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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
SCHEDULE 13E-3/A
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. II, L.P.
CBF HOLDING LLC
CBF MERGERCO, INC.
CITICORP VENTURE CAPITAL LTD.
PAUL N. ARNOLD
ANTHONY J. BELLERDINE
CHARLES M. EGAN
KENNETH W. HEMM
STEVEN D. JOBES
LLOYD LENSON
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/
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<S> <C>
AMOUNT PREVIOUSLY PAID: FILING PARTY: CORT BUSINESS SERVICES CORPORATION
FORM OR REGISTRATION NO.: PRELIMINARY PROXY STATEMENT/ DATE FILED: AUGUST 27, 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. II, L.P., Citicorp Venture Capital Ltd., Paul N. Arnold,
Anthony J. Bellerdine, Charles M. Egan, Kenneth W. Hemm, Steven D. Jobes,
Lloyd Lenson, 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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<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>
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 BENEFICIAL OWNERS AND
DIRECTORS AND OFFICERS;" Schedule I to the Proxy
Statement/Prospectus.
2. Identity and Background
(a)-(d)......................................... "INFORMATION CONCERNING CBF, CBF SUB AND
AFFILIATES;" "INFORMATION REGARDING THE DIRECTORS
AND EXECUTIVE OFFICERS OF CORT FOLLOWING THE
MERGER AND CBF."
(e)-(f)......................................... None.
(g)............................................. "INFORMATION REGARDING THE DIRECTORS AND
EXECUTIVE OFFICERS OF CORT 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--
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<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;"
"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;" "--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;" "--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;"
"--Effects of the Merger;" "--Risk that the Merger
Will Not be Completed;" "--Risks in the Event of
Bankruptcy;" "THE MERGER;" "FINANCING OF THE MERGER;"
"APPRAISAL RIGHTS."
</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)............................................. "SUMMARY;" "INTRODUCTION;" "SPECIAL FACTORS--Purpose of
the Merger;" "--Interests of Certain Persons in the Merger;
Conflicts of Interest;" "--Effects of the Merger;"
"THE MERGER;" "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;" "--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;" "--Effects of the
Merger;" "THE MERGER--Effective Time of the Merger;"
"INFORMATION CONCERNING CBF, CBF SUB AND
AFFILIATES;" "INFORMATION REGARDING THE DIRECTORS
AND EXECUTIVE OFFICERS OF CORT 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;" "--Effects of the Merger;" "--Plans
for the Company After the Merger;" "--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--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;" "--Effects of the Merger;" "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;" "--Effects
of the Merger;" "--Plans for the Company After the
Merger;" "--Litigation;" "THE MERGER;" "FINANCING
OF THE MERGER;" "FEDERAL INCOME TAX
CONSEQUENCES;" "APPRAISAL RIGHTS;" "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
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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 Completion 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 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;" "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>
"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;" "--Effects
of the Merger;" "THE MERGER;" "FINANCING OF THE MERGER;"
"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;" "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.
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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 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. II, 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, Anthony J. Bellerdine,
Senior Group Vice President, Charles M. Egan, Chairman of the Company,
Kenneth W. Hemm, Executive Vice President & Chief Operating Officer-Division
II, Steven D. Jobes, Executive Vice President & Chief Marketing Officer of
the Company, Lloyd Lenson, Executive Vice President & Chief Operating
Officer-Division I, 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, Anthony J. Bellerdine, Charles M. Egan, Kenneth W. Hemm, Steven D.
Jobes, Lloyd Lenson 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, Anthony J. Bellerdine, Charles M. Egan, Kenneth W.
Hemm, Steven D. Jobes, Lloyd Lenson, Frances Ann Ziemniak, Bruce C. Bruckmann,
Michael A. Delaney, and James A. Urry set forth in the sections entitled
"INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES" and "INFORMATION REGARDING
THE DIRECTORS AND EXECUTIVE OFFICERS OF CORT 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 "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,"
"--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,"
"--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,"
"--Effects of the Merger," "--Risk that the Merger Will Not be Completed,"
"--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," "--Effects
of the Merger," "THE MERGER" and "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," "--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 Persons in the Merger; Conflicts of
Interest,""--Effects of the Merger," "THE MERGER--Effective Time of the
Merger," "INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES" and
"INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF CORT 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,"
"--Effects of the Merger,""--Plans for the Company After the Merger,"
"--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," "--Effects of the Merger" and
"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," "--Effects of the Merger," "--Plans for the Company After the
Merger," "--Litigation," "THE MERGER," "FINANCING OF THE MERGER," "FEDERAL
INCOME TAX CONSEQUENCES," "APPRAISAL RIGHTS" and "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
Completion 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 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," "INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES," "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,"
"--Effects of the Merger," "THE MERGER," "FINANCING OF THE MERGER,"
"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 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 "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.
(a)(3) Financing Letter dated as of July 6, 1999 from Bank of
America, N.A., Bank of America Securities LLC, Bankers
Trust Company, Deutsche Bank Securities, Inc. and Credit
Suisse First Boston to CBF Holding LLC.
(a)(4) Letter dated as of August 25, 1999 from Bank of America,
N.A., Bank of America Securities LLC, Bankers Trust
Company, Deutsche Bank Securities, Inc. and Credit
Suisse First Boston to CBF Holding LLC (included in
Annex A to the preliminary Proxy Statement/Prospectus,
which is filed herewith as Exhibit (d)(3))
(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.
(b)(3) Opinion of Sun Trust Equitable Securities Corporation
dated August 25, 1999 (included as Annex B to the
preliminary Proxy Statement/Prospectus, which is filed
herewith as Exhibit (d)(3)).
(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.
(c)(4) First Amendment to Agreement and Plan of Merger dated as
of July 26, 1999, among the Company, CBF and CBF Sub
(c)(5) Amended and Restated Agreement and Plan of Merger dated
as of August 12, 1999 among CBF Holding LLC, CBF Mergerco
Inc. and the Company (included as Annex A to the
preliminary Proxy Statement/Prospectus, which is filed
herewith as Exhibit (d)(3)).
(c)(6) Commitment Letter dated as of August 12, 1999 from
Bruckmann, Rosser, Sherrill & Co. II, L.P. to CBF
Mergerco Inc. (included in Annex A to the preliminary
Proxy Statement/Prospectus, which is filed herewith as
Exhibit (d)(3)).
(c)(7) Commitment Letter dated as of August 12, 1999 from
Citicorp Venture Capital, Ltd. to CBF Mergerco Inc.
(included in Annex A to the preliminary Proxy
Statement/Prospectus, which is filed herewith as Exhibit
(d)(3)).
(c)(8) Voting Trust Agreement dated as of August 12, 1999 among
Citicorp Venture Capital, Ltd. and Harold O. Rosser,
Stephen C. Sherrill and Stephen F. Edwards.
(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.
(d)(7) Press Release of CORT Business Services Corporation
dated as of August 12, 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: August 27, 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: August 27, 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: August 27, 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: August 27, 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: JAMES A. URRY
-----------------------------------
Dated: August 27, 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: August 27, 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.
ANTHONY J. BELLERDINE
-----------------------------------
Anthony J. Bellerdine
Dated: August 27, 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: August 27, 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.
KENNETH W. HEMM
-----------------------------------
Kenneth W. Hemm
Dated: August 27, 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: August 27, 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.
LLOYD LENSON
-----------------------------------
Lloyd Lenson
Dated: August 27, 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: August 27, 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: August 27, 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: August 27, 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: August 27, 1999
xx
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
<S> <C> <C>
(c)(8) --Voting Trust Agreement dated as of August 12, 1999 among
Citicorp Venture Capital, Ltd. and Harold O. Rosser,
Stephen C. Sherrill and Stephen F. Edwards
(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)(7) --Press Release by CORT Business Services Corporation dated as
of August 12, 1999.
</TABLE>
xxi
<PAGE>
Exhibit 99(c)(8)
VOTING TRUST AGREEMENT dated as of August 12, 1999 (this
"AGREEMENT"), among CITICORP VENTURE CAPITAL LTD., a New York corporation
(the "COMPANY"), and HAROLD O. ROSSER, STEPHEN C. SHERRILL and STEPHEN F.
EDWARDS (each individually, a "TRUSTEE" and, collectively, the "TRUSTEES").
W I T N E S S E T H:
WHEREAS, the Company owns voting shares of Class A Common
Stock, par value $.01 per share (the "CLASS A SHARES"), of CORT Business
Services Corporation, a Delaware Corporation ("CORT");
WHEREAS, Bruckmann, Rosser, Sherrill & Co., Inc. ("BRS") has
requested that the Company place certain voting shares of CORT in trust of the
Trustees in consideration of the commitment of BRS, or one or more of its
affiliates, pursuant to that certain letter agreement dated as of the date
hereof to CBF Mergerco, Inc. from BRS;
WHEREAS, the Company has determined to place into a voting
trust 4,350,411 Class A Shares of CORT now or hereafter beneficially owned by
the Company in excess of 19.9% of the then aggregate issued and outstanding
Class A Shares;
WHEREAS, the Trustees are willing to serve as the trustees of
such voting trust;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements hereinafter set forth, the parties hereby agree
as follows:
ARTICLE I
THE VOTING TRUST
SECTION 1.1 CREATION OF VOTING TRUST AND DESIGNATION OF
TRUSTEES. Subject to the terms and conditions of this Agreement, a voting
trust (the "TRUST") in respect of the Class A Shares hereinafter specified is
hereby created and established in accordance with Section 218 of the Delaware
General Corporation Law, and the Company hereby appoints each of the Trustees
as trustees under this Agreement. Each of the Trustees accepts the Trust
created by this Agreement and agrees to serve as a trustee under this
Agreement (with all attendant rights and duties hereunder). Subject to the
provisions of this Agreement, the Trust shall be managed by the Trustees.
SECTION 1.2 COMMENCEMENT OF TRUST. The Trust shall become
effective upon the execution of this Agreement.
SECTION 1.3 ACQUISITION AND HOLDING OF CLASS A SHARES BY
THE TRUST.
(a) On the date of this Trust, the Company shall deliver
to, or cause to be delivered to, the Trustees a certificate or certificates
evidencing 4,350,411 Class A Shares then
<PAGE>
owned directly or beneficially by the Company, which certificate or certificates
shall be duly endorsed, or accompanied by stock powers duly executed in blank or
such other instrument as may be reasonably requested by the Trustees to enable
the Trustees to transfer the Trust Shares to the Trustees' name. All Class A
Shares at any time deposited in the Trust are hereinafter referred to as the
"TRUST SHARES".
(b) If, following the date hereof, the Company shall
acquire "beneficial ownership" (as defined in Securities and Exchange
Commission Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
any Class A Shares that would increase its percentage of beneficial ownership
of the then issued and outstanding Class A Shares to more than 19.9% the
Company shall, simultaneously with such acquisition, deliver to, or cause to be
delivered to, the Trustees a certificate or certificates evidencing all such
Class A Shares, which certificate or certificates shall be duly endorsed, or
accompanied by stock powers duly executed in blank or such other instrument as
may be reasonably requested by the Trustees to enable the Trustees to transfer
such Class A Shares to the Trustees' name.
(c) After the filing of a copy of this Agreement in the
registered office of CORT in the State of Delaware, as provided in Section 1.07,
each stock certificate evidencing the Trust Shares shall be surrendered and
canceled, and new stock certificates therefor shall be issued and delivered to
the Trustees. Each certificate for Trust Shares so issued to the Trustees shall
bear a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ISSUED
PURSUANT TO AND ARE SUBJECT TO THE TERMS OF THAT CERTAIN
VOTING TRUST AGREEMENT MADE AS OF AUGUST 12, 1999 AMONG THE
TRUSTEES OF THE VOTING TRUST AND THE BENEFICIAL OWNER OF THESE
SECURITIES. THESE SECURITIES MAY NOT BE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE TERMS OF SUCH VOTING TRUST AGREEMENT, A
COPY OF WHICH IS ON FILE AT CORT BUSINESS SERVICES
CORPORATION'S REGISTERED OFFICE IN THE STATE OF DELAWARE.
A like notation shall be made in the Company's stock transfer
records with respect to such Trust Shares.
(d) The Trustees shall retain and hold the stock
certificates evidencing the Trust Shares in accordance with, and subject to the
terms and conditions of this Agreement. Except as hereinafter provided, all
stock certificates evidencing the Trust Shares shall at all times be and remain
in the possession of the Trustees. The Trustees shall have no authority to sell,
transfer, assign, pledge or otherwise dispose of or encumber the Trust Shares,
except to the extent otherwise specifically provided in this Agreement. All
Trust Shares and all cash, securities or other property distributed in respect
of the Trust Shares that are held by the Trustees shall be
-2-
<PAGE>
held for the benefit of the Company and no creditors of the Trustees shall have
any right to or claim against any of the assets of this Trust.
SECTION 1.4 VOTING TRUST CERTIFICATES.
(a) ISSUANCE OF VOTING TRUST CERTIFICATES. Upon receipt
of the new certificate representing the Trust Shares, the Trustee shall deliver
to the Company one or more voting trust certificates therefor, each
substantially in the form of EXHIBIT A hereto (each, a "VOTING TRUST
CERTIFICATE"). Each Voting Trust Certificate shall specify the series or class,
and number of Trust Shares in respect of which it is issued, shall be dated the
date of its issuance and shall be signed manually by a representative of the
Trustees.
(b) TRANSFER OR EXCHANGE OF VOTING TRUST CERTIFICATES.
(i) The Trustees will maintain an office or agency
in New York City at which Voting Trust Certificates may be presented or
surrendered for registration of transfer or for exchange (the "Registrar"). The
Registrar shall keep a register of the Voting Trust Certificates and of their
transfer and exchange. The Trustees may appoint any person to act as Registrar
on their behalf, but in the absence of an effective appointment, any Trustee
may act as Registrar hereunder.
(ii) When Voting Trust Certificates are presented to
the Registrar with a request to register the transfer of such Voting Trust
Certificates, or to exchange them for Voting Trust Certificates of different
denominations which in the aggregate represent the Trust Shares for which such
Voting Trust Certificates are being exchanged, in each case, as accompanied by a
duly executed instrument of assignment or exchange substantially in the form
attached as EXHIBIT B hereto, then the Registrar shall register the transfer or
make the exchange as requested; PROVIDED, that the Registrar shall require, as a
condition to registering a transfer of Voting Trust Certificates, that the
transferee execute and deliver to the Trustee its written agreement to be bound
by the terms of this Agreement, substantially in the form of EXHIBIT C hereto.
(c) REGISTRATION OF HOLDERS. The Trustees may treat the
registered holder of a Voting Trust Certificate as the owner thereof for all
purposes. Every transferee of a Voting Trust Certificate hereunder shall be
required to become a party to this Agreement, with the same force and effect as
if such transferee had signed this Agreement, and such transferee shall for all
purposes have the rights of the Company hereunder with respect to such Voting
Trust Certificate.
(d) REPLACEMENT OF VOTING TRUST CERTIFICATE. Upon receipt
of evidence reasonably satisfactory to the Trustees (an affidavit of the
registered holder will be satisfactory) of the ownership and the loss, theft,
destruction or mutilation of a Voting Trust Certificate, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Trustees (provided that if the registered holder is a
financial institution or other institutional investor, its own agreement will be
satisfactory), or, in the case of any such mutilation, upon surrender of such
certificate, the Trustees shall (at the registered holder's expense) execute and
-3-
<PAGE>
deliver in lieu of such certificate a new Voting Trust Certificate of like kind
representing the number of Trust Shares represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 1.5 VOTING RIGHTS OF TRUSTEES.
(a) During the term of this Agreement, the Trustees shall
possess and in their sole discretion shall be entitled to and have, the duty to
exercise any and all voting rights in respect of the Trust Shares either in
person or by nominee or proxy, as hereinafter provided, and may vote for, do or
assent or consent to any act or proceeding which the Company might or could vote
for, do or assent or consent to, and shall have all other powers, rights and
privileges of the record and beneficial owners of the Trust Shares with respect
to the voting of the Trust Shares.
(b) No person other than the Trustees shall have any
voting rights in respect of any Trust Shares so long as this Agreement shall be
in effect. The Trustees shall have no beneficial interest in the Trust Shares.
