, consolidation, or
recapitalization in which holders of Class A Common Stock generally receive, or
are given the opportunity to receive, consideration for their shares (a) all
holders of Class B Common Stock shall be given the opportunity to receive the
same form of consideration for their shares as is received by holders of Class A
Common Stock and (b) holders of Class B Common Stock shall be entitled to
receive the same amount of consideration per share as received by holders of
Class A Common Stock.
5. INCORPORATOR. The name and mailing address of the incorporator are Luann
M. Taiariol, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia,
Pennsylvania 19103-2793.
6. BYLAWS. The board of directors of the Corporation is authorized to adopt,
amend or repeal the bylaws of the Corporation, except as otherwise specifically
provided therein.
7. ELECTIONS OF DIRECTORS; BOARD NOT CLASSIFIED. Directors shall be elected
at an annual meeting of stockholders and shall serve until the next annual
meeting of stockholders. Elections of directors need not be by written ballot
unless the bylaws of the Corporation shall so provide. The Board of Directors
shall not be classified.
8. DIRECTOR VACANCIES. The Board of Directors may fill any vacancy on the
Board at any time after the commencement of such vacancy.
9. RIGHT TO AMEND. The Corporation reserves the right to amend any provision
contained in this Certificate as the same may from time to time be in effect in
the manner now or hereafter prescribed by law, and all rights conferred on
stockholders or others hereunder are subject to such reservation.
10. LIMITATION ON LIABILITY. The directors of the Corporation shall be
entitled to the benefits of all limitations on the liability of directors
generally that are now or hereafter become available under the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
no director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. Any repeal or
modification of this Section 10 shall be prospective only, and shall not affect,
to the detriment of any director, any limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or modification.
11. BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS. The Company shall
not be governed by the provisions of Section 203 of the General Corporation Law
of Delaware.
4
<PAGE>
EXHIBIT A
SUMMARY OF TERMS
OF 12.0% SERIES A-1 SENIOR PREFERRED STOCK
<TABLE>
<S> <C>
Issuer........................ The Surviving Corporation.
Security...................... Series A-1 Preferred Stock.
Amount........................ Up to $35.0 million.
Rank.......................... The Series A-1 Preferred Stock will rank senior to all other
series of Preferred Stock and Common Stock of the Surviving
Corporation (other than any series approved pursuant to (b)
under "Voting Rights" below) for dividend, repurchase and
liquidation purposes, except that the Series A-1 Preferred
Stock shall rank PARI PASSU with the Series A-2 Preferred
Stock, which series of Preferred shall be identical as to
dividend rate and liquidation preference and the remaining
terms shall be identical to, or less favorable to the
holders thereof than, the Series A-1 Preferred Stock and
shall have an aggregate liquidation preference (not
including accrued and unpaid dividends) of no more than $35
million.
Dividends..................... $0.30 per share PER ANNUM, payable, when, as and if declared
by the Board of Directors, subject to covenants of senior
lenders. All dividends shall be cumulative, whether or not
earned or declared and will be payable in cash after the
fifth anniversary of the Effective Time. Quarterly
accumulated dividends not paid (whether earned or declared)
will be added quarterly to the liquidation preference of the
Series A-1 Preferred and shall accrue dividends thereon at
12.0% per annum.
Redemption.................... Optionally redeemable, in whole or in part, at any time, for
the liquidation preference, plus an amount equal to
cumulative dividends (whether or not earned or declared)
accrued and unpaid thereon, without premium or penalty,
provided that in the event the Series A-1 Preferred is
redeemed on or prior to December 31, 2000, the shares will
be redeemable at 109.25% of the liquidation value, and
shares redeemed on or after January 1, 2001 but before
January 1, 2003, will be redeemable at 104.625% of the
liquidation value thereof. Mandatorily redeemable on the
twelfth anniversary of the date of issuance, for the
liquidation preference thereof, plus an amount equal to
cumulative dividends (whether or not earned or declared)
accrued and unpaid thereon.