(c) In voting the Trust Shares, the Trustees shall incur
no responsibility as stockholders, trustees or otherwise, except for their own
individual malfeasance.
(d) The manner of exercising the voting rights in respect
of the Trust Shares shall be determined by a majority of the Trustees.
SECTION 1.6 IRREVOCABILITY. Following the deposit of the
Trust Shares with the Trustees, this Agreement, the Trust and the nomination of
the Trustees shall be irrevocable by the Company and shall terminate only in
accordance with Section 1.10.
SECTION 1.7 MAINTENANCE OF RECORDS. The Trustees shall file
an executed copy of this Agreement at the registered office of CORT in the State
of Delaware and at CORT's chief executive office in Fairfax, Virginia, which
copy shall be open to the reasonable inspection of any stockholder of CORT or
any beneficiary of the Trust, daily during business hours. The Trustees shall
also maintain such other records and books as are necessary or appropriate to
enable the Trustees to carry out the terms and conditions of this Agreement.
SECTION 1.8 DIVIDENDS; DISTRIBUTION OF PROCEEDS OF SALE OF
TRUST SHARES OR ASSETS.
(a) Subject to Section 1.08(b) below, the Company shall
be entitled to receive dividends or distributions of money, securities, or other
property, if any, collected or received by the Trustees with respect to the
Trust Shares. Any such payments received by any Trustee shall be held in trust
for the benefit of the Company and shall be paid over to the Company by the
Trustees promptly upon any Trustee's receipt of such dividends or distributions.
In lieu of receiving dividends or distributions and paying them to the Company,
the Trustees agree to promptly instruct CORT in writing to pay the dividends or
distributions (other than dividends consisting of voting securities of CORT)
directly to the Company. In the event any such
-4-
<PAGE>
instruction is given to CORT, all liability of the Trustees with regard to the
payment of such dividends or distributions shall cease, unless and until such
instruction is revoked.
(b) In the event that the Trustees shall receive any
additional voting securities of CORT through a dividend or other distribution
with respect to any Trust Shares, the Trustees shall hold such voting securities
subject to this Agreement for the benefit of the Company, and such voting
securities shall become subject to all the terms and conditions of this
Agreement to the same extent as if they were Trust Shares acquired by the
Trustees pursuant to Section 1.03. The Trustee shall issue Voting Trust
Certificates in respect of such Trust Shares to the Company as soon as
practicable after the Trustees' receipt thereof.
(c) If at any time during the term of this Agreement the
Trustees shall receive or collect any money or other property (other than voting
securities of CORT) through distribution by CORT to its stockholders, other than
as set forth in Subsections (a) or (b) of this Section 1.08, the Trustees shall
promptly distribute such money or other property to the Company.
SECTION 1.9 DISPOSITION OF TRUST SHARES BY THE COMPANY.
This Trust is accepted by the Trustees subject to the right hereby reserved in
the Company at any time to sell, transfer, assign, or otherwise dispose of any
or all of the Trust Shares as hereinafter provided. Upon the receipt at any time
of a written direction from the Company, signed by a duly authorized officer
thereof, designating the person or entity to whom any or all of the Trust Shares
have been sold, transferred, assigned or otherwise disposed of by the Company,
together with the Voting Trust Certificates issued by the Trustees in respect of
such Trust Shares, the Trustees immediately shall deliver the certificates
representing the Trust Shares to be sold, endorsed in blank, to CORT or its
transfer agent, as applicable, for registration of transfer to the person or
entity therein named, all of the Trustees' right, title and interest in such
number of the Trust Shares as may be specified in such direction. If such
direction shall specify all the Trust Shares, the Trust shall cease and come to
an end upon transfer of the Trustees' right, title and interest in the Trust
Shares. If such direction is as to only a portion of the Trust Shares, then this
Trust shall cease to that portion of the Trust Shares upon such transfer, but
shall remain in full force and effect as to the remaining portion of the Trust
Shares and the Trustees shall deliver to the Company new Voting Trust
Certificates representing such shares.
SECTION 1.10 TERMINATION.
(a) This Agreement and the Trust shall terminate upon the
earlier of (each, a "TRUST TERMINATION EVENT"): (i) the sale, transfer,
assignment or other disposition of all the Trust Shares as contemplated by
Section 1.09; (ii) upon notice to the Trustees of the Company's election to
convert the Trust Shares into CORT's non-voting Class B Common Stock, par value
$.01 per share, or such other shares as may be permitted pursuant to CORT's
certificate of incorporation; or (iii) upon the consummation of the transactions
contemplated by the Agreement and Plan of Merger dated as of March 25, 1999, as
amended as of July 26, 1999, by and among CORT, CBF Holding LLC and CBF
Mergerco, Inc., as the same may be amended, supplemented or modified after the
date hereof.
-5-
<PAGE>
(b) Upon termination of this Agreement, the Trustees
shall deliver to the Company the stock certificates evidencing the Trust Shares,
duly endorsed or accompanied by stock powers duly executed, in proper form for
transfer to the Company, together with all other property held by the Trustees
pursuant to this Agreement and shall take all other actions appropriate to
effectuate the transfer of the Trust Shares to the Company.
ARTCLE II
THE TRUSTEES
SECTION 2.1 ACTIONS OF THE TRUSTEES. Any act by a majority
of the Trustees shall be an act of the Trustees.
SECTION 2.2 TRUSTEES' EXPENSES. The Trustees shall be
entitled to reimbursement of all reasonable fees and expenses of counsel, taxes
and other expenses reasonably incurred by the Trustees in the performance of
their duties under this Agreement, which reimbursement shall be made promptly by
the Company after the incurrence of such expenses.
SECTION 2.3 DELEGATION OF TRUSTEES' DUTIES. The Trustees
may at any time or from time to time appoint an agent or agents and may delegate
to such agent or agents the performance of any administrative duty of the
Trustees under this Agreement.
SECTION 2.4 STANDARD OF CARE; INDEMNIFICATION OF TRUSTEES.
(a) The duties and responsibilities of the Trustees shall
be limited to those expressly set forth in this Agreement. The Trustees shall
not be answerable for the default or misconduct of any agent or attorney
appointed by them in accordance with this Agreement if such agent or attorney
shall have been selected with reasonable care.
(b) The Trustees are expressly authorized to incur and
pay all reasonable charges and other expenses which the Trustees deem necessary
and proper in the performance of their duties under this Agreement. The Company
hereby agrees to indemnify the Trustees against all claims, costs of defense of
claims (including reasonable attorneys' fees and disbursements), expenses and
liabilities incurred by the Trustees in connection with the performance of their
duties under this Agreement, except those incurred as a result of the Trustees'
gross negligence, bad faith or willful misconduct.
(c) The Trustees shall be free from liability in acting
upon any paper, document or signature believed by the Trustees to be genuine and
to have been signed by the proper party. The Trustees shall not be liable for
any error of judgment in any act done or omitted, nor for any mistake of fact or
law, nor for anything which the Trustees may do or refrain from doing in good
faith. The Trustees may consult with legal counsel and any action under this
Agreement taken or suffered in good faith by the Trustees and in accordance with
the opinion of the Trustees' counsel shall be conclusive for the parties to this
Agreement and the Trustees shall be fully protected and be subject to no
liability in respect thereof.
-6-
<PAGE>
SECTION 2.5 RESIGNATION AND REPLACEMENT OF TRUSTEES.
(a) Any of the Trustees may resign by giving 30 days'
advance written notice of resignation to the Company.
(b) The rights and duties of each Trustee under this
Agreement shall terminate upon such Trustee's incapacity to act, death or
insolvency, and no interest in any of the Trust Shares held by such Trustee nor
any of the rights and duties of a deceased or insolvent Trustee may be
transferred by will, devise, succession or in any other manner except as
provided in this Agreement. The heirs, administrators, executors or other
representatives of an incapacitated, deceased or insolvent Trustee shall,
however, have the right and duty to convey any Trust Shares held by such Trustee
to one or more successor Trustees.
(c) In the event of the resignation, incapacity to act,
death or insolvency of a Trustee, such Trustee shall be succeeded by a successor
Trustee chosen by the Company, upon such successor Trustee's becoming a party to
this Agreement. No such successor Trustee shall be an affiliate or associate
(as defined in Rule 12 b-2 under the Exchange Act) of the Company.
SECTION 2.6 DISCLOSURE OF INFORMATION. To the extent
requested to do so by the Company, the Trustees shall promptly furnish to the
Company full information with respect to (a) all property theretofore delivered
to them as Trustees, (b) all property then held by them as Trustees, and (c) all
actions theretofore taken by them as Trustees.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 ENTIRE AGREEMENT; AMENDMENT. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and undertakings,
both written and oral, with respect to the subject matter hereof. This Agreement
shall not be amended, altered or modified except by an instrument in writing
duly executed by each of the parties hereto.
SECTION 3.2 SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of this Agreement is not affected in any manner adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
SECTION 3.3 NOTICES. All notices and other communications
under this Agreement shall be in writing and shall be given (and shall be deemed
to have been duly given
-7-
<PAGE>
upon receipt) by delivery in person, by telecopy or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 3.03):
If to the Company:
Citicorp Venture Capital Ltd.
399 Park Avenue
New York, New York 10043
Attention: James A. Urry
with a copy (which shall not constitute notice)
to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022
Attn: Kirk A Radke, Esq.
If to the Trustees:
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street
New York, New York 10022
Attention: Harold O. Rosser
SECTION 3.4 ASSIGNMENT. Subject to Section 2.05, this
Agreement shall not be assignable by the Trustees. This Agreement shall be
assignable by the Company to any affiliate thereof.
SECTION 3.5 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective permitted successors and permitted assigns.
SECTION 3.6 HEADINGS. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 3.7 SPECIFIC PERFORMANCE. The parties hereto agree
that the remedy at law for a breach of this Agreement will be inadequate and
that any party by whom this Agreement is enforceable shall be entitled to
specific performance in addition to any appropriate relief or remedy.
-8-
<PAGE>
SECTION 3.8 GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware
applicable to contracts executed in and to be performed in that State.
SECTION 3.9 COUNTERPARTS. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Voting Trust Agreement or caused this Voting Trust Agreement to be duly executed
on their behalf as of the date and year first hereinabove set forth.
CITICORP VENTURE CAPITAL LTD.
By: /s/ BYRON L. KNIEF
------------------------------
Name: Byron L. Knief
Title: Vice President
THE TRUSTEES
/s/ HAROLD O. ROSSER
---------------------------------
Name: Harold O. Rosser
/s/ STEPHEN C. SHERRILL
---------------------------------
Name: Stephen C. Sherrill
/s/ STEPHEN F. EDWARDS
---------------------------------
Name: Stephen F. Edwards
-9-
<PAGE>
Exhibit A to
Voting Trust Agreement
THIS VOTING TRUST CERTIFICATE IS ISSUED PURSUANT TO AND IS SUBJECT TO THE TERMS
OF A CERTAIN VOTING TRUST AGREEMENT, DATED AUGUST 12, 1999 BETWEEN THE TRUSTEES
OF THE VOTING TRUST AND THE BENEFICIAR(Y)(IES) OF THE VOTING TRUST. THE
BENEFICIAL INTEREST IN SHARES OF THE CAPITAL STOCK OF THE COMPANY REPRESENTED BY
THIS VOTING TRUST CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH
THE TERMS OF THE VOTING TRUST AGREEMENT, A COPY OF WHICH IS ON FILE AT THE
ISSUER'S REGISTERED OFFICE IN THE STATE OF DELAWARE.
THE SECURITIES REPRESENTED BY THIS VOTING TRUST CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAW AND THE SECURITIES REPRESENTED HEREBY CANNOT BE TRANSFERRED
UNLESS SO REGISTERED OR QUALIFIED UNDER SUCH FEDERAL AND ANY APPLICABLE STATE
SECURITIES LAW OR UNLESS AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS
AVAILABLE.
Certificate No. VTC - Date of Issuance:
---- --------
Number of Shares Beneficially
Represented Hereby: ________ shares
of __________ stock, par value
$___ per share
VOTING TRUST CERTIFICATE
This Voting Trust Certificate (this "Certificate") certifies
that the undersigned Trustee has received certificate(s) representing ________
shares of ________ stock, par value $_____ per share (the "Trust Shares") of
___________, a [Delaware] corporation (the "Company"), on behalf of
________________________ (the "Holder"), duly registered in the name of the
undersigned Trustee, on the following terms and conditions:
RIGHTS OF HOLDERS
The Holder agrees to, accepts and ratifies all of the terms,
conditions and covenants of that certain Voting Trust Agreement dated August 12,
1999 (the "Agreement"), a counterpart of which is on file with the registered
office of the Company in the State of Delaware, and which is hereby incorporated
herein by reference. Capitalized terms used but not otherwise defined, in this
Certificate shall have the meanings given such terms in the Agreement. The
Holder shall possess and be entitled to rights of ownership of the Trust Shares
only as provided in the Agreement. The Holder of this Certificate shall transfer
or replace this Certificate only as provided in the Agreement.
A-1
<PAGE>
VOTING AND OTHER RIGHTS
The Trustees during the term of the Agreement shall have sole
voting rights and certain other rights with respect to the Trust Shares as
specified in the Agreement (subject to the limitations imposed by the Company's
certificate of incorporation, bylaws or any agreement to which the Trust Shares
may be subject). No voting rights are granted by this Certificate and only those
rights provided to the Holder of a Certificate by the Agreement are represented
by this Certificate.
DIVIDENDS AND DISTRIBUTIONS
The Holder of this Certificate shall be entitled to receive,
subject to the provisions of the Agreement, all dividends or other distributions
of cash, securities or other property by the Company received by the undersigned
Trustee in respect of the Trust Shares, except that in the event of dividends or
distributions of Trust Shares or other voting securities of the Company, the
Trustee shall receive and hold any such dividends or distributions pursuant to
the terms of the Agreement and shall issue to the Holder hereof additional
Certificates representing such additional Trust Shares. In lieu of the Trustee
receiving dividends and distributions and paying them to the Holder of this
Certificate, the Trustee may instruct the Company to pay the dividends or
distributions directly to the Holder, as provided in the Agreement.
TERMINATION
The Voting Trust shall terminate upon the occurrence of a
Trust Termination Event, as provided in the Agreement.
SUBJECT TO VOTING TRUST AGREEMENT
This Certificate is governed in all respects by the Agreement.
In the event of any inconsistency between the terms and conditions of this
Certificate and the Agreement, the Agreement shall control.
IN WITNESS WHEREOF, this Certificate is executed and issued to
the Holder by the undersigned Trustee as of the date first written above.
-----------------------------,
as Trustee
By:
---------------------------
Name:
Title:
A-2
<PAGE>
Exhibit B to
Voting Trust Agreement
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers its right, title and interest in and to the attached Voting Trust
Certificate, certificate number __, the beneficial interest in the shares of
capital stock of _________________, a [Delaware] corporation (the "Company")
represented thereby and all related rights under the Voting Trust Agreement
dated as of August 12, 1999 (the "Voting Trust Agreement"), among
_______________ or its successor-in-interest, as trustees (each individually a
"Trustee" and collectively the "Trustees") and the other parties thereto, to
___________________ and authorizes __________________ to surrender the attached
Voting Trust Certificate to the Trustee or its designee for registration of
transfer.
Date:
------------------------- --------------------------
[SIGNATURE OF STOCKHOLDER]
B-2
<PAGE>
Exhibit C to
Voting Trust Agreement
JOINDER
This Joinder (this "Agreement") is made as of the date written
below by the undersigned (the "Joining Party") in favor of and for the benefit
of ____________, or its successor-in-interest (the "Voting Trustee") and the
other Persons party to the Voting Trust Agreement, dated as of August 12, 1999
(the "Voting Trust Agreement"), among the Voting Trustee and the other parties
thereto. Capitalized terms used but not defined herein shall have the meanings
given such terms in the Voting Trust Agreement.
Accordingly, the Joining Party hereby agrees as follows:
1. The Joining Party hereby acknowledges, agrees and
confirms that, by its execution of this Joinder, the Joining Party will be
deemed to be a party to the Voting Trust Agreement and shall have all of the
obligations of a party thereunder as if it had executed the Voting Trust
Agreement. The Joining Party hereby ratifies, as of the date hereof, and
agrees to be bound by, all of the terms, provisions and conditions contained
in the Voting Trust Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder
as of the date written below.
Date: [NAME]
------------------------ ---------------------------------
By:
------------------------------
Name:
Title:
<PAGE>
[LOGO]
4401 FAIR LAKES COURT, SUITE 300
FAIRFAX, VIRGINIA 22033
, 1999
Dear Stockholder:
On August 12, 1999, the Board of Directors unanimously approved an increase
in the merger consideration offered to stockholders under the terms of the
merger agreement described in the Proxy Statement/Prospectus mailed to you on
July 29, 1999. The special meeting of the stockholders of CORT Business Services
Corporation described in that Proxy Statement/Prospectus will reconvene on
, 1999, at .m., local time, at the Holiday Inn-Fair Oaks, 11787
Lee Jackson Highway, Fairfax, Virginia 22033.
The purpose of the special meeting is to consider and vote upon a proposal
to adopt the Amended and Restated Agreement and Plan of Merger, dated as of
August 12, 1999, among CORT, CBF Holding LLC, and CBF Mergerco, Inc. If the
merger is completed, each stockholder (other than those who are retaining shares
under the terms of the merger agreement) will have the right to receive per
share consideration of:
- $25.00 in cash, without interest, and
- one share of a series of preferred stock of CORT as the surviving company
in the merger, with an initial liquidation preference of $3.00,
unless appraisal rights are exercised and perfected as required by Delaware law.
The preferred stock will not be listed on any national securities exchange or
the Nasdaq Stock Market.
Details of the merger agreement, including the treatment in the merger of
outstanding stock options to buy shares of common stock of CORT, 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. You are urged to read carefully the Proxy Statement/Prospectus. WE
ESPECIALLY ENCOURAGE YOU TO READ THE SECTION ENTITLED "RISK FACTORS" WHICH
BEGINS ON PAGE 8.
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 CORT and has recommended that the stockholders
vote in favor of adoption of the merger agreement. A financial advisor retained
by CORT, SunTrust Equitable Securities Corporation, has found the consideration
to be received by CORT's stockholders (other than those who are retaining shares
under the terms of the merger agreement) fair from a financial point of view. A
copy of the opinion of SunTrust Equitable Securities Corporation is contained as
Annex B to the Proxy Statement/Prospectus.
Under Delaware law, the affirmative vote of the holders of a majority of the
outstanding shares of CORT's voting common stock is required to adopt the merger
agreement. In addition, 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 members of the investor group or their affiliates
or associates. This voting requirement gives CORT's "public" stockholders the
opportunity to approve or reject the merger.
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 before or at the special meeting. Please do not send in your stock
certificates at this time.
Sincerely,
/s/ Paul N. Arnold
------------------------------------------
Paul N. Arnold
President and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus is dated , 1999.
<PAGE>
CORT BUSINESS SERVICES CORPORATION
4401 FAIR LAKES COURT, SUITE 300
FAIRFAX, VIRGINIA 22033
NOTICE OF ADJOURNED SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
To the Stockholders of CORT Business Services Corporation:
A special meeting of stockholders of CORT Business Services Corporation was
convened on August 18, 1999 and was adjourned to the call of the chair. The
adjourned special meeting will be held on , 1999, at .m., eastern
time, at the Holiday Inn-Fair Oaks, 11787 Lee Jackson Highway, Fairfax, Virginia
22033, for the following purposes:
1. To consider and vote upon a proposal to adopt the Amended and Restated
Agreement and Plan of Merger, dated as of August 12, 1999, among CORT,
CBF Holding LLC, and CBF Mergerco Inc., a wholly-owned subsidiary of CBF,
under which:
- CBF Mergerco Inc. will be merged with and into CORT and CORT will be
the surviving corporation in the merger, and
- each share of CORT's common stock that is issued and outstanding
immediately before the effective time of the merger will be converted
into the right to receive
- $25.00 in cash, without interest, and
- one share of 12% Series A-1 Preferred Stock of CORT, as the
surviving corporation in the merger, with an initial liquidation
preference of $3.00 per share.
Shares held in CORT's treasury or by any CORT subsidiary will be canceled
without payment. Shares retained under the terms of the merger agreement
and shares for which appraisal rights are perfected as required by
Delaware law will not be converted into the right to receive the above
consideration; and
2. To transact other business that may come properly before the special
meeting or any further adjournments or postponements thereof.
These transactions and other related matters are more fully described in the
accompanying Proxy Statement/Prospectus. A copy of the merger agreement is
attached as Annex A to, and described in, the 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 CORT 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 July 22, 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 July 22, 1999 are entitled to receive notice of, and only holders of
record of voting shares at the close of business on July 22, 1999 are entitled
to vote their voting shares at, the special meeting and any adjournments or
postponements of the special meeting. A list of stockholders will be available
at the time and place of the meeting and, during the 10 days before the meeting,
at the office of the Corporate Secretary, 4401 Fair Lakes Court, Suite 300,
Fairfax, Virginia 22033. Under Delaware law, 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 members of the investor group 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.
<PAGE>
Stockholders of CORT 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 will have the right to demand appraisal of their shares
in connection with the merger. Generally, to preserve appraisal rights, a
stockholder must:
- before the vote related to the merger agreement is taken at the adjourned
special meeting, deliver to CORT a written demand for appraisal of his,
her or its shares,
- not vote in favor of adoption of the merger agreement and
- cause a petition for appraisal to be filed in the Delaware Court of
Chancery within 120 days after the effective time of the merger.
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 Delaware General Corporation Law.
CORT is party to litigation challenging the merger. See "SPECIAL
FACTORS--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 CORT 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. Revocation of a
proxy is 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 adjourned 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
/s/ Frances Ann Ziemniak
------------------------------------------
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>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary................................................................................................... 1
Date, Time and Place of Special Meeting................................................................. 1
Purpose of the Special Meeting.......................................................................... 1
What You Will Receive in the Merger..................................................................... 1
The Merger.............................................................................................. 1
Effective Time of the Merger............................................................................ 1
Eligibility to Vote and Required Vote................................................................... 2
Recommendation of the Board of Directors................................................................ 2
Opinion of Financial Advisor............................................................................ 2
Interests of Certain Persons in the Merger.............................................................. 3
Conditions to Completion of the Merger.................................................................. 4
Expenses................................................................................................ 4
Financing of the Merger................................................................................. 5
Appraisal Rights........................................................................................ 5
Federal Income Tax Consequences......................................................................... 5
Regulatory Matters...................................................................................... 5
Market Information...................................................................................... 5
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 Impede Our Ability to Obtain Additional
Financing, Restrict the Use Of Our Cash Flow and Limit Our Flexibility And We May Not Pay You......... 8
The Inability To Repay Our Debt And Interest Obligations May Affect Our Ability To Implement Our
Business Strategy and Reduce Our Cash Flow Available To Pay You....................................... 8
Our Debt Obligations May Contain Covenants That Will Restrict How We Operate Our Business Which Could
Impair Our Ability To Respond To Changing Conditions Or Could Lead To Declines In Operating Results... 9
After The Merger, We Will Be Controlled By A Small Number Of Stockholders Who Will Not Be Required To
Vote In The Best Interests Of Holders Of Our Series A-1 Preferred Stock............................... 9
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................................................................................................ 10
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 And You Will Not Be Able To Control Key
Business Decisions That May Impact The Value Of Your Preferred Stock.................................. 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....... 11
After The Merger, It Is Possible That We Will No Longer File Reports With The Securities And Exchange
Commission And That It Will Be Difficult For Preferred Stockholders To Obtain Information Regarding
Our Financial Condition............................................................................... 11
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Our Business Is In A Highly Competitive Industry And The Value Of Our Series A-1 Preferred Stock May
Decrease And We May Be Unable To Pay You If We Fail To Successfully Compete........................... 12
We Cannot Assure That We Will Be Able To Implement Key Components Of Our Business Strategy And Achieve
Anticipated Financial Performance..................................................................... 12
We Depend On Key Personnel Who Have Important Relationships With Our Customers.......................... 12
We Are Involved In Litigation Challenging The Merger Which May Affect Our Ability to Complete the Merger
or Increase Our Costs Related to the Merger........................................................... 12
Introduction.............................................................................................. 13
Special Factors........................................................................................... 17
Background of the Merger................................................................................ 17
Contacts with Third Parties............................................................................. 23
Fairness of the Merger; Recommendation of the Board of Directors; Position of CBF....................... 26
Opinion of Financial Advisor............................................................................ 30
Purpose of the Merger................................................................................... 36
Interests of Certain Persons in the Merger; Conflicts of Interest....................................... 37
Change of Control Agreements............................................................................ 40
Effects of the Merger................................................................................... 40
Plans for the Company After the Merger.................................................................. 41
Risk that the Merger Will Not Be Completed.............................................................. 41
Risks in the Event of Bankruptcy........................................................................ 42
Litigation Challenging the Merger....................................................................... 42
Projections............................................................................................. 43
The Merger................................................................................................ 45
General................................................................................................. 45
Effective Time of the Merger............................................................................ 45
Stockholder Adoption of the Merger Agreement............................................................ 45
Payment for Shares...................................................................................... 46
The Exchange Fund....................................................................................... 47
Regulatory Matters...................................................................................... 47
Conditions to Completion of the Merger.................................................................. 48
Covenants............................................................................................... 49
Termination............................................................................................. 50
Expenses................................................................................................ 51
Indemnification of Directors and Officers; Directors' and Officers' Liability Insurance................. 52
Accounting Treatment of the Merger...................................................................... 52
Financing of the Merger................................................................................... 52
Debt Financing.......................................................................................... 53
Equity Financing........................................................................................ 55
Fees and Expenses....................................................................................... 56
Federal Income Tax Consequences........................................................................... 57
Appraisal Rights.......................................................................................... 61
Information Concerning CBF, CBF Sub and Affiliates........................................................ 63
Pro Forma Condensed Consolidated Financial Statements..................................................... 63
Capitalization............................................................................................ 69
Business of the Company................................................................................... 70
Information Regarding the Directors and Executive Officers of CORT Following the Merger and CBF........... 79
Market Prices and Dividends on the Shares................................................................. 82
Description of Capital Stock Prior to the Merger.......................................................... 82
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Description of Capital Stock After the Merger............................................................. 83
Transactions in the Common Stock.......................................................................... 92
Security Ownership of Beneficial Owners and Directors and Officers........................................ 93
Security Ownership of the Surviving Corporation........................................................... 94
Incorporation of Documents by Reference................................................................... 95
Additional Available Information.......................................................................... 95
Legal Matters............................................................................................. 96
Experts................................................................................................... 96
Stockholder Proposals..................................................................................... 96
Other Matters............................................................................................. 96
ANNEXES
Annex A--Amended and Restated Agreement and Plan of Merger................................................ A-1
Annex B--Opinion of STES Securities Corporation........................................................... B-1
Annex C--Section 262 of the Delaware General Corporation Law.............................................. C-1
SCHEDULES
Schedule I--Purchases of Shares by CORT and 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 $25.00
in cash and one share of Series A-1 Preferred Stock of the surviving
corporation with an initial liquidation preference of $3.00 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 $25.00 in cash and one share of Series A-1 Preferred
Stock of the surviving corporation with an initial liquidation preference of
$3.00 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 in the fourth 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. 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 AFTER THE COMPLETION OF THE MERGER 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 ADDITIONAL INFORMATION.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
A special meeting of our stockholders was convened on August 18, 1999 and
was adjourned to the call of the chair. The adjourned special meeting will be
held on , 1999 at m., eastern time at the Holiday Inn-Fair
Oaks, 11787 Lee Jackson Highway, Fairfax, Virginia 22033.
PURPOSE OF THE SPECIAL MEETING
At the adjourned 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."
WHAT YOU WILL RECEIVE IN THE MERGER
For each share of CORT common stock owned before the merger, CORT
stockholders who do not perfect their appraisal rights will be entitled to
receive $25.00 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 $3.00 per share. The merger will have the effect of
canceling shares held in our treasury or by any of our subsidiaries without
payment. In lieu of receiving the merger consideration, some of the stockholders
will be retaining an equity interest in CORT. See "THE MERGER."
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. II, L.P. CBF Mergerco Inc. will not 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."
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 as required by 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 adjourned special meeting
of our stockholders and after the other conditions to completion of the merger
in the merger agreement are satisfied or waived. See "THE MERGER--Effective Time
of the Merger," "--Conditions to Completion of the Merger" and "--Covenants."
See also "SPECIAL FACTORS-- Risk that the Merger Will Not Be Completed."
1
<PAGE>
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 July 22, 1999. On July 22, there
were a total of 13,096,560 shares of voting common stock outstanding and
entitled to vote, held by 200 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 members of the investor group. 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
as provided by their instructions. If no instructions are given, proxies will be
voted FOR adoption of the merger agreement and will grant discretionary
authority to vote upon such other matters as may properly come before the
meeting. 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
- filing with our Secretary a written revocation bearing a later date than
the proxy being revoked;
- submitting a validly executed proxy bearing a later date than the proxy
being revoked; or
- attending the special meeting and voting in person. However, your
attendance at the special meeting will not in and of itself revoke a
proxy.
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 render an opinion on the
consideration to be received in the proposed merger by our stockholders other
than some of our directors, officers and stockholders who have the right to
retain their equity interest in CORT. SunTrust has delivered to the Board of
Directors of CORT a written opinion, dated August 25, 1999, that the
consideration proposed to be paid to these stockholders under the merger
agreement is fair to them from a financial point of view.
SunTrust Equitable Securities' written opinion 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 members of the investor
group). 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
2
<PAGE>
information that it reviewed. For more information about 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 directors and officers of CORT have interests that present
them with actual or potential conflicts of interest in connection with the
merger.
The options held by some of our officers, directors, employees and members
of our management including options that have not yet vested will be vested in
connection with the merger. Director options held by members of the investor
group will be exchanged for options of the surviving corporation rather than
exchanged for the merger consideration.
We expect that 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. In addition, members of our management
will receive 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 this 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 this series of preferred stock. The members of our senior
management who we expect to acquire shares are Paul N. Arnold, President and
Chief Executive Officer, Anthony J. Bellerdine, Senior Group Vice President,
Charles M. Egan, our Chairman, Kenneth W. Hemm, Executive Vice President and
Chief Operating Officer--Division II, Steven D. Jobes, Executive Vice President
and Chief Marketing Officer, Lloyd Lenson, Executive Vice President and Chief
Operating Officer--Division I, and Frances Ann Ziemniak, Executive Vice
President and Chief Financial Officer. Other employees who we, Bruckmann,
Rosser, Sherrill & Co. II, L.P. and Citicorp Venture Capital Ltd. select before
the effective time of the merger may also acquire some of these shares.
Citicorp Venture Capital Ltd. and some 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 CORT 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. These special dividends will
have preference over our Series A-1 Preferred Stock of up to $4 million in the
first year after the merger and up to $1 million in each subsequent year.
The investors in our common stock following the merger are expected to enter
into a stockholders agreement governing their respective rights and obligations.
Upon completion of the merger, as the surviving corporation, we expect to
pay a bonus of approximately $3.5 million in total to some members of
management.
In addition, at the effective time of the merger, an affiliate of Bruckmann,
Rosser, Sherrill & Co. II, L.P. will receive from us a closing fee of
approximately $3.6 million. After the effective time of the merger, the same
affiliate will receive an annual management fee from us of $500,000 per year in
the aggregate for management, business and organization strategy and merchant
and investment banking services rendered to us. The amount of the annual
management fee may be increased 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 related to actions
and omissions occurring
3
<PAGE>
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
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."
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:
- 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 directors, officers and stockholders retaining
shares of our common equity in connection with the merger, must adopt the
merger agreement at the special meeting;
- CBF Holding LLC must receive financing in an amount necessary to complete
the merger;
- Stockholders must not demand appraisal of shares representing more than 5%
of the total number of shares outstanding on a fully-diluted basis; and
- 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. The parties do not
anticipate waiving any material condition to the merger. If a material condition
is waived or if a material condition is not satisfied and not waived, the
parties will notify our stockholders by issuing a press release describing the
waiver or failure to satisfy the condition. If the waiver would have an adverse
impact on your decision to approve the merger and acquire our Series A-1
Preferred Stock, we may resolicit your vote for adoption of the merger
agreement. See "THE MERGER--Conditions to Completion of the Merger." See also
"SPECIAL FACTORS--Risk that the Merger Will Not Be Completed."