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Liquidation Preference........ The Series A-1 Preferred will have a liquidation preference
of $2.50 per share, plus an amount equal to cumulative
dividends (whether or not earned or declared) accrued and
unpaid thereon. The Series A-1 Preferred will be junior to
all of the Surviving Corporation's debt and preferred stock
(approved pursuant to (b) under "Voting Rights" below) which
by its terms and conditions is senior to the Series A-1
Preferred, will have liquidation priority over the Company's
Series B Preferred Stock, Series C Preferred Stock, Common
Stock and other equity securities which by their terms are
junior to the Series A-1 Preferred.
Exchange...................... At any time, in whole but not in part, at Company's option
into 12% Junior Subordinated Notes ("JDSs") having an
aggregate principal amount equal to the liquidation value
plus accrued and unpaid dividends, provided that at the time
of such exchange all accrued and unpaid dividends are paid
in cash. The JDSs will mature on the mandatory redemption
date of the Series A-1 Preferred. Interest on the JDSs will
be payable, prior to the fifth anniversary of the Effective
Time in kind, and thereafter, in cash, quarterly in arrears.
The holders shall not have any right to require the
conversion of the Series A-1 Preferred.
Covenants..................... The Surviving Corporation will be prohibited from paying
dividends or making any other distributions to holders of
the junior securities or repurchasing any junior securities
prior to the complete redemption of the Series A-1 Preferred
Stock other than payments in kind, redemptions with respect
to securities held by members of management, and certain
payments on the Series B or C Preferred held by CVC (not to
exceed $4.0 million in the first year after the Effective
Time and $1.0 million in each year thereafter).
Voting Rights................. None, except (a) as required by law, (b) with respect to the
authorization of any series of stock of the Surviving
Corporation with a dividend or liquidation preference over
the Series A-1 Preferred, (c) with respect to any amendment
to the terms of the Series A-1 Preferred, and (d) if after
the fifth anniversary of the Effective Time cash dividends
are in arrears for periods beginning on or after the fifth
anniversary of the Effective Time for four quarterly periods
(whether or not consecutive), holders of a majority of the
outstanding shares of Series A-1 Preferred Stock voting as a
class will be entitled to one director.
Preemptive Rights............. None.
</TABLE>
2
<PAGE>
BRUCKMANN, ROSSER, SHERILL & CO., L.P.
126 EAST 56TH STREET, 29TH FLOOR
NEW YORK, NEW YORK 10022
March 25, 1999
CBF Mergerco, Inc.
c/o Bruckmann, Rosser, Sherrill & Co., L.P.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Bruce Bruckmann
Dear Mr. Bruckmann:
1. COMMITMENT. This letter (the "LETTER AGREEMENT") will confirm the
commitment of Bruckmann, Rosser, Sherrill & Co., L.P., a Delaware limited
partnership ("BRS" or "US"), and its affiliates to provide or cause others to
provide up to $52,500,000 in the aggregate of equity financing (the "FINANCING")
(i) to CBF Mergerco Inc., a Delaware corporation (the "COMPANY"), and (ii) to
the Surviving Corporation (as defined in the Merger Agreement described below)
on behalf of the Company by way of a rollover of shares of common stock of CORT
(as defined below), in each case subject to the terms and conditions set forth
herein; PROVIDED, that the proceeds from the Financing shall be used solely as
part of the equity contribution required to affect the transactions (the
"TRANSACTIONS" described in the Agreement and Plan of Merger, by and among CORT
Business Services Corporation, a Delaware corporation ("CORT"), CBF Holdings
LLC, a Delaware limited liability company, and the Company (as amended from time
to time, the "MERGER AGREEMENT"); and PROVIDED FURTHER, that the actual amount
to be contributed by BRS pursuant to the Financing shall be reduced by an amount
equal to half of the amount, if any, contributed to the equity capital of the
Surviving Corporation by members of CORT's management and/or other third parties
in connection with the Transactions and approved by BRS.