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:
- we exercise our right to terminate the merger agreement under a provision
of the merger agreement that allows us to approve another acquisition
proposal, or
- CBF Holding LLC terminates the merger agreement because (a) we violate
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
reasonable fees and expenses that may be incurred in connection with obtaining
the financing for the transaction. See "FINANCING OF THE MERGER."
4
<PAGE>
FINANCING OF THE MERGER
CBF Holding LLC and CBF Mergerco Inc. require approximately $496.6 million
in funds to complete the merger and pay related fees and expenses. These funds
will be raised by the corporation surviving in the merger as successor to CBF
Mergerco Inc. through the issuance of debt securities and preferred stock,
borrowings under a new credit facility and contributions to its equity capital
by the equity investors. The equity investors are expected to include Bruckmann,
Rosser, Sherrill & Co. II, L.P., Citicorp Venture Capital Ltd., Bruce C.
Bruckmann, James A. Urry, Michael A. Delaney, Paul N. Arnold, Anthony J.
Bellerdine, Charles M. Egan, Kenneth W. Hemm, Lloyd Lenson, Frances Ann Ziemniak
and Steven D. Jobes as well as other principals of Bruckmann, Rosser, Sherrill &
Co. II, L.P., and of Citicorp Venture Capital Ltd. and other employees of ours.
We have received commitment letters from Bruckmann, Rosser, Sherrill & Co. II,
L.P. and Citicorp Venture Capital Ltd., our largest stockholder, providing that
these firms have agreed, subject to conditions, to contribute in total up to $85
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 the debt
financing will be obligations of the surviving corporation's wholly-owned
subsidiary, CORT Furniture Rental Corporation, following the merger. See
"FINANCING OF THE MERGER" for a description of this 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 Completion of the Merger."
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 $25.00 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."
FEDERAL INCOME TAX CONSEQUENCES
Your receipt of cash for shares in connection with the merger or the
exercise of appraisal rights and your receipt of Series A-1 Preferred Stock in
connection with 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 "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 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.
5
<PAGE>
For historical information on prices for the shares, see "MARKET PRICES AND
DIVIDENDS ON THE SHARES."
LITIGATION CHALLENGING THE MERGER
Three alleged stockholders have separately filed suit against us, all of our
directors, Citicorp Venture Capital Ltd. and, in two of the cases, Bruckmann,
Rosser, Sherrill & Co. II, 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. The
complaints have been consolidated by the Court and we believe that the claims of
the consolidated complaint are without merit and intend to vigorously defend
them. See "SPECIAL FACTORS--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 contains selected consolidated historical financial data
of CORT 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 CORT. The Statement of Operations Data for
the six months ended June 30, 1999 and 1998 and the Balance Sheet Data as of
June 30, 1999 were derived from the unaudited condensed consolidated financial
statements of CORT. The selected pro forma financial data has been derived from
the unaudited pro forma financial statements included elsewhere in this Proxy
Statement/ Prospectus. The Pro Forma Balance Sheet Data gives effect to the
merger as if it was completed on June 30, 1999. The Pro Forma Statement of
Operations Data gives effect to the merger as if it was completed on January 1,
1998. The pro forma financial information is based on assumptions that
management believes are reasonable. This information is presented for
comparative and informational purposes only. The pro forma financial information
does not purport to represent what CORT's results of operations or financial
condition would actually have been had the merger in fact occurred on these
dates or to project CORT's results of operations for any future period or
financial condition on any future date. This table should be read with the pro
forma financial statements included elsewhere in this Proxy Statement/Prospectus
and CORT's Annual Report on Form 10-K for the year ended December 31, 1998 as
amended, the Consolidated Financial Statements of CORT and related notes, and
the other financial information included in this Proxy Statement/ Prospectus or
in the documents attached as exhibits or incorporated by reference.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
YEAR ENDED DECEMBER 31, 1998 JUNE 30,
------------------------------------------ ------------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996(1) 1997 HISTORICAL PRO FORMA 1998
--------- --------- --------- --------- ----------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <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 $ 127,879
Furniture sales revenue................ 34,534 37,321 42,589 50,006 53,093 53,093 25,694
--------- --------- --------- --------- ----------- ----------- -----------
Total revenue........................ 164,560 179,309 234,149 287,218 318,964 318,964 153,573
Cost of furniture rental............... 25,771 27,950 36,958 45,634 47,863 47,863 22,868
Cost of furniture sales................ 20,649 22,203 25,207 30,257 32,354 32,354 15,536
--------- --------- --------- --------- ----------- ----------- -----------
Total cost of goods.................. 46,420 50,153 62,165 75,891 80,217 80,217 38,404
Selling, general and administrative
expenses............................. 95,526 102,435 136,536 165,019 186,100 186,600 89,240
--------- --------- --------- --------- ----------- ----------- -----------
Operating earnings..................... 22,614 26,721 35,448 46,308 52,647 52,147 25,929
Interest expense, net.................. 16,246 15,917 8,251 8,374 7,837 38,285 4,038
Income before extraordinary loss....... 3,546 6,218 15,936 22,326 25,903 7,334 12,711
Net income............................. $ 3,546 $ 2,075 $ 15,936 $ 22,326 $ 23,395 -- 12,711
Earnings (loss) per common share before
extraordinary loss................... $ 0.91 $ 1.26 $ 1.40 $ 1.74 $ 1.99 $ (1.77) $ 0.98
Earnings (loss) per common share before
extraordinary loss--assuming
dilution............................. $ 0.85 $ 1.11 $ 1.31 $ 1.67 $ 1.92 $ (1.77) $ 0.94
Other Data:
Book value per share(2)................ 1.46 11.28 10.96 11.66 13.49 (40.98) 12.68
Earnings to combined fixed charges and
preferred stock dividends (3)........ 1.33 1.57 3.21 3.77 4.14 -- 4.10
<CAPTION>
SIX MONTHS ENDED JUNE
30, 1999
------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
----------- -----------
<S> <C> <C>
Statement of Operations Data:
Furniture rental revenue............... $ 144,891 $ 144,891
Furniture sales revenue................ 29,539 29,539
----------- -----------
Total revenue........................ 174,430 174,430
Cost of furniture rental............... 25,410 25,410
Cost of furniture sales................ 18,668 18,668
----------- -----------
Total cost of goods.................. 44,078 44,078
Selling, general and administrative
expenses............................. 102,820 103,070
----------- -----------
Operating earnings..................... 27,532 27,282
Interest expense, net.................. 2,775 18,835
Income before extraordinary loss....... 14,335 4,549
Net income............................. $ 14,335 --
Earnings (loss) per common share before
extraordinary loss................... $ 1.09 $ (0.83)
Earnings (loss) per common share before
extraordinary loss--assuming
dilution............................. $ 1.07 $ (0.83)
Other Data:
Book value per share(2)................ 14.52 (38.01)
Earnings to combined fixed charges and
preferred stock dividends (3)........ 4.83 --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1999
----------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 HISTORICAL PRO FORMA
--------- --------- --------- --------- --------- ----------- -----------
Balance Sheet Data:
Total assets....................................... $ 178,275 $ 173,722 $ 247,199 $ 277,841 $ 332,896 $ 355,573 $ 375,813
Total debt......................................... 123,645 53,800 65,600 63,132 90,800 91,200 374,011
Mandatorily Redeemable Preferred Stock............. -- -- -- -- -- -- 117,590
Stockholders' equity (deficit)..................... 6,963 75,421 125,152 149,332 175,662 190,110 (190,051)
</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 periods ended December 31,
1998 and June 30, 1999 by $13,130 and $6,068 respectively.
7
<PAGE>
RISK FACTORS
By voting in favor of the merger and holding your shares of our common stock
until the merger, you will be choosing to invest in our Series A-1 Preferred
Stock. An investment in our Series A-1 Preferred Stock involves a high degree of
risk. You should carefully consider the following 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 IMPEDE OUR
ABILITY TO OBTAIN ADDITIONAL FINANCING, RESTRICT THE USE OF OUR CASH FLOW, AND
LIMIT OUR FLEXIBILITY AND WE MAY NOT BE ABLE TO PAY YOU.
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. We expect to issue $250 million
aggregate principal amount of senior subordinated notes and borrow $124.0
million under our new senior credit facility at the time of the merger. See "PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS" and "FINANCING OF THE
MERGER--Debt Financing--The New Credit Facility." In the future, we may incur
even more debt. We expect to make borrowings under our new credit facility to
fund seasonal working capital, capital expenditures and acquisitions. The total
debt available at any time under the credit facility will initially be $225
million. Our new credit facility will include an expandability clause providing
for additional commitments of up to $100 million to be available at our
election. We would expect to use this additional availability to fund more
significant acquisitions if we are able to identify appropriate candidates.
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 AFFECT OUR
ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY AND REDUCE OUR CASH FLOW AVAILABLE TO
PAY YOU.
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
8
<PAGE>
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 WHICH COULD IMPAIR OUR ABILITY TO RESPOND TO CHANGING CONDITIONS OR
COULD LEAD TO DECLINES IN OPERATING RESULTS.
Under the terms and conditions that we expect our lenders will require under
our debt obligations after the merger, we expect to agree to limitations on our
ability to make 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 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
WHO WILL NOT BE REQUIRED TO VOTE IN THE BEST INTERESTS OF HOLDERS OF OUR SERIES
A-1 PREFERRED STOCK.
Upon completion of the merger, it is expected that Bruckmann, Rosser,
Sherrill & Co. II, L.P., Citicorp Venture Capital Ltd. and some of their
affiliates together with some 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.................................................................. 44.1%
Series A-2 Preferred Stock.................................................................. 100%
Series B Preferred Stock.................................................................... 100%
Series C Preferred Stock.................................................................... 100%
Common Stock................................................................................ 100%
</TABLE>
Accordingly, these 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. These 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 senior stock in the future, any 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 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 transaction with these stockholders. The interests of these stockholders may
be different from the interests of other stockholders. Our controlling
stockholders might oppose an offer from a third party that would be in the best
interests of the holders of our Series A-1 Preferred Stock. Our controlling
stockholders will not have any obligation to vote in favor of the interests of
our preferred stockholders.
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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 this 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 $3.00 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 Preferred Stock and the amounts at which the Series A-1 Preferred Stock are
reflected in the pro forma financial information contained in this Proxy
Statement/Prospectus 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
- changes in market and economic conditions;
- our and our subsidiaries' financial condition and prospects; and
- 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. Indebtedness under our new credit facility will be secured by a
lien on substantially all of our assets. This will permit the lenders under the
new credit facility to be paid from the proceeds of our assets before any of our
other creditors or equity holders may be paid. 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 related to our Series B-2 Preferred Stock and our
Series C-2 Preferred Stock of up to $4.0 million in the first year following the
Merger and up to $1.0 million per year in each subsequent year.
YOUR SERIES A-1 PREFERRED STOCK WILL HAVE LIMITED VOTING RIGHTS AND YOU WILL
NOT BE ABLE TO CONTROL KEY BUSINESS DECISIONS THAT MAY IMPACT THE VALUE OF YOUR
PREFERRED STOCK.
As holders of Series A-1 Preferred Stock, you will have limited voting
rights. You will have the right to vote only
- as required by law;
- related to the authorization of any series of our stock with a dividend or
liquidation preference senior to Series A-1 Preferred Stock;
- related to any change to the terms of the Series A-1 Preferred Stock; and
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- 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."
We can make important decisions that may affect the value of our Series A-1
Preferred Stock without the consent of the holders of the Series A-1 Preferred
Stock. For example, we can borrow additional funds, make acquisitions and
capital expenditures or elect not to do any of these things without obtaining
your approval.
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 $.36 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
found relevant by our Board of Directors. The terms of any financing
arrangements which we may enter into in connection with the merger or after the
merger 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 must
have surplus or net profits equal to the full amount of the cash dividend at the
time the 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
the 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 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 AND THAT IT WILL BE DIFFICULT FOR
PREFERRED STOCKHOLDERS TO OBTAIN INFORMATION REGARDING OUR FINANCIAL CONDITION.
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 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, these securities may be repaid
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after the merger occurs and our obligation to file periodic reports under the
Exchange Act related to these securities may end.
OUR BUSINESS IS IN A HIGHLY COMPETITIVE INDUSTRY AND THE VALUE OF OUR SERIES
A-1 PREFERRED STOCK MAY DECREASE AND WE MAY BE UNABLE TO PAY YOU IF WE FAIL TO
SUCCESSFULLY COMPETE.
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. In selling 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. Because our business is very dependent
on our reputation and customer relationships rather than on long-term customer
contracts, our business could rapidly deteriorate if our reputation or
relationships are impaired. As a result, the value of our Series A-1 Preferred
Stock may decrease and we may not be able to pay dividends or make other
payments to you.
WE CANNOT ASSURE THAT WE WILL BE ABLE TO IMPLEMENT KEY COMPONENTS OF OUR
BUSINESS STRATEGY AND ACHIEVE ANTICIPATED FINANCIAL PERFORMANCE.
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 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 financing on acceptable terms, if at all. This could have
a material adverse effect on our ability to implement our strategies and
capitalize on profitable opportunities. As a result, our financial condition
could be adversely affected.
WE DEPEND ON KEY PERSONNEL WHO HAVE IMPORTANT RELATIONSHIPS WITH OUR
CUSTOMERS.
The success of our business strategy and our ability to operate profitably
may depend on the continued employment of our senior management team. We do not
have life insurance to protect us against the loss of our executives. The loss
of the services of some of our key executives could have a material adverse
effect on us because our business is very dependent on relationships between our
customers and our employees. We do not have long-term contracts with our major
customers. 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.
WE ARE INVOLVED IN LITIGATION CHALLENGING THE MERGER WHICH MAY AFFECT OUR
ABILITY TO COMPLETE THE MERGER OR INCREASE OUR COSTS RELATED TO THE MERGER.
Three alleged stockholders have separately filed suit against us, all of our
directors, Citicorp Venture Capital Ltd. and, in two of the cases, Bruckmann,
Rosser, Sherrill & Co. II, 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
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recover rescissory and/or compensatory damages. The complaints have been
consolidated by the Court and we believe that the claims of the consolidated
complaint are without merit and intend to vigorously defend them. See "SPECIAL
FACTORS--Litigation Challenging the Merger."
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to CORT 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 adjourned special meeting to
be held at the Holiday Inn-Fair Oaks, 11787 Lee Jackson Highway, Fairfax,
Virginia 22033, on , 1999, at .m., eastern time, and at any
further adjournments or postponements of the adjourned special meeting. This
Proxy Statement/Prospectus, the attached Notice of Adjourned 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. Our telephone number is (703) 968-8524.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
The special meeting of our stockholders was originally convened on August
18, 1999. At the meeting, 11,868,254 of our shares of voting stock were present
and of these 8,676,195 shares were voted to adjourn the meeting to the call of
the chair. The adjourned meeting has been called for , 1999.
At the adjourned special meeting, the holders of our voting common stock
will be asked to consider and vote upon a proposal to adopt an amended and
restated merger agreement dated as of August 12, 1999, by and among CBF Holding
LLC ("CBF"), CBF Mergerco Inc. ("CBF Sub") and CORT (the "Merger Agreement"). If
the required votes in favor of the proposal are obtained, and other conditions
are satisfied or waived, the terms of the Merger Agreement provide that:
- CBF Sub will be merged with and into CORT (the "Merger") and
- each share of CORT'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 will be converted into the right to receive per Share consideration
of $25.00 in cash, without interest, and one share of Series A-1 Preferred
Stock with an initial liquidation preference of $3.00 (the "Series A-1
Preferred Stock").
Shares held at the effective time of the Merger in CORT's treasury or by any
subsidiary of CORT will be canceled without payment. Shares of CORT's common
equity retained under the terms of the Merger Agreement and Shares for which
appraisal rights are properly perfected under Delaware law will not be converted
into the right to receive the cash consideration and Series A-1 Preferred Stock.