2. CONDITIONS. Our commitment to fund any obligation hereunder is subject to
the satisfaction of the following conditions precedent with respect to the
Transactions (collectively, the "CONDITIONS"):
(a) all other conditions precedent to the Company's obligation to
consummate the Transactions, other than with respect to any condition
related to BRS's obligations under the Merger Agreement (if any) and
hereunder, shall have been waived or satisfied to BRS's reasonable
satisfaction;
(b) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Transactions
shall be in effect; PROVIDED, however, that upon invoking this condition,
BRS shall use reasonable efforts to have any such order or injunction
vacated. There shall not be threatened, instituted or pending any action,
proceeding, application or counterclaim against CORT, the Company, CVC or
BRS by any Governmental Entity before any court or governmental regulatory
or administrative agency, authority or tribunal (i) which if adversely
determined would have a Material Adverse Effect (as defined in the Merger
Agreement) on the Surviving Corporation or the ability of any party to this
Letter Agreement or the Merger Agreement to perform its obligations
hereunder or thereunder, or (ii) which challenges or seeks to challenge,
restrain or prohibit the consummation of the Transactions.
3. TERMINATION. This commitment will be effective upon the Company's
acceptance of the terms and conditions of this letter agreement and will expire,
unless otherwise waived by BRS in its sole discretion, as of the earliest to
occur of (i) October 31, 1999, and (ii) the termination of the Merger Agreement
pursuant to the terms and conditions thereof.
4. GOVERNING LAW. THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (EXCLUDING THE
PROVISIONS OF SUCH LAWS REGARDING CONFLICTS OF LAW).
3
<PAGE>
5. ASSIGNMENT; AMENDMENT AND WAIVER. Neither this Letter Agreement nor any
of the rights, interests or obligations hereunder may be assigned by BRS or the
Company without the prior written consent of the other, PROVIDED, that BRS shall
be entitled to assign its interests and obligations hereunder to any one or more
of its affiliates without obtaining any such consent of the Company. Any
provision of this Letter Agreement may be amended only with prior written
consent of BRS and the Company. Any provision of this Letter Agreement for the
benefit of a party hereto may be waived by such party (either generally or in
particular and either retroactively or prospectively), only by a written
instrument signed by the party waiving compliance.
6. NOTICES. All notices, requests, claims, demands and other communications
hereunder shall be in writing and delivered personally, sent by documented
overnight delivery service or, to the extent receipt is confirmed, telecopy,
telefax or other electronic transmission service to the appropriate address or
number as set forth below. Notices shall be effective only upon actual receipt.
Notices to the Company shall be addressed to:
CBF Mergerco, Inc.
c/o Bruckmann, Rosser, Sherrill & Co., L.P.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Bruce Bruckmann
(212) 521-3799 (telecopier)
(212) 521-3706 (telephone)
with a copy to (which shall not constitute notice to the Company):
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
(212) 446-4900 (telecopier)
(212) 446-4940 (telephone)
or at such other address and to the attention of such other person as the
Company may designate by written notice to BRS. Notices to BRS shall be
addressed to:
Bruckmann, Rosser, Sherrill & Co., L.P.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Bruce Bruckmann
New York, NY 10022
(212) 521-3799 (telecopier)
(212) 521-3706 (telephone)
with a copy to (which shall not constitute notice to BRS):
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
(212) 446-4900 (telecopier)
(212) 446-4940 (telephone)
or at such other address and to the attention of such other person as BRS may
designate by written notice to the Company.
4
<PAGE>
7. COMPLETE AGREEMENT. This Letter Agreement and the other documents and
writings referred to herein or delivered pursuant hereto contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and thereof.
8. NO THIRD PARTY BENEFICIARIES. This Letter Agreement is not intended and
shall not be deemed to confer any benefit upon any person or entity other than
(i) the parties hereto and (ii) in the event that BRS fails to perform its
obligations hereunder and the Company does not promptly take legal action to
compel such performance, CORT.
9. HEADINGS. The headings contained in this Letter Agreement are for
reference only and shall not affect in any way the meaning or interpretation of
this Letter Agreement.
10. CONFIDENTIALITY. Neither the Company nor BRS nor any of their respective
representatives or affiliates shall disclose to any third party the terms or
existence of this agreement without the written consent of the other, except as
otherwise required by law.
<TABLE>
<S> <C> <C>
*****
Very truly yours,
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
By: BRS Partners, Limited Partnership
Its: General Partner
By: BRSE Associates, Inc.
Its: General Partner
By: /s/
---------------------------------------
Name:
Title:
</TABLE>
<TABLE>
<S> <C>
Agreed and Accepted:
CBF MERGERCO INC.
By: /s/
------------------------------------------
Name:
Title:
</TABLE>
5
<PAGE>
CITICORP VENTURE CAPITAL, LTD.
399 PARK AVENUE
NEW YORK, NEW YORK 10022
March 25, 1999
CBF Mergerco, Inc.
c/o Bruckmann, Rosser, Sherrill & Co., L.P.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Bruce Bruckmann
Dear Mr. Bruckmann:
1. COMMITMENT. This letter (the "Letter Agreement") will confirm the
commitment of Citicorp Venture Capital, Ltd, a New York corporation ("CVC" or
"us"), and its affiliates to provide or cause others to provide up to
$52,500,000 in the aggregate of equity financing (the "Financing") (i) to CBF
Mergerco Inc., a Delaware corporation (the "Company"), and (ii) to the Surviving
Corporation (as defined in the Merger Agreement described below) on behalf of
the Company by way of a rollover of shares of common stock of CORT (as defined
below), in each case subject to the terms and conditions set forth herein;
provided, that the proceeds from the Financing shall be used solely as part of
the equity contribution required to affect the transactions (the "Transactions")
described in the Agreement and Plan of Merger, by and among CORT Business
Services Corporation, a Delaware corporation ("CORT"), CBF Holdings LLC, a
Delaware limited liability company, and the Company (as amended from time to
time, the "Merger Agreement"); and provided further, that the actual amount to
be contributed by CVC pursuant to the Financing shall be reduced by an amount
equal to half of the amount, if any, contributed to the equity capital of the
Surviving Corporation by members of CORT's management and/or other third parties
in connection with the Transaction and approved by CVC.
2. CONDITIONS. Our commitment to fund any obligation hereunder is subject
to the satisfaction of the following conditions precedent with respect to the
Transactions (collectively, the "Conditions"):
(a) all other conditions precedent to the Company's obligation to
consummate the Transactions, other than with respect to any condition related to
CVC's obligations under the Merger Agreement (if any) and hereunder, shall have
been waived or satisfied to CVC's reasonable satisfaction;
(b) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Transactions shall
be in effect; provided, however, that upon invoking this condition, BRS shall
use reasonable efforts to have any such order or injunction vacated. There shall
not be threatened, instituted or pending any action, proceeding, application or
counterclaim against CORT, the Company, CVC or BRS by any Governmental Entity
before any court or governmental regulatory or administrative agency, authority
or tribunal (i) which if adversely determined would have a Material Adverse
Effect (as defined in the Merger Agreement) on the Surviving Corporation or the
ability of any party to this Letter Agreement or the Merger Agreement to perform
its obligations hereunder or thereunder, or (ii) which challenges or seeks to
challenge, restrain or prohibit the consummation of the Transactions.
3. TERMINATION. This commitment will be effective upon the Company's
acceptance of the terms and conditions of this letter agreement and will expire,
unless otherwise waived by CVC in its sole discretion, as of the earliest to
occur of (i) October 31, 1999, and (ii) the termination of the Merger Agreement
pursuant to the terms and conditions thereof.
6
<PAGE>
4. GOVERNING LAW. This Letter Agreement shall be governed by and construed
in accordance with the internal laws of the state of New York (excluding the
provisions of such laws regarding conflicts of law).