CORT anticipates that the Merger will occur as soon as practicable after
adoption of the Merger Agreement by the holders of our voting common stock at
the adjourned special meeting and the satisfaction or, where permissible, waiver
of the other conditions to the completion of the Merger. There can be no
assurance that, even if the required stockholder approval is obtained, the other
conditions to the Merger will be satisfied or waived, or that the Merger will be
completed. See "SPECIAL FACTORS--Risk that the Merger Will Not Be Completed." 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. II, L.P. ("BRS") for the purpose of effecting the transaction
described in this Proxy Statement/Prospectus. These entities are more fully
described in "INFORMATION CONCERNING CBF, CBF SUB AND
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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, determined that the Merger is fair to, and in the
best interests of, all of the stockholders, including the directors, officers
and stockholders of CORT having the right to retain shares of CORT's common
equity under the Merger Agreement (the "Affiliated Stockholders") and their
affiliates and associates. The Affiliated Stockholders include Citicorp Venture
Capital Ltd., James A. Urry, Michael A. Delaney, Bruce C. Bruckmann, Harold O.
Rosser, Stephen C. Sherrill, Stephen F. Edwards, Paul N. Arnold, Anthony J.
Bellerdine, Kenneth W. Hemm, Lloyd Lenson, Steven D. Jobes, Charles M. Egan,
Frances Ann Ziemniak and other CORT employees approved by CBF and CORT. The
Board recommends that the holders of our voting common stock vote in favor of
adoption of the Merger Agreement. For a discussion of the factors considered by
the Board of Directors in reaching its conclusions, see "SPECIAL
FACTORS--Fairness of the Merger; Recommendation of the Board of Directors;
Position of CBF." For a description of the interests of some 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 July 22, 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. 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 13,096,560 voting Shares, held by approximately 200 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 Delaware law, the affirmative vote of at least a majority of the votes
that all holders of voting common stock are entitled to cast related 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 Citicorp Venture Capital Ltd., the
other Affiliated Stockholders and their respective 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 have a quorum at the special meeting. As of the Record Date, the
Affiliated Stockholders beneficially owned an aggregate of 6,281,522 voting
Shares, constituting approximately 48.0% of the voting Shares outstanding on
that date. See "SPECIAL FACTORS-- Interests of Certain Persons in the Merger;
Conflicts of Interest" and "SECURITY OWNERSHIP OF 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 the required majority vote
to be obtained, it is expected that the special meeting will be adjourned again.
Additional proxies from those Unaffiliated Stockholders who have not previously
delivered a proxy or otherwise voted at the special meeting will be solicited
until the time a definitive vote is obtained.
As of the Record Date, Unaffiliated Stockholders hold 6,815,038 voting
Shares, the affirmative vote of 3,407,520 of these voting Shares is required to
adopt the Merger Agreement. This special voting requirement contained in the
Merger Agreement has the effect of neutralizing the ability of the
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Affiliated Stockholders that otherwise would exist 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 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., which will determine whether a quorum is
present and act as transfer agent. The transfer agent will treat abstentions as
voting Shares that are present and entitled to vote. However, 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 some voting Shares to vote on a particular matter,
those voting Shares will 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 CORT'S STOCKHOLDERS. IF
THE MERGER AGREEMENT IS ADOPTED AND THE MERGER IS COMPLETED, EACH SHARE OF
CORT'S COMMON STOCK WILL BE CONVERTED INTO THE RIGHT TO RECEIVE $25.00 IN CASH
AND ONE SHARE OF SERIES A-1 PREFERRED STOCK OF CORT AS THE SURVIVING
CORPORATION. SHARES HELD IN CORT'S TREASURY OR BY ANY CORT SUBSIDIARY WILL BE
CANCELED WHEN THE MERGER IS EFFECTIVE. SHARES OF CORT'S COMMON EQUITY RETAINED
UNDER THE TERMS OF THE MERGER AGREEMENT AND SHARES FOR WHICH APPRAISAL RIGHTS
ARE PROPERLY PERFECTED UNDER DELAWARE LAW WILL NOT BE CONVERTED INTO THE RIGHT
TO RECEIVE THE CASH CONSIDERATION AND THE SERIES A-1 PREFERRED STOCK. THE
STOCKHOLDERS' COMMON EQUITY INTEREST IN CORT (OTHER THAN THE ONGOING INTEREST OF
THE AFFILIATED STOCKHOLDERS IN THE SURVIVING CORPORATION) WILL CEASE.
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 before or at the special meeting, and not revoked before their
use, will be voted as instructed. If no instructions are given, properly
executed proxies will be voted FOR adoption of the Merger Agreement and will
grant discretionary authority to vote on other matters properly presented at the
special meeting or any further adjournments or postponements. If any other
matters are properly presented to the special meeting or any further
adjournments or postponements of the special meeting, the persons named in the
enclosed form of proxy as acting under the proxy will have discretion unless
authority is expressly withheld to vote on these matters using their best
judgment. We do 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 further adjournments of
the special meeting. A proxy is revoked by filing with the Secretary of CORT, at
CORT's address contained 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 further
adjournments of the special meeting, and voting in person. However, attendance
at the special meeting, or any postponements or further adjournments of the
special meeting, will not in and of itself be a revocation of a proxy.
If 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 the requisite majority vote to be
obtained, it is
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expected that the special meeting will be adjourned again. Additional proxies
from those Unaffiliated Stockholders who have not previously delivered a proxy
or otherwise voted at the special meeting will be solicited until the time a
definitive vote is obtained. Adjournment of the special meeting is expected
under these circumstances because the Affiliated Stockholders have indicated to
CORT 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 the required majority vote to be
obtained, they would vote for adjournment of the special meeting. If the special
meeting is postponed or further adjourned, a stockholder who has given a proxy
may revoke it any time before it is voted at any postponement or further
adjournment of the special meeting in the manner described above.
Proxies are being solicited by and on behalf of the Board of Directors. We
will bear the cost of the special meeting and the cost of soliciting proxies,
including the cost of printing and mailing the proxy material. In addition to
the solicitation of proxies by mail, we may use the services of some of our
directors, officers and regular employees to solicit proxies personally or by
telephone, telegram or other form of wire or facsimile communication. Our
directors, officers and employees will receive no compensation for these
services in addition to their regular remuneration. We intend to request brokers
and other custodians, nominees and fiduciaries to forward solicitation materials
to the beneficial owners of Shares held of record by these persons. We will
reimburse these brokers and other custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses.
In connection with the Merger, the stockholders have the right to exercise
appraisal rights if they
- do not vote for the adoption of the Merger Agreement,
- deliver a written demand for appraisal to CORT before the taking of a vote
on the Merger Agreement, and
- otherwise comply with the requirements of Section 262 of the Delaware
General Corporation Law, 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
these 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 CORT
to increase stockholder value. Among the factors that the Board discussed in
this context were:
- that the growth rate of revenue in CORT's core business was declining;
- that the trading market for CORT's common stock had remained relatively
illiquid; and
- that conditions in the mergers and acquisitions market generally were
favorable.
The Board considered a stock repurchase program but determined that it would not
be in the best interests of the stockholders because it would reduce further the
liquidity of CORT's common stock.
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. 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, including a
stock repurchase program which was rejected because of its likely impact on
liquidity. The Board asked management to explore a transaction with Aaron. At
the time of these discussions, Bruce C. Bruckmann, a director of CORT and a
principal of BRS, indicated to officers of CORT that, depending on several
factors which included the conditions of capital markets and the support of
management and CORT'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, the employees
indicated that CVC was not interested in participating in a transaction with a
third party unless the transaction would deliver a substantial premium over the
current market price. Shortly after this time, discussions with Aaron regarding
a potential combination were terminated by CORT. In view of the fact that Aaron
was not willing to pay a premium for CORT, CORT did not resume discussions with
Aaron when CORT later received offers for its common stock.
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On December 16, 1998, Messrs. Arnold, Bruckmann, James A. Urry, a Board
member who is an employee of CVC, and Ms. Frances Ann Ziemniak, Executive Vice
President and Chief Financial Officer of CORT, 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 this environment. The representatives of DLJ
indicated that markets were strong and 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 CORT 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 CORT's common stock. During this conversation, Mr.
Arnold indicated to Mr. Bruckmann his belief that members of CORT's management
might, depending on various factors, support this type of transaction. Mr.
Bruckmann indicated to Mr. Arnold that, given the support of management, BRS
would be interested in investigating the viability of a recapitalization
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
CORT would be structured. The representatives of DLJ described several
transactions that they believed could be financed in the then current financial
environment. To CORT's knowledge, neither the December 16th discussion between
CORT 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 CORT's special counsel, Dechert Price &
Rhoads, 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 CORT in a transaction in which holders of CORT'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 CORT's voting stock who were not
participants in the proposed transaction or affiliates of these participants. In
the course of this meeting, Mr. Arnold and Mr. Charles Egan, CORT's Chairman,
indicated that they would support this 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 a recapitalization transaction, if proposed, or whether
it would ultimately support a recapitalization 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. The Board decided that it would
require approval of a majority of the disinterested stockholders for any
recapitalization transaction with BRS and that it would not appoint a special
committee or unaffiliated representative. Because Messrs. Alessi and Maffei were
the only directors who did not have a financial interest in the potential
transaction, the Board agreed that although they were not acting as a special
committee, Messrs. Alessi and Maffei would act on behalf of CORT in evaluating
the transaction and in any negotiations. 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 proposal, including the selection and engagement of an investment banking
firm to advise on 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 CORT's common stock since August, 1996. Messrs. Alessi and Maffei
also
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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 LLC, now Banc of America Securities LLC) 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 CORT. 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.
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 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 the
engagement and delegated to Messrs. Alessi and Maffei the authority to conclude
the final terms. The Board then, at the suggestion of CORT's Compensation
Committee, considered the desirability of entering into "change of control"
agreements with some of the members of CORT'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
these agreements.
On March 12, terms of the engagement of STES were finalized and
representatives of STES began their due diligence investigation of CORT. This
continued through March 22, 1999 and included meetings with Mr. Arnold and Ms.
Ziemniak at CORT's headquarters in Fairfax, Virginia.
On March 15, representatives of Dechert and Kirkland began negotiations on
the terms of the draft merger agreement. Substantial changes were made to the
draft merger agreement as a result of the negotiations, including the
elimination of some of the representations and warranties of CORT, the
elimination of some of the conditions to BRS' obligation to complete the
transaction and the inclusion of a provision specifically allowing Messrs.
Alessi and Maffei to require CORT to furnish information to, or enter into
discussions or negotiations with, any person in connection with an unsolicited,
bona fide acquisition proposal, provided that this person had entered into a
standstill and confidentiality agreement with CORT on terms no less favorable to
CORT than those contained in the confidentiality agreement between CORT and BRS.
On behalf of CORT, Dechert requested, among other things, to:
- 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 CORT to BRS under some circumstances in the event that the merger
was not completed;
- modify a provision in the draft providing for expenses of BRS in
connection with the merger to be reimbursed if the merger was not
completed;
- condition completion of the merger on the receipt by the Board of
Directors of an opinion rendered by a firm experienced in these matters,
substantially to the effect that the surviving corporation would be
solvent following completion of the merger;
- require BRS to make additional payments to CORT's stockholders if CORT was
sold or engaged in any public offering of its common stock within two
years after the merger was completed;
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- eliminate provisions in the draft conditioning BRS' obligation to complete
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
- require BRS to deliver, before execution of the merger agreement,
definitive commitment letters for all of the debt and equity financing
required to complete 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 this meeting. At this meeting, Mr. Arnold
reviewed the history of CORT's prior contacts with third parties and investment
banking firms regarding a possible sale of CORT. 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, 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 CORT 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 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 discussed preliminary
valuations with Messrs. Alessi and Maffei and representatives of Dechert. These
discussions 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:
- the availability of recapitalization accounting as a condition to BRS'
obligation to complete the transaction would be eliminated; and
- the receipt of an opinion on the solvency of the surviving corporation as
a condition to CORT's obligation to complete the transaction would be
eliminated.
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It was also agreed that before 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 CORT'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 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 this
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 this 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. Springstreet, Inc. recently merged with
HomeStore.com, Inc. HomeStore.com, Inc. recently completed an initial public
offering of its common stock which is now listed on NASDAQ under the symbol
"HOMS."
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 this 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
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indicated that, if asked, they believed that they would be able to opine that
per share consideration of $24.00 in cash plus $2.50 liquidation value in
preferred stock would be fair, from a financial point of view, to CORT'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 a final proposal 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 resume
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
about 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:
- whether the holders of the preferred stock would be entitled to elect any
directors of CORT if CORT failed to pay cash dividends when required;
- whether CORT's obligation to pay dividends on the preferred stock would be
subject to any covenants contained in CORT's financing agreements with its
senior lenders; and
- whether CORT would have the option to convert the 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 before the meeting.
In the final negotiations over the merger agreement, the representatives of
Dechert and Kirkland agreed on behalf of CORT and BRS, respectively, that:
- no termination or "break up" fee would be payable under any circumstances;
- CORT's obligation to reimburse expenses in the event the merger was not
completed would be limited to circumstances in which CORT terminated the
merger agreement to pursue an alternative transaction or breached its
obligations under specified provisions of the agreement;
- the acquiring entities would covenant that they would not sell CORT nor
engage in a public offering of CORT's stock for one year after the merger
was completed;
- the acquiring entities' obligations to complete the merger would be
conditioned on the absence of any material adverse change in capital
market conditions, but only if the change had a material adverse effect on
the syndication of bank credit facilities or completion of high-yield debt
offerings; and
- 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 commitment or
highly confident letters were obtained within 30 days after the execution
of the merger agreement.
See "THE MERGER." Related to the preferred stock, it was agreed that:
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- the holders of the preferred stock would be entitled under some
circumstances to elect one director of CORT if CORT fails to pay cash
dividends when required;
- CORT's obligation to pay cash dividends on the preferred stock would be
subject to any covenants contained in CORT's financing agreements with its
senior lenders; and
- CORT 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 "DESCRIPTION OF CAPITAL STOCK AFTER THE MERGER."
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 CORT and would as a result provide 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 CORT'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.
During the week of August 9, 1999, representatives of CORT and BRS had
discussions regarding a possible increase in the merger consideration. As a
result of those discussions, on August 12, 1999, Mr. Bruckmann informed the
Board of Directors that BRS was increasing its offer to a per share
consideration of $25.00 in cash plus $3.00 liquidation value of preferred stock.
At this meeting, Mr. Urry informed the Board of Directors that CVC had deposited
shares representing approximately 33% of CORT's outstanding voting stock into a
newly created voting trust controlled by affiliates of BRS. The affiliates of
BRS advised CORT that they intend to vote these shares in favor of the proposed
merger and against any competing transaction. Mr. Urry advised CORT that the
voting trust was created in order to comply with a directive received by CVC
from the Small Business Administration requiring CVC to reduce its control of
CORT's voting stock to shares representing less than 25% of CORT's issued and
outstanding voting shares. Following discussion, the Board of Directors
unanimously approved the increased merger consideration. An amended and restated
agreement and plan of merger was executed reflecting this increase.
On August 12, 1999, CORT made a public announcement of the increase in
merger consideration.
CONTACTS WITH THIRD PARTIES
From time to time after CORT's initial public offering, and again in
November, 1998, representatives of CORT had discussions with investment banking
firms regarding the possible sale of CORT or combination of CORT with another
entity. These discussions were preliminary and, to CORT's knowledge, none of
these discussions resulted in any contacts with third parties. Also, in
December, 1998, a representative of CORT met with representatives of Aaron
Rents, Inc. and had a preliminary discussion of a potential combination of CORT
and Aaron. These discussions were terminated by CORT and did not result in any
transaction which CORT wished to pursue. See "SPECIAL FACTORS--Background of the
Merger." In view of the fact that Aaron was not willing to pay a premium for
CORT, CORT did not resume discussions with Aaron when CORT later received offers
for its common stock.