5. ASSIGNMENT; AMENDMENT AND WAIVER. Neither this Letter Agreement nor any
of the rights, interests or obligations hereunder may be assigned by CVC or the
Company without the prior written consent of the other; provided, that CVC shall
be entitled to assign its interests and obligations hereunder to any one or more
of its affiliates without obtaining any such consent of the Company. Any
provision of this Letter Agreement may be amended only with the prior written
consent of CVC and the Company. Any provision of this Letter Agreement for the
benefit of a party hereto may be waived by such party (either generally or in
particular and either retroactively or prospectively), only by a written
instrument signed by the party waiving compliance.
6. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
telecopy, telefax or other electronic transmission service to the appropriate
address or number as set forth below. Notices shall be effective only upon
actual receipt.
Notices to the Company shall be addressed to:
CBF Mergerco, Inc.
c/o Bruckmann, Rosser, Sherrill & Co., L.P.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Bruce Bruckmann
(212) 521-3799 (telecopier)
(212) 521-3706 (telephone)
with a copy to (which shall not constitute notice to the Company):
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
(212) 446-4900 (telecopier)
(212) 446-4940 (telephone)
or at such other address and to the attention of such other person as the
Company may designate by written notice to CVC. Notices to CVC shall be
addressed to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor, Zone 4
Attention: Mr. James Urry
New York, NY 10022
(212) 888-2940 (telecopier)
(212) 559-2009 (telephone)
with a copy to (which shall not constitute notice to CVC):
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke,Esq.
(212) 446-4900 (telecopier)
(212) 446-4940 (telephone)
7
<PAGE>
or at such other address and to the attention of such other person as CVC may
designate by written notice to the Company.
7. COMPLETE AGREEMENT. This Letter Agreement and the other documents and
writings referred to herein or delivered pursuant hereto contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and thereof.
8. NO THIRD PARTY BENEFICIARIES. This Letter Agreement is not intended and
shall not be deemed to confer any benefit upon any person or entity other than
(i) the parties hereto and (ii) in the event that CVC fails to perform its
obligations hereunder and the Company does not promptly take legal action to
compel such performance, CORT.
9. HEADINGS. The headings contained in this Letter Agreement are for
reference only and shall not affect in any way the meaning or interpretation of
this Letter Agreement.
10. CONFIDENTIALITY. Neither the Company nor CVC nor any of their
respective representatives or affiliates shall disclose to any third party the
terms or existence of this agreement without the written consent of the other,
except as otherwise required by law.
* * * * * *
<TABLE>
<S> <C> <C>
Very truly yours,
CITICORP VENTURE CAPITAL, LTD.
By: /s/ JAMES A. URRY
-----------------------------------------
Name: James A. Urry
Title: Vice President
</TABLE>
<TABLE>
<S> <C> <C>
Agreed and Accepted:
CBF MERGERCO INC.
By: /s/ STEPHEN C. SHERRILL
-------------------------------------------
Name: Stephen C. Sherrill
Title: President
</TABLE>
8
<PAGE>
ANNEX B
March 25, 1999
Board of Directors
CORT Business Services Corporation
4401 Fair Lakes Court
Fairfax, VA 22033
Members of the Board:
We understand that CORT Business Services Corporation ("CORT" or the
"Company") will enter into an Agreement and Plan of Merger to be dated March 26,
1999 (the "Agreement"), with Acquisition Holdings, L.L.C. ("Parent") and
Acquisition Merger Sub, Inc. ("Sub") in substantially the form provided to us in
rendering this opinion. The Agreement provides that, at the effective time of
the merger (the "Merger") of Sub with and into CORT (the "Effective Time"), CORT
will become a wholly-owned subsidiary of Parent and each outstanding share of
Common Stock (as defined by the Agreement) of CORT (other than shares canceled
pursuant to Section 2.1(b) of the Agreement and other than Dissenting Shares (as
defined by the Agreement) and Retained Shares (as defined by the Agreement))
will be converted into the right to receive (i) $24.00 in cash and (ii) one
share of Senior Preferred (as defined by the Agreement), which consideration is
referred to in the Agreement and herein as the "Merger Consideration." The terms
and conditions of the Merger are more fully set forth in the Agreement.