On December 16, 1998, Messrs. Arnold, Bruckmann, and Urry and Ms. Ziemniak
met with representatives of DLJ to discuss capital market conditions and what
type of recapitalization transaction could be structured and financed in this
environment. The representatives of DLJ indicated
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that markets were strong and a recapitalization transaction could likely be
financed through a variety of different structures.
On February 9, 1999, Mr. Bruckmann and Mr. Arnold discussed the possibility
of CORT 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 CORT's common stock. During this conversation, Mr.
Arnold indicated to Mr. Bruckmann his belief that members of CORT's management
might, depending on various factors, support a recapitalization transaction. Mr.
Bruckmann indicated to Mr. Arnold that, given the support of management, BRS
would be interested in investigating the viability of a recapitalization
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
CORT would be structured. The representatives of DLJ described several
transactions that they believed could be financed in the then current financial
environment. To CORT's knowledge, neither the December 16th discussion between
CORT 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 CORT be recapitalized and combined with Brook in a
transaction that Mr. Crawford said would provide stockholders of CORT 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 CORT. 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 CORT's board of directors, termination of the merger
agreement, funding of financing commitments and eligibility for recapitalization
accounting treatment. Although not expressly stated as a condition, in order to
accomplish the transaction described in the April 15 letter, CVC would have to
agree to participate in the transaction by retaining a significant equity
interest in CORT or effectively sell its entire equity interest in CORT 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 CORT 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
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 CORT. CVC stated that these
steps could include converting CVC's shares of non-voting CORT common stock into
voting shares so that CVC would then hold approximately 44% of CORT'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
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informed of CVC's responses to Fremont and were told that some other
stockholders of CORT were similarly opposed to any transaction with
Fremont/Brook. These other stockholders included affiliates of CVC and BRS, who
hold approximately 2.4% of CORT's outstanding voting shares, and members of
CORT's senior management who hold approximately 1.3% of these shares, and, in
addition, hold currently exercisable options that if exercised would result in
CVC and these other stockholders owning in excess of 50% of CORT's outstanding
shares. Messrs. Arnold and Egan informed the Board that they were opposed to
pursuing a transaction with Brook. They were concerned that members of
management as well as other employees would leave CORT in the face of a possible
transaction with Brook because of differences in management style and culture
between CORT and Brook. 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 completed in the face of the significant opposition expressed by CORT's
management and major stockholders. In the course of the Board's consideration of
these matters, representatives of STES orally 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. The merger agreement
prohibits the Board from soliciting other proposals. The Board did not ask BRS
if it would be willing to match the Fremont/Brook offer or otherwise increase
its offer because CORT was already bound by the terms of the merger agreement to
solicit stockholder approval of the Merger at the per share price of $24 in cash
and one share of Series A-1 Preferred Stock. While the merger agreement allows
CORT in some circumstances to terminate the merger agreement, the termination
provision requires, among other things, that an alternative transaction be
reasonably likely to be completed. As discussed further above, in light of
CORT's major stockholders' and management's opposition to the Fremont/Brook
proposal and the highly conditioned nature of the offer, it was unlikely that a
transaction with Fremont/Brook could be completed.
In a letter dated April 28, 1999 to CORT'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 CORT common stock into voting stock. Mr. Crawford sent a
copy of this letter directly to CVC. On April 29, 1999, CVC formally notified
CORT that it was converting its non-voting stock into voting stock as provided
for by CORT's certificate of incorporation and that this conversion was
permissible under the regulations applicable to small business investment
companies. CVC's notice provided that 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 CORT
sent a letter to Fremont and Brook to inform them of the Board's action. On June
18, Brook sent CORT a letter reiterating Brook's interest in pursuing a
transaction with CORT.
At the August 12, 1999 meeting of CORT's Board of Directors, Mr. Urry
advised CORT that CVC received a directive from the Small Business
Administration requiring CVC to reduce its control of CORT's voting stock to
shares representing less than 25% of CORT's issued and outstanding voting
shares. Mr. Urry informed the Board of Directors that CVC had deposited shares
representing approximately 33% of CORT's outstanding voting stock into a newly
created voting trust controlled by affiliates of BRS in order to comply with
this directive. The affiliates of BRS advised CORT that they intend to vote
these shares in favor of the proposed merger and against any competing
transaction.
25
<PAGE>
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 at a per Share consideration of $24.00 in cash and $2.50 in
liquidation value in a series of preferred stock.
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 (these factors were
considered over a period of time at various meetings):
(i) information related 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 these 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 this type of
transaction only at a premium that CVC believed was not realistically
attainable from a third party acquirer, and the unlikelihood of a third
party sale 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 conditions to the obligations of CBF and
CBF Sub to complete the Merger, including conditions concerning
financing, it is possible that the Merger may not be completed and the
consequences under the merger agreement of the failure to satisfy the
conditions;
(vi) the possible conflicts of interest of some of CORT's directors and
members of management;
(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 completed.
In view of the wide variety of factors considered in evaluating 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 determination. On balance, however, it viewed the matters stated in
items (i), (ii), (iii), (iv), (viii) and (ix) as favorable to its decision, the
matters stated in items (v) and (vii) as unfavorable to its decision, and the
matters stated in item (vi) as neutral to its decision.
The factors listed above were considered by the Board of Directors in the
manner discussed below.
(i) On balance the Board considered as favorable to its decision the matters
stated 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 DIVIDENDS ON THE SHARES." The Board also considered
that CORT became public as of
26
<PAGE>
November 17, 1995, at an initial price to the public of $12.00 per Share, that
the market price for the Shares immediately before 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 with a liquidation preference of $2.50
represented a premium of approximately 58% over the $16 3/4 market price for the
Shares immediately before 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 proposed cash consideration of $24.00 per share would give
the Unaffiliated Stockholders an opportunity to realize immediate value for
their Shares at a substantial premium.
The Board recognized that while completion 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 with a liquidation preference of
$2.50, 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 with a liquidation preference of
$2.50 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 stated
in item (ii). At the Board's March 25, 1999 special meeting, STES delivered
orally its opinion, later confirmed in writing, that the per Share consideration
consisting of $24.00 in cash and one share of Series A-1 Preferred Stock with a
liquidation preference of $2.50 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 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 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 completed, 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 with a liquidation
preference of $2.50 and the potential for market appreciation in the Shares if
CORT continued as a public company pursuing its present business plan. See
"--Background of the Merger."
27
<PAGE>
After the Board's decision to approve the Merger, CVC and members of
management informed the Board that they were not interested in pursuing an offer
from Fremont/Brook for a per Share consideration of $28.00 in cash. This
affirmed the Board's earlier conclusion that the only meaningful comparison was
between the consideration offered in the merger agreement and the potential for
market appreciation in the Shares if CORT continued as a public company pursuing
its present business plan. See "--Contacts with Third Parties."
(iv) On balance the Board considered as favorable to their decision the
matters 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. Third parties receiving information or negotiating with CORT must enter
into a confidentiality agreement with CORT on terms no less favorable to CORT
than those contained in the confidentiality agreement executed by BRS. 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 completed. 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.
However, 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 conditions to completion 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 in item (v).
The conditional nature of various aspects of the merger agreement was reviewed
by the Board. The merger agreement contains conditions to the obligations of CBF
to complete the Merger. These conditions include principally
- the completion of the necessary financing,
- the assertion of appraisal rights under Delaware law by holders of no
more than 5% of the Shares,
- 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,
- 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,
- the absence of any effective restraining order, injunction or order
preventing completion of the Merger and
- 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 the condition; provided that some 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 these 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
28
<PAGE>
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 is 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 completion 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 in
item (vi). The possible conflicts of interest of the directors were considered
at various meetings of the Board. The Board 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 in item
(vii). The Board felt, however, that because
- completion of the Merger is conditioned upon receiving the affirmative
vote of a majority of the outstanding voting Shares held by Unaffiliated
Stockholders,
- 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
- 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 and were unanimously
approved by the entire Board,
the absence of a special committee and an unaffiliated representative was
acceptable.
(viii) The Board viewed the matters 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 in the merger agreement, or to continue as stockholders in
CORT.
(ix) The Board viewed as favorable to its decision the matters in item (ix).
The Board considered that even if the required majority of the Unaffiliated
Stockholders approves the Merger, some 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 evaluating the fairness of the Merger, the Board did not consider
valuations of CORT based solely on net book 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. Although the information STES presented
to the Board regarding comparable companies and comparable transactions included
multiple of book value calculations, STES believed and the Board concurred that
the valuations were driven by earnings growth and earnings power rather than
book value. The Board did not perform, or ask STES to perform, a liquidation
analysis because the Board believed higher values could be achieved for
stockholders by focusing on CORT's value as a going concern given the nature of
CORT's tangible assets--primarily used rental furniture.
On August 12, 1999, the Board was informed that BRS would increase the per
Share consideration to $28.00, consisting of $25.00 in cash and $3.00 in
liquidation value of Series A-1 Preferred Stock. The Board unanimously
determined that the Merger remains in the best interest of and fair to all of
the
29
<PAGE>
stockholders, authorized and approved entering into the amended and restated
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
considered that the increased merger consideration is more favorable than the
initial merger consideration and continued to believe, in light of the
opposition of its major stockholders and management to the transaction proposed
by Brook, that it was unlikely that CORT could be sold in a transaction, or any
transaction could be completed, in which the stockholders would have an
opportunity to obtain a significant premium to market price for the Shares prior
to the announcement of the Merger other than the Merger or a similar transaction
with the Affiliated 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,
- historical market prices for the Shares, including the Shares' initial
public offering price,
- the analysis of the Board described in the above discussion,
- that the Board had received the written opinion of STES to the effect
that, as of the date of the opinion, the per Share consideration of $24.00
in cash and one share of Series A-1 Preferred Stock with a liquidation
preference of $2.50 to be received by the Unaffiliated Stockholders in the
Merger is fair to the Unaffiliated Stockholders from a financial point of
view and
- that, after the terms of the transaction changed, the Board had received
the written opinion of STES to the effect that, as of the date of the
opinion, the per Share consideration of $25.00 in cash and one share of
Series A-1 Preferred Stock with a liquidation preference of $3.00 to be
received by the Unaffiliated Stockholders in 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. CBF and the Affiliated
Stockholders believe the structure of the Merger is fair to the Unaffiliated
Stockholders because it provides for the approval of at least a majority of the
outstanding voting shares held by the Unaffiliated Stockholders. This belief
should not, however, be construed as a recommendation to CORT's stockholders by
CBF or the Affiliated Stockholders to vote to adopt the Merger Agreement.
CVC believes the Merger is fair to the Unaffiliated Stockholders from a
financial point of view because it is within the range of fair values identified
by STES, provides a significant premium to the trading value of the shares prior
to the announcement of the Merger, and gives the Unaffiliated Stockholders the
opportunity to approve the Merger by requiring the vote of a majority of the
outstanding shares held by the Unaffiliated Stockholders.
CBF, BRS and the Affiliated Stockholders considered as most significant to
their determination of the fairness of the Merger, the premium to the trading
value of CORT's shares at the time the merger agreement was agreed. CBF, BRS and
the Affiliated Stockholders also place great weight on the fact that the Board
undertook a detailed examination of the Merger, including receipt of the
fairness opinion of STES, and determined that the transaction was fair to the
Unaffiliated Stockholders from a financial point of view. Each of CBF, BRS and
Affiliated Stockholders is aware of the Board's analysis described in items (i),
(ii), (iii), (iv), (viii) and (ix) of the preceding discussion and gave due
consideration to these items and adopts the Board's analysis.
OPINION OF FINANCIAL ADVISOR
In connection with the Merger, CORT engaged SunTrust Equitable Securities to
provide an opinion as to the fairness, from a financial point of view, of the
merger consideration to the Unaffiliated Stockholders. STES is a nationally
recognized firm and, as part of its investment banking
30
<PAGE>
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. CORT 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.
STES has no material relationships with CORT, BRS, CVC or their respective
affiliates. SunTrust Banks, Inc., STES' parent company, may have lending
relationships with companies in which BRS and CVC have investments. In the fall
of 1997, Equitable Securities Corporation, which is a predecessor to STES, acted
as financial advisor to Davco Restaurants, Inc. in rendering a fairness opinion
to Davco in connection with a going private transaction sponsored by Citicorp
Venture Capital Ltd. and members of management of Davco. Davco paid Equitable a
fee of $225,000 for its services and its fairness opinion in that transaction.
In the ordinary course of business, STES or SunTrust Banks, Inc. may solicit
companies in which BRS and CVC have investments and may provide advisory or
other services to those companies.
At the March 25, 1999 meeting of the Board of Directors, STES delivered its
oral opinion (as subsequently confirmed in writing as of that date), that, as of
that date, and based upon and subject to the limitations, assumptions and
qualifications stated in the opinion, the merger consideration per share
proposed to be paid to the Unaffiliated Stockholders, consisting of $24.00 in
cash and one share of Series A-1 Preferred Stock with a liquidation preference
of $2.50, was fair, from a financial point of view to the Unaffiliated
Stockholders. In August, CORT advised STES that the per share consideration
offer to the Unaffiliated Stockholders had been changed to $25.00 in cash and
one share of Series A-1 Preferred Stock with a liquidation preference of $3.00.
CORT requested that STES render an opinion on the fairness, from a financial
point of view, of the new consideration being offered to the Unaffiliated
Stockholders. No limitations were imposed by the Board of Directors upon STES
related to the investigations made or the procedures followed by it in rendering
either its original opinion or the new opinion.
The full text of the new STES opinion, dated August 25, 1999 (the "STES
Opinion"), which states the assumptions made, matters considered and limitations
of review by STES, is attached to this Proxy Statement/Prospectus as Annex B and
is incorporated by reference. The opinion should be read carefully and in its
entirety in connection with this Proxy Statement/Prospectus. The following
summary of the STES Opinion is qualified by the full text of the STES Opinion.
The STES Opinion is not a recommendation to any stockholder of CORT as to how
the stockholder should vote at the special meeting.
In connection with its opinion, STES, among other things:
- reviewed publicly available financial and other financial information,
reports, forecasts and other internal information that were provided to
STES by or on behalf of CORT;
- reviewed the Merger Agreement;
- compared financial positions and operating results of CORT to other
companies in the rental industry;
- considered, to the extent available, the financial terms of other similar
transactions recently effected which it believed to be comparable to the
Merger;
- reviewed and discussed the historical and current operations of CORT, its
financial condition and prospects with management and representatives of
CORT; and
- conducted other financial studies, analyses and investigations and
reviewed other information and factors as it found appropriate for
purposes of the STES Opinion.
31
<PAGE>
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. STES assumed for purposes of the STES Opinion that
CORT's financial forecasts were reasonably prepared on bases reflecting the best
available estimates at the time of preparation as to the future financial
performance of CORT and good faith judgments of the management of CORT. STES did
not express an opinion related to the forecasts or the assumptions on which they
were based. STES also assumed that there were no material changes in CORT'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 CORT as to all legal matters related to CORT, the Merger
and the Merger Agreement. STES has assumed that the Merger will be completed in
a manner that complies in all respects with the applicable provisions of the
Securities Exchange Act of 1934 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 CORT and was not furnished
with any 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. Where the following analyses present information regarding
the multiples implied by the merger consideration, the merger consideration has
been valued for purposes of analysis at $28.00 per Share, based on the $25.00 in
cash plus the $3.00 initial liquidation value of the Series A-1 Preferred Stock.
The following is a summary of material financial analyses performed by STES
in connection with the STES Opinion.
ANALYSIS OF PREMIUMS PAID
STES performed an analysis comparing the revised merger consideration with
the closing stock price the day before the original transaction announcement.
STES viewed this analysis as supporting fairness since the implied premium was
comparable to the range of premiums in similar transactions.
STES reviewed the acquisition premiums paid for two groups of selected
public companies over the market price of a certain number of days prior to the
announcement of a transaction. For the first group, consisting of 119
transactions in which cash was the acquisition consideration and having a
transaction value of between $200 million and $500 million, the median premium
paid in the transaction over the acquired company's stock price one day, one
week, four weeks, six months and one year prior to the announcement of the
transaction is presented in the table below. For the second group, consisting of
37 transactions in which the target company's stock price declined during the
year prior to the transaction, the median premium paid in the transaction is
presented in the table below. In addition, the median one year stock price
performance prior to the announcement of the merger is also presented in the
table below.
<TABLE>
<CAPTION>
PREMIUM PRIOR TO ANNOUNCEMENT
----------------------------------------------------
1 DAY 1 WEEK 4 WEEKS 6 MONTHS
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Median Premium.................................................... 24.4% 29.9% 37.8% 35.3%
CORT Premium...................................................... 79.2% 71.6% 71.6% 1.6%
<CAPTION>
1 YEAR
-----------
<S> <C>
Median Premium.................................................... 36.6%
CORT Premium...................................................... (37.8%)
</TABLE>
<TABLE>
<CAPTION>
STOCK PRICE ONE YEAR PREMIUM 1 DAY PRIOR
PRIOR TO ANNOUNCEMENT TO ANNOUNCEMENT
----------------------- ---------------------
<S> <C> <C>
Median............................................................... (24.9%) 25.9%
CORT................................................................. (65.3%) 79.2%
</TABLE>
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<PAGE>
COMPARABLE COMPANIES ANALYSIS
STES analyzed two groups of publicly-traded rental companies. The first
group consisted of five consumer rental companies 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
that included Electro Rent Corp., McGrath Rentcorp, National Equipment Services,
Inc., NationsRent, Inc., Neff Corp. and United Rentals, Inc. The table below
presents, for the companies in each group, the maximum and minimum multiples of
total market capitalization to the latest twelve months' ("LTM") revenue, LTM
earnings before interest, taxes, depreciation and amortization ("EBITDA"), LTM
earnings before interest and taxes ("EBIT"), LTM price to earnings ratio
("P/E"), 1999 P/E (other than Electro Rent, for which this information was not
available) and 2000 P/E (other than Electro Rent, for which this information was
not available). The multiples are compared to the multiples for CORT implied by
the merger consideration.
<TABLE>
<CAPTION>
CONSUMER RENTAL EQUIPMENT RENTAL
------------------------ ------------------------
MULTIPLE OF: MINIMUM MAXIMUM MINIMUM MAXIMUM CORT
- ----------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
LTM Revenues............................................... 0.9x 1.4x 1.6x 2.7x 1.4x
LTM EBITDA................................................. 6.8x 20.7x 7.3x 11.3x 7.5x
LTM EBIT................................................... 8.6x 17.9x 7.6x 13.5x 8.7x
LTM P/E.................................................... 11.8x 29.1x 10.6x 18.4x 13.8x
1998 P/E................................................... 10.7x 16.1x 9.8x 17.8x 12.8x
1999 P/E................................................... 9.0x 13.4x 8.9x 14.3x 11.2x
</TABLE>
STES judged this analysis as supporting fairness since the valuation
multiples implied by the merger consideration generally were within the range of
the valuation multiples of comparable companies. No company or transaction used
in the above analysis is identical to CORT or the Merger. Accordingly, an
analysis of the results of the above 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 CORT 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 CORT. STES examined this group of pending and
completed merger transactions in the rental industry from January 1996 to the
present. The following list of merger transactions was examined in STES'
comparable transactions analysis (Acquiror/Target): Atlas Copco/Rental Service
Corp., Rent-Way/Home Choice Holdings, United Rentals/US Rentals, Renters
Choice/Thorn Americas, EVI/Weatherford Enterra, Alrenco/RTO, Rent-Way/Champion
Rentals (only revenue multiple information was available), Rent-Way/Ace TV
Rentals (only revenue multiple information was available), Atlas Copco North
America/Prime Service, TCF Financial/Winthrop Resources, Medical Resources/NMR
of America, RTO/Action TV &
33
<PAGE>
Appliance Rentals and Thorn EMI Unit/Advantage Companies. The minimum and
maximum multiples paid for these other rental company transactions are presented
in the table below.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM CORT
------------- ----------- -----------
<S> <C> <C> <C>
Revenues...................................................... 1.0x 4.3x 1.4x
EBITDA........................................................ 4.7x 37.6x 7.5x
EBIT.......................................................... 7.5x 30.9x 8.7x
Net Income.................................................... 7.4x 68.9x 13.8x
Book Value.................................................... 1.7x 4.1x 2.0x
</TABLE>
No company or transaction used in the above analysis is identical to CORT or
the Merger. Accordingly, an analysis of the results of the above 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 CORT 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.
The companies in the comparable companies analysis and comparable
transaction analysis were selected because their products, customers or strategy
were similar to that of CORT. However, none of the companies operate solely in
the segments that CORT does and none serve the same customer base. For instance,
the consumer rental companies generally rent furniture and electronics, like
CORT. However, the consumer rental companies generally rent products to
individual consumers at higher prices for shorter terms than CORT offers to its
mostly corporate customer base. In addition, many of the consumer rental
companies focus on rental-purchase transactions, unlike CORT. The equipment
rental companies generally rent heavy equipment and other products to business
customers on both a short and long-term basis. While the customers and
transactions are more similar to CORT's, the equipment rental companies operate
in a much larger market segment that has experienced greater growth and
consolidation activity than CORT's segment of the rental industry.
DISCOUNTED CASH FLOW ANALYSIS
Using certain projected financial information supplied by CORT for calendar
years 1999 and 2001 and arithmetically extended by CORT to 2004, STES calculated
the net present value of free cash flows of CORT through 2004 using discount
rates ranging from 9.5% to 11.5%. 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 CORT in the year
2004 based on multiples of 2004 EBITDA ranging from 5.1x to 7.5x and 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............................................. $ 22.93 $ 36.27
</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.
34
<PAGE>
LEVERAGED BUYOUT ANALYSIS
STES applied a leveraged buyout analysis to the projected financial
information supplied by CORT for calendar years 1999 to 2001 and arithmetically
extended by CORT to 2004 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 analysis assumes that the
business is sold at the end of a five-year time period at a value, the "exit
valuation", equal to 7.0x to 8.0x EBITDA. The range of exit valuation multiples
approximates the valuation implied by the merger consideration in this
transaction. 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................................................. 29.0% 36.4%
</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 above summary 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 above summary must be considered as a whole
and that selecting portions of its analyses and of the factors considered,
without considering all of the 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 CORT.
In performing its analyses, STES made numerous assumptions related to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of CORT. 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 the
analyses. The analyses were prepared solely as part of STES' analysis of the
fairness of the merger consideration 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 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
CORT. 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 in
the projections.
STES was engaged by CORT to render its original fairness opinion as provided
by an engagement letter dated March 5, 1999. Under the terms of the engagement
letter, CORT agreed to pay STES
- a retainer fee of $100,000,
- an additional fee of $200,000 following the delivery of its oral opinion
to the Board of Directors, and
- an additional fee of $200,000 following the delivery of the initial Proxy
Statement to the stockholders.
35
<PAGE>
By supplemental agreement, CORT has agreed to pay STES an additional fee of
$25,000 following delivery of this Proxy Statement to the stockholders. CORT has
also agreed to reimburse STES for its reasonable out-of-pocket expenses. CORT
has paid $500,000 in fees to STES and $26,900 in expenses to date. Under a
separate letter agreement, CORT 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 CORT for its own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in the 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 completed, 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. The per Share consideration of $25.00 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 so that they may implement their business strategy and realize a
substantial return on their equity investment in CORT. See "INFORMATION
CONCERNING CBF, CBF SUB AND AFFILIATES" and "--Interests 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. 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 these returns are
available only to those long-term investors who are willing to bear the
substantial risks associated with a highly leveraged investment. BRS and the
Affiliated Stockholders chose to make the offer for CORT now because they
believe CORT's common stock is currently undervalued as a result of the market's
focus on short-term earnings instead of long-term prospects. The Affiliated
Stockholders do not believe that the value of their equity interest in CORT will
increase as rapidly if CORT remains a publicly-traded company as it will if CORT
becomes a closely-held corporation again.
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 51% 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."
36
<PAGE>
The acquisition has been structured as a merger in order to provide a prompt
and orderly transfer of ownership of CORT from the stockholders to BRS and the
Affiliated Stockholders, give disinterested stockholders the opportunity to
approve the acquisition, allow continuing stockholders to carryover their tax
basis in their rolled investment and defer the payment of income taxes, and to
receive leveraged recapitalization accounting treatment. If the Merger Agreement
is adopted by the required vote of the stockholders, and the other conditions
are satisfied, CBF Sub will be merged with and into CORT. Outstanding Shares
will be converted into the right to receive per Share consideration of $25.00 in
cash, without interest, and one share of Series A-1 Preferred Stock, unless
holders elect to pursue appraisal rights under Delaware law. Shares held in
CORT's treasury or by any CORT subsidiary and Shares of CORT's common equity
retained under the terms of the Merger Agreement will not be converted. See "THE
MERGER" and "APPRAISAL RIGHTS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the recommendation of the Board of Directors related to the
Merger, stockholders should be aware that members of CORT's Board of Directors
have 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 N.
Arnold, Bruce C. Bruckmann, Keith E. Alessi, Gregory B. Maffei, Charles M. Egan,
James A. Urry, and Michael A. 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 N. Arnold................................................ 209,429 1.6%
Bruce C. Bruckmann............................................ 182,506 1.4%
Keith E. Alessi............................................... 51,660 *
Gregory B. Maffei............................................. 42,526 *
Charles M. Egan............................................... 31,382 *
James A. Urry................................................. 13,934 *
Michael A. Delaney............................................ 10,501 *
</TABLE>
- ------------------------
(1) Includes all stock options which are exercisable within 60 days of the
Record Date. See "SECURITY OWNERSHIP OF 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. On August 12, CORT was advised by CVC that CVC had deposited
shares representing approximately 33% of CORT's outstanding voting stock into a
newly created voting trust controlled by affiliates of BRS.
If the Merger is completed, the directors of CORT, as stockholders, are
expected to receive aggregate net proceeds (net of the exercise price of Shares
held under those options that will receive the merger consideration) of
approximately $10,989,000 related to the conversion of their Shares in
connection with the Merger, assuming no one exercises the option to retain
shares, see "THE
37
<PAGE>
MERGER--Payment for Shares," and $1,548,829 in a liquidation preference of
Series A-1 Preferred
Stock as follows:
<TABLE>
<S> <C> <C>
Paul Arnold...................................... $ 625,386
Bruce Bruckmann.................................. 523,515
Keith Alessi..................................... 154,311
Gregory Maffei................................... 126,575
Charles Egan..................................... 93,743
James Urry....................................... 17,799
Michael Delaney.................................. 7,500
</TABLE>
OPTIONS. Some of the stock options held by 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 these options, some of the options held by Affiliated
Stockholders will be converted into options of the surviving corporation having
an intrinsic value equal to the aggregate merger consideration to which the
optionholder would be entitled to receive in connection with the Merger but for
the 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 some of the securities of CORT that they currently own on a tax
deferred basis for stock of the surviving corporation at an implied value of
$28.00 per share. Shares of the surviving corporation will be acquired for a
purchase price of $1.00 per share (other than the Series A-2 Preferred Stock
which will be purchased for $3.00 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 about the ownership of securities of the
surviving corporation, see "SECURITY OWNERSHIP OF THE SURVIVING CORPORATION."
The shares of Series B Preferred Stock of the surviving corporation that CVC
will obtain in connection with the conversion of Shares of CORT's common equity
that it retained under the terms of the Merger Agreement will have a special
liquidation premium that will entitle CVC and its affiliates and employees
holding these shares to approximately $3.6 million, in the aggregate, upon the
liquidation of CORT or redemption of these shares, plus accrued and unpaid
dividends, in addition to the liquidation preference and accrued and unpaid
dividends otherwise payable on the shares of Series B Preferred Stock. It is
anticipated that during the first year following the Merger, CORT will declare
and pay cash dividends of $3.6 million in the aggregate payable to CVC and the
other holders of Series B-2 Preferred Stock and Series C-2 Preferred Stock of
CORT. In addition, the shares of Series C Preferred Stock of the surviving
corporation to be issued to CVC and its affiliates and employees in exchange for
its retained Shares will entitle the holder of these shares to a special
dividend preference in an aggregate amount per annum equal to the greater of (i)
$500,000 and (ii) .75% of CORT's earnings before interest, taxes, depreciation
(other than rental depreciation) and amortization. This special dividend will
have preference over CORT's other Preferred Stock to the extent that it does not
exceed $1 million per year. It is expected that this dividend will be paid
annually in cash.
MANAGEMENT. Members of CORT'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 of the Merger, it
is also expected that some of CORT's employees will have the opportunity to
receive options to buy 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 options are expected to
vest over a three-year period.
38
<PAGE>
MANAGEMENT FEE. CBF anticipates that BRS, or an affiliate of BRS, will
enter into a management agreement with CORT at the effective time of the Merger.
The management agreement will provide that BRS or an affiliate will receive an
annual management fee of $500,000 from CORT or its subsidiaries for management,
business and organizational strategy and merchant and investment banking
services rendered to CORT. The amount of the annual management fee may be
increased in some circumstances based upon performance or other criteria to be
established by CORT's Board of Directors. 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 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 "INFORMATION CONCERNING CBF, CBF SUB AND AFFILIATES" and "SECURITY OWNERSHIP
OF THE SURVIVING CORPORATION." The Affiliated Stockholders are expected to enter
into a stockholders agreement governing their respective rights and obligations.
See "FINANCING OF THE MERGER-Equity Financing."
INSURANCE AND INDEMNIFICATION. Under the Merger Agreement, CBF or CORT as
the surviving corporation in the Merger is required to provide, for a period of
six years after the effective time of the Merger, directors' and officers'
liability insurance policies. These policies are in favor of the present and
former directors, officers, employees and agents of CORT who are presently
covered under policies by CORT related to actions or omissions occurring before
the effective time of the Merger on terms no less favorable than the insurance
maintained by CORT as of the date of the Merger Agreement. CBF and the surviving
corporation, however, will not be required to pay an annual premium for this
insurance in excess of 200% of the last annual premium paid before 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 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 time. 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. 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 CORT in effect as of the
effective time of the Merger. The Merger Agreement also provides that all
existing indemnification agreements between CORT and its directors, officers,
employees and agents will continue after the effective time of the Merger. 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 before the completion of the Merger. This board is
anticipated to include representatives designated by BRS, CVC and CORT's
management. See "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 completion of the Merger. See "INFORMATION
REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF CORT FOLLOWING THE MERGER AND
CBF." The compensation
39
<PAGE>
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 N. Arnold, Mr. Arnold will receive a cash payment within three days of a
change of control of CORT in the amount of $1,200,000. In addition to the
payment, if Mr. Arnold is terminated by CORT within one year of a change of
control other than for "cause" or by Mr. Arnold for "good reason," Mr. Arnold is
entitled to a continuation of 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 CORT 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, under a Change of Control Bonus Plan, additional management
employees are eligible for payments if they are terminated within one year of a
change of control by CORT other than for "cause" or by the management employee
for "good reason." The Compensation Committee, in its sole discretion, will
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 will not exceed $400,000.
The Merger will not result in a change of control under the change of
control agreements or the plan. However, some of the 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."
EFFECTS OF THE MERGER
Upon completion of the Merger, the stockholders will be entitled to receive
per Share consideration of $25.00 in cash, without interest, and one share of
Series A-1 Preferred Stock, or to exercise appraisal rights under Delaware law
if properly demanded before 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 of the Merger, will have no continuing ownership
interest in CORT other than the Series A-1 Preferred Stock and will no longer
participate in the future earnings and potential growth of CORT. 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 this ownership.
From the effective time of the Merger, the Shares will no longer be traded
on the NYSE. Price quotations for sales of Shares in the public market will no
longer be available. The registration of the Shares under the Securities
Exchange Act of 1934 will terminate and this termination will substantially
reduce the information required to be filed by CORT with the Securities and
Exchange Commission and will make some 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 CORT. CORT anticipates being required to file periodic reports
under the Exchange Act under the terms of its indebtedness. See "FINANCING OF
THE MERGER." However, these securities may be repaid after the Merger occurs and
the obligation to file periodic reports under the Exchange Act related to these
securities may end.
40
<PAGE>
Under the terms of the Merger Agreement, the board of directors of CBF Sub
shall become, upon completion of the Merger, the board of directors of CORT as
the surviving corporation. See "INFORMATION REGARDING THE DIRECTORS AND
EXECUTIVE OFFICERS OF CORT FOLLOWING THE MERGER AND CBF."