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, of the Merger Consideration to the shareholders
of the Company receiving the Merger Consideration (the "Non-Affiliated
Shareholders").
SunTrust Equitable Securities Corporation ("SunTrust Equitable"), as part of
its investment banking business, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. SunTrust Equitable has been engaged to render an opinion to the Board
of Directors of the Company with respect to the fairness, from a financial point
of view, to the Non-Affiliated Shareholders of the Merger Consideration and will
receive a fee for rendering this opinion and reimbursement of its expenses. In
addition, the Company has agreed to indemnify SunTrust Equitable for certain
liabilities arising out of its engagement, including the rendering of this
opinion. In the ordinary course of business, we trade the equity securities of
the Company for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in these securities.
In connection with our opinion, we have reviewed, among other things, the
Agreement, certain publicly-available information and certain other financial
information, reports, forecasts and other internal information that was provided
to us by or on behalf of the Company for purposes of our analysis. We held
discussions with the management and representatives of the Company concerning
the historical and current operations of the Company, its financial condition
and its prospects. In addition, we conducted such other financial studies,
analyses and investigations and reviewed such other information and factors as
we deemed appropriate for purposes of this opinion.
In rendering this opinion, we have relied, without assuming any
responsibility for independent verification, on the accuracy and completeness of
all financial and other information reviewed by us that was publicly available
or furnished to us by or on behalf of the Company. We have assumed with your
consent that the financial forecasts that we examined were reasonably prepared
on bases reflecting the best currently available estimates and good faith
judgments of the management of the Company. We express no opinion with respect
to such forecasts or the assumptions on which they were based. We have not made
an independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of the Company,
<PAGE>
Board of Directors
March 25, 1999
Page 2
nor were we furnished with any such evaluations or appraisals. In connection
with the preparation of this opinion we have not been authorized to solicit nor
have we solicited or evaluated any alternative transaction with any other party.
Our opinion is based upon economic, market and other conditions as they exist
and can be evaluated on the date hereof. Our opinion does not address the merits
of the underlying decision by the Company to engage in the Merger and does not
constitute a recommendation to any shareholder of the Company as to whether or
not that shareholder should vote to approve the Merger. The financial markets in
general, and the markets for the securities of the Company, in particular, are
subject to volatility, and this opinion does not purport to address potential
developments in the financial markets or the markets for the securities of the
Company after the date hereof.
This letter may not be reproduced, disseminated, quoted or referred to at
any time without our prior written consent; however, the opinion rendered hereby
may be included in its entirety in the proxy statement relating to the Merger to
be distributed by the Company to its shareholders.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration is fair, from a financial point of view,
to the Non-Affiliated Shareholders of the Company.
Very truly yours,
SunTrust Equitable Securities
Corporation
<PAGE>
ANNEX C
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to sec. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 stockholders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require for
its approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to secs. 251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228 or
sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
2
<PAGE>
therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on
3
<PAGE>
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted such stockholder's certificates of
stock to the Register in Chancery, if such is required, may participate fully in
all proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems STES in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
4
<PAGE>
SCHEDULE I
PURCHASES OF SHARES BY CORT
AND CERTAIN AFFILIATES
<TABLE>
<CAPTION>
QUARTERLY NUMBER OF SHARES RANGE OF
PURCHASER PERIOD PURCHASED PRICES
- ------------------------------------------------------------- --------------- ----------------- --------------
<S> <C> <C> <C>
CORT......................................................... 1997(1) 4,259 $ 0.26- 9.09
CORT......................................................... 1998(1) 713 $ 8.23- 9.66
CORT......................................................... Q3 1998 3,500 $ 40.06
CORT......................................................... Q4 1998 4,998 $ 18.13
Paul N. Arnold............................................... Q3 1997 100 $ 35.75
Bruce C. Bruckmann........................................... Q3 1998 17,600 $ 24.06-31.31
Michael A. Delaney........................................... Q2 1998 2,500 $ 31.00
Kenneth W. Hemm.............................................. Q3 1998 3,500 $ 30.13
</TABLE>
- ------------------------
(1) Shares purchased from terminated management investors pursuant to the
Company's Stock Option, Securities Purchase and Stockholders' Agreement.
<PAGE>
EXHIBIT (d)(5)
CORT BUSINESS SERVICES SIGNS DEFINITIVE MERGER AGREEMENT WITH INVESTOR GROUP
FAIRFAX, Va., March 26, 1999 -- CORT Business Services Corporation
(NYSE: CBZ) today announced that it has executed a definitive merger
agreement with an investor group that includes Bruckmann, Rosser, Sherrill &
Co., Inc. ("BRS") and members of the Company's management team. Under the
terms of the agreement, a company formed by the investor group would acquire
the Company for consideration of $24.00 per share in cash and $2.50 per share
in liquidation value of a new series of preferred stock. This represents a
58% premium to the price of CORT's common stock at the close of business on
March 25, 1999. Citicorp Venture Capital, Ltd. ("CVC"), which currently holds
approximately 44% of the Company's outstanding common stock, will retain a
portion of its investment and thereby provide equity financing to the
resulting corporation. Including the assumption of debt, the transaction is
valued at approximately $453 million and is intended to be accounted for as a
recapitalization for financial reporting purposes.
The merger agreement requires approval by the holders of a majority of
the Company's voting stock and, in addition, approval by the holders of a
majority of the outstanding voting stock who are not affiliated with BRS, CVC
or other members of the investor group. The merger is also subject to other
conditions, including receipt of necessary financing, a limitation on the
number of dissenting shareholders and certain regulatory approvals. BRS and
CVC have committed to provide up to $105 million of equity financing for the
transaction. The merger agreement will terminate if the investor group has
not obtained customary commitment and highly confident letters to provide the
required debt financing within thirty days after the date of the merger
agreement. The transaction is expected to be completed by the end of the
second quarter of this year.
Commenting on the merger, Paul Arnold, President and Chief Executive
Officer of the Company, said: "As always, one of our first priorities is to
deliver value to CORT stockholders. We believe that this transaction is the
best way to accomplish that in a very significant and immediate way. Our
stockholders will receive a sizable premium over current market levels and
our company will be able to continue its tradition of providing outstanding
service to its customers."
The Company said that its Board of Directors had received an opinion
from SunTrust Equitable Securities Corporation that the transaction is fair
from a financial point of view to the non-affiliated stockholders.
<PAGE>
BRS is a private investment firm based in New York that focuses on
investing in quality businesses. Representative investments by BRS include
Jitney-Jungle Stores of America, California Pizza Kitchen and MEDIQ.
CORT Business Services Corporation, through its wholly owned subsidiary,
CORT Furniture Rental Corporation, is the leading provider of rental
furniture, accessories and related services in the "rent-to-rent" segment of
the furniture industry. CORT provides quality products and services to
corporate and individual customers to meet their temporary furniture needs,
including those for office, residential and trade show furnishings. The
Company operates 119 rental showrooms, 83 furniture clearance centers and 75
warehouses in 32 states and the District of Columbia.
The statements which are not historical facts contained in this press
release are forward-looking statements that involve certain risks and
uncertainties including but not limited to risks associated with the
uncertainty of future financial results, acquisitions, additional financing
requirements, development of new products and services, the effect of
competitive products or pricing, the effect of economic conditions and other
uncertainties detailed in the Company's filings with the Securities and
Exchange Commission.
<PAGE>
Exhibit (d)(6)
CORT BUSINESS SERVICES CORPORATION ANNOUNCES FIRST QUARTER RESULTS (4.21.99)
Fairfax, VA, April 21, 1999 -- CORT Business Services Corporation (NYSE: CBZ)
today reported revenue and earnings for the first quarter ended March 31,
1999.
Revenues for the quarter rose 14.5% to $86.4 million compared to $75.4
million for the first quarter of 1998. Operating earnings rose 6.2% to $13.4
million. Net income for the quarter was $6.9 million or $0.51 per share.
These results represent an 11.3% increase over net income of $6.2 million for
the first quarter of 1998, and a 10.9% increase over earnings per share of
$0.46 for the same quarter last year.
Commenting on CORT's results for the first quarter, Paul N. Arnold, President
and Chief Executive Officer, said, "I am pleased with the Company's overall
performance. We continue to integrate acquisitions and to make the
investments necessary to strengthen our business while delivering increased
earnings. In particular, I'd like to note that our trade show division, which
expanded significantly through acquisition late in 1998, performed well in
this, its busiest, quarter.
"Rental revenues grew 14.3% while sales revenues increased 15.4% compared to
last year. Despite a strong quarter overall, we were disappointed by core
rental revenue growth. Core growth, which is growth before the impact of
acquisitions and trade show operations, increased about 2%. Improving this
measure is an important objective for us, and I am confident that we are
taking the right steps to achieve that.
<PAGE>
"Gross margins declined slightly during the quarter compared to the
year-earlier period as a result of lower sales margins as we acted
aggressively to reduce the Company's level of idle inventory," Mr. Arnold
said.
"For the first quarter of 1999, selling, general and administrative expenses
increased as a percentage of revenue as a result of continuing investments in
personnel, facilities, and the development of an effective internet business
channel. The operating margin for the first quarter was approximately 15.5%
compared to 16.7% for the same quarter last year.
"Earlier this month we completed two small transactions with Aaron Rents that
we expect will make modest but positive improvements to our profitability
going forward. We acquired from Aaron their furniture rental contracts in the
New Orleans market and sold to them our furniture rental contracts and real
estate leases in the Birmingham, Alabama market," said Mr. Arnold.
On another matter, CORT also announced today that it has been informed by the
investor group with whom it has signed a merger agreement that the investor
group has received commitment and highly confident letters for the debt
financing required to complete the transaction. The transaction was announced
on March 26, 1999, and the investor group includes the private investment
firm Bruckmann, Rosser, Sherrill & Co., Inc. and members of the Company's
management team. The Company continues to expect that the transaction will be
completed by the end of the second quarter of 1999.
CORT Business Services Corporation is the leading provider of rental
furniture, accessories and related services in the "rent-to-rent" segment of
the furniture industry. CORT provides quality products and services to
corporate and individual customers to meet their temporary furniture needs,
including those for office, residential and trade show furnishings. The
Company operates 119 rental showrooms, 83 furniture clearance centers and 75
warehouses in 34 states and the District of Columbia.
The statements which are not historical facts contained in this press release
are forward-looking statements that involve certain risks and uncertainties
including but not limited to risks associated with the new uncertainty of
future financial results, acquisitions, additional financing requirements,
development of new products and services, the effect of competitive products
or pricing, the effect of economic conditions and other uncertainties
detailed in the Company's filings with the Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
CORT BUSINESS SERVICES CORPORATION
RESULTS OF OPERATIONS
(in thousands, except per share amounts)
- ----------------------------------------------------------------
Three Months Ended March 31, 1999 1998
- ----------------------------------------------------------------
<S> <C> <C>
Furniture rental........................ $71,795 $62,814
Furniture sales......................... 14,569 12,629
Total revenue........................... 86,364 75,443
Cost of furniture rental & sales........ 21,718 18,702
Selling, general & administrative
expenses.............................. 51,292 44,166
Operating earnings...................... 13,354 12,575
Interest expense........................ 1,421 1,967
Income tax expense...................... 5,040 4,417
Net Income.............................. $ 6,893 $ 6,191
</TABLE>
<TABLE>
<S> <C> <C>
Earnings per common share:
Basic......................... $ 0.53 $ 0.48
Diluted....................... $ 0.51 $ 0.46
Shares used in per share computations:
Basic......................... 13,087 12,924
Diluted....................... 13,394 13,472
</TABLE>