PLANS FOR THE COMPANY AFTER THE MERGER
It is expected that following the Merger CORT's business and operations
will, except as described 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 (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 CORT and its
subsidiaries or with a book value in excess of 50% of the book value of all
assets of CORT and its subsidiaries and (b) that CORT 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
complete the Merger) within one year of the effective time of the Merger.
RISK THAT THE MERGER WILL NOT BE COMPLETED
Completion of the Merger is subject to the satisfaction or waiver of
conditions, including receipt of the required stockholder approval, the absence
of an injunction or other order restraining completion 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. The parties do
not anticipate waiving any material condition to the Merger. In 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
completion of high yield debt offerings. See "THE MERGER--Conditions to
Completion 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 completed.
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 completion of the transactions contemplated in the Merger
Agreement in the following circumstances. CORT must reimburse CBF and CBF Sub if
it terminates the Merger Agreement because the Board of Directors approves an
alternative transaction. However, CORT's ability to terminate the Merger
Agreement in connection with an alternative transaction is limited by various
conditions, including a reasonable likelihood that an alternative transaction
will be completed. In addition, CORT must reimburse CBF and CBF Sub if the
Merger Agreement is terminated by CBF because the Board of Directors or CORT
solicits, initiates or encourages the submission of any acquisition proposal, or
participates in any discussions or negotiations regarding, or furnishes to any
person any non-public information related 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. However, among
other things, the above shall not prohibit the independent directors from
furnishing information or requiring CORT to furnish information to, or entering
into discussions or negotiations with, any person in connection with an
unsolicited bona fide acquisition proposal by the person if, and to the extent
that the person first enters into a standstill and confidentiality agreement
with CORT on terms no less favorable to CORT
41
<PAGE>
than those contained in the confidentiality agreement with BRS. CORT must also
reimburse CBF and CBF Sub if the Merger Agreement is terminated by CBF because
the Board of Directors or CORT shall have approved another acquisition proposal
or alternative transaction. However, reimbursement for expenses shall not exceed
an aggregate of $2,000,000 plus any fees and expenses incurred in connection
with obtaining the financing for the Merger which fees and expenses shall not
exceed 2.0% of the maximum amount of any 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 completed for any other reason, CORT's
current management, under the direction of the Board of Directors, will continue
to manage CORT as an on-going business. No other transaction is currently being
considered by CORT as an alternative to the Merger.
RISKS IN THE EVENT OF BANKRUPTCY
If CORT is insolvent at the effective time of the Merger or becomes
insolvent as a result of the Merger, the transfer of the per Share consideration
of $25.00 in cash plus one share of Series A-1 Preferred Stock upon completion
of the Merger may be found to be a "fraudulent conveyance" under applicable law,
and therefore may be subject to claims of creditors of CORT. If a claim is
asserted by the creditors of CORT after the Merger, there is a risk that persons
who were stockholders of CORT at the effective time of the Merger will be
ordered by a court to turn over to CORT's trustee in bankruptcy all or a portion
of the per Share consideration they received upon the completion of the Merger.
Based upon the projected capitalization of CORT at the time of the Merger
and projected results of operations and cash flow after the Merger, CORT's
management has no reason to believe that CORT and its subsidiaries, on a
consolidated basis, will be insolvent immediately after giving effect to the
Merger.
LITIGATION CHALLENGING THE MERGER
On March 26, 1999 and April 1, 1999, respectively, Harbor Finance Partners
and Michael Sternberg, alleged stockholders of CORT, 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 CORT's stockholders and claim that the price to
be paid for shares under the Merger Agreement is unfair and inadequate. On June
24, 1999, Harbor Finance Partners filed an amended complaint adding BRS as a
defendant.
On March 26, 1999, Harold Shapiro, an alleged stockholder of CORT, filed a
similar class action lawsuit in the Delaware Court of Chancery. Plaintiff
Shapiro also names as a defendant BRS. Plaintiff Shapiro also claims that the
defendants breached their fiduciary duties, or aided and abetted any breach, and
alleges that the defendants failed to make an informed decision related 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.
These cases were consolidated by the Court on July 22, 1999 and the time for
defendants to respond to the consolidated complaint has been extended. CORT
believes that the claims of the consolidated complaint are without merit. CORT,
the directors, CVC and BRS intend to vigorously defend the claims. Copies of
these complaints, with the exception of Harbor Finance Partners' amended
complaint which is attached as an exhibit to CORT's Amendment No. 2 to Form S-4
filed on July 26, 1999, are filed as exhibits to CORT's Form 8-K filed on April
29, 1999. See "ADDITIONAL AVAILABLE INFORMATION."
42
<PAGE>
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 shown below:
<TABLE>
<CAPTION>
PROJECTED FISCAL YEARS
----------------------------------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
----------------------------------
<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>
Since the preparation of these projections, CORT's performance has not been
consistent with some of the assumptions upon which the projections were based,
primarily as they relate to core rental
43
<PAGE>
revenue growth. As a result, CORT revised these projections, the material
portions of which are shown below:
<TABLE>
<CAPTION>
PROJECTED FISCAL YEARS
----------------------------------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
----------------------------------
<CAPTION>
FISCAL FISCAL FISCAL
1999 2000 2001
---------- ---------- ----------
<S> <C> <C> <C>
Furniture rental revenue..................................................... $ 293,500 $ 315,100 $ 332,800
Furniture sales revenue...................................................... 59,500 63,700 68,800
---------- ---------- ----------
Total revenue.............................................................. 353,000 378,800 401,600
Cost of furniture rentals.................................................... 37,000 56,200 59,200
Cost of furniture sales...................................................... 52,200 39,400 42,000
---------- ---------- ----------
Total cost of goods........................................................ 89,200 95,600 101,200
Total gross profit......................................................... 263,800 283,200 300,400
Selling, general and administrative expenses................................. 206,800 221,800 234,400
---------- ---------- ----------
Operating earnings......................................................... 57,000 61,400 66,000
Interest expense, net........................................................ 6,000 6,800 7,300
---------- ---------- ----------
Income before income taxes................................................. 51,000 54,600 58,700
Income taxes................................................................. 21,500 23,000 24,800
---------- ---------- ----------
Net income................................................................. $ 29,500 $ 31,600 $ 33,900
---------- ---------- ----------
---------- ---------- ----------
Average common shares........................................................ 13,500 13,600 13,700
Earnings per common share--assuming dilution................................. $ 2.19 $ 2.32 $ 2.47
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
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 on 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 related 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. 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 under the guidelines established
by the American Institute of Certified Public Accountants for preparation and
presentation of financial projections. Neither CORT's independent auditors, nor
any other independent accountants or financial advisors, have compiled, examined
or performed any procedures related to the projections contained in this Proxy
Statement/Prospectus, nor have they expressed any opinion or any form of
assurance on the information or its achievability, and assume no responsibility
for, and disclaim any association with, the projections. Neither CORT nor the
Board can assure you that CORT's performance will be consistent with these
projections, although we have no reason to doubt the reasonableness of the
underlying assumptions upon which the revised projections are based. In the
past, we have made projections which we did not achieve. Stockholders are
cautioned not to rely on the projections.
44
<PAGE>
THE MERGER
THE FOLLOWING IS A SUMMARY 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. YOU ARE URGED TO
READ THE MERGER AGREEMENT AS IT AND NOT THIS SUMMARY DEFINES YOUR RIGHTS.
GENERAL
The Merger Agreement contains the terms and conditions upon which the Merger
is to be effected. The Merger will be completed only if the conditions contained
in the Merger Agreement are satisfied or waived (see "Conditions to Completion
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 of the Merger, CBF
Sub will merge with and into CORT and the separate existence of CBF Sub will
cease. CORT will be the surviving corporation in the Merger. Each Share which is
outstanding immediately before the effective time of the Merger will be
converted into the right to receive per Share consideration of $25.00 in cash,
without interest, and one share of Series A-1 Preferred Stock. However, shares
held at the effective time in CORT's treasury or by any subsidiary of CORT will
be cancelled without payment. Shares of CORT's common equity retained under the
Merger Agreement and Shares for which appraisal rights are properly perfected
under Delaware law will not be converted into the right to receive the merger
consideration. Shares of stock of CBF Sub (other than the Series A-1 Preferred
Stock of CBF Sub) issued and outstanding immediately before the effective time
of the Merger will 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 Series A-1 Preferred Stock of CBF Sub issued and
outstanding immediately before the effective time will be converted into one
share of Series A-1 Preferred Stock of the surviving corporation. Upon
completion of the Merger, stockholders, other than CBF and the Affiliated
Stockholders, will possess no further interest in, or rights as stockholders of,
CORT, other than their right to receive per Share consideration of $25.00 in
cash and one share of Series A-1 Preferred Stock, or to exercise appraisal
rights.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Merger will become effective at the
time the Certificate of Merger is duly filed with the Secretary of State of the
State of Delaware as required by Delaware law or at a later time as 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 contained in the Merger Agreement. Upon the effectiveness of the
Merger, the Restated Certificate of Incorporation of CORT will be amended to
read as provided in an exhibit to the Merger Agreement. As amended, it 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, 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, the Merger
Agreement requires the affirmative vote of holders of a majority of the
outstanding shares of voting common stock held by Unaffiliated Stockholders. See
"INTRODUCTION--Voting at the Special Meeting," "SPECIAL FACTORS--Interests of
Certain
45
<PAGE>
Persons in the Merger; Conflicts of Interest." Votes cast by Citicorp Venture
Capital Ltd., the other Affiliated Stockholders and their respective affiliates
and associates will not be counted in determining whether a majority of the
outstanding shares of voting common stock held by Unaffiliated Stockholders have
voted to adopt the Merger Agreement.
PAYMENT FOR SHARES
COMPANY SHARES. After completion of the Merger, stockholders must surrender
their stock certificates to a bank or trust company to be designated by CBF Sub
as 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 the 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 of the Merger. Stockholders
should not submit their certificates to CORT or the exchange agent until they
have received these materials.
Payment for Shares will be made to former stockholders as soon as
practicable following receipt by the exchange agent of the certificates and
other required documents. Until stock certificates and other required documents
are received by the exchange agent, each certificate formerly representing
Shares will represent solely (i) the right to receive per Share consideration of
$25.00 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 related
to their Shares, the right to seek payment under Section 262 of the Delaware
General Corporation Law. See "APPRAISAL RIGHTS."
STOCK OPTIONS. Each stock option, other than some options held by the
Affiliated Stockholders, that has an exercise price which is less than $28.00
per share, will be extinguished and represent at the effective time of the
Merger the right to receive one share of Series A-1 Preferred Stock for each
share of common stock issuable upon exercise of the option, and a cash amount
equal to the product of
- the excess, if any, of (a) $25.00 over (b) the exercise price of the
option multiplied by
- the aggregate number of shares of common stock issuable upon the exercise
in full of the option as of the effective time.
However, each option with an exercise price in excess of $25.00 will entitle
the holder to receive only a number of shares of Series A-1 Preferred Stock
equal to the product of
- a fraction, the numerator of which is equal to $28.00 minus the exercise
price and the denominator of which is $3.00 (the initial liquidation
preference of the Series A-1 Preferred Stock), multiplied by
- the aggregate number of shares of common stock issuable upon the exercise
in full of the option as of the effective time.
Each holder will be entitled to receive cash in lieu of any fractional
shares of Series A-1 Preferred Stock. Each option that has an exercise price
that is greater than or equal to $28.00 per share will be extinguished without
payment of consideration of any kind.
46
<PAGE>
RETAINED SHARES. BRS, CBF and the Affiliated Stockholders have the right to
elect, by notice to CORT and CBF before the effective time of the Merger, to
exchange some of their shares of common stock for the right to receive, in lieu
of the per Share consideration of $25.00 in cash, and one share of Series A-1
Preferred Stock, quantities and classes of CORT's Series A-2 Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, and common stock. In the
event that all eligible shares are converted, CVC and its affiliates will own
2,500,000 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 the event CVC and its affiliates convert all eligible
shares, BRS and its affiliates will also own 2,500,000 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. It is expected that members of CORT's management 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 class or series held by the management investors.
BRS and CBF intend to elect to exchange any shares of common stock they may
hold into shares of stock of CORT after the Merger. Affiliated Stockholders are
expected to elect to exchange shares of common stock that will result in them
owning shares of the surviving corporation as described in "FINANCING OF THE
MERGER--Equity Financing." The election will be conditioned upon the closing of
the Merger. The common stock will be valued at $28.00 per share for purposes of
determining the amount of securities of the surviving corporation received per
share of common stock exchanged. BRS, and to the extent that the Affiliated
Stockholders do not own enough Shares to allow them to acquire their entire
equity interest in the surviving corporation, those Affiliated Stockholders, are
expected to acquire their equity interest with cash. Prior to the Merger, CBF
may acquire some Shares from Affiliated Stockholders and CBF will be entitled to
exchange these shares as described above, or receive the merger consideration
for these Shares.
THE EXCHANGE FUND
As of the effective time of the Merger, CBF Sub (or CORT, as the surviving
corporation) will deposit, or will cause to be deposited, with a bank or trust
company designated before the effective time of the Merger by CBF Sub, which
shall be reasonably satisfactory to CORT, for the benefit of the holders of
Shares
- cash in an aggregate amount equal to the product of (A) the number of
Shares issued and outstanding at the effective time (other than Shares
held at the effective time in CORT's treasury or by any subsidiary of
CORT, other than the retained shares of common stock discussed above and
other than Shares for which appraisal rights are properly perfected under
Delaware law) multiplied by (B) $25.00
- 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 the Shares (including any fractional shares).
REGULATORY MATTERS
Other than the requirements of the Exchange Act, and the filing of the
Certificate of Merger as required by Delaware law, neither CORT, CBF nor CBF Sub
is aware of any federal or state regulatory approvals or consents that must be
obtained in connection with the Merger.
47
<PAGE>
CONDITIONS TO COMPLETION 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 before the effective time of the
Merger, of each of the following conditions:
- the representations and warranties contained in the Merger Agreement,
subject to exceptions, are true and correct as of the date of the Merger
Agreement and the date of the closing of the Merger;
- the performance in all material respects of all obligations contained in
the Merger Agreement that are required to be performed at or before the
Closing Date;
- 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;
- all filings with and all approvals, consents, authorizations and waivers
from governmental and other regulatory agencies and other third parties
required to complete the transactions contemplated by the Merger
Agreement, which, if not obtained, would have a material adverse effect,
or would prevent the completion of the Merger, shall have been made or
obtained;
- 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 completion of the Merger and
the transactions contemplated by the Merger Agreement;
- 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 under the
Merger Agreement or (y) challenges or seeks to challenge, restrain or
prohibit the completion of the Merger, shall have been threatened,
instituted or be pending; and
- (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 Series A-1 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 its related rules and regulations.
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 Merger, of
the following conditions: (i) CBF and/or CBF Sub will have completed their
arrangements for the financing of the Merger and received the cash proceeds; and
(ii) the holders of not more than 5% of the total number of Shares outstanding
immediately prior to the effective time of the Merger, on a fully diluted basis,
will have demanded an appraisal of the Shares under Section 262 of the Delaware
General Corporation Law.
Each of the conditions to the completion of the Merger may be waived by the
party whose obligations are subject to the satisfaction of the condition;
although some conditions would be required to be satisfied by applicable law,
notwithstanding any waiver. The parties do not anticipate waiving any material
condition to the Merger. If a material condition is waived or if a material
condition is not satisfied and not waived, the parties will notify CORT's
stockholders by issuing a press release describing the waiver or failure to
satisfy the condition. If the waiver would have an adverse impact on
48
<PAGE>
the stockholders' decision to approve the Merger and acquire Series A-1
Preferred Stock, CORT may resolicit votes for adoption of the Merger.
COVENANTS
CONDUCT OF CORT'S BUSINESS PRIOR TO THE MERGER. The Merger Agreement
provides that, before the effective time of the Merger, except as contemplated
by the Merger Agreement or otherwise permitted by the Merger Agreement:
- 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;
- CORT shall not without CBF's consent, declare, set aside or pay any
dividends on, or make any other distributions related to, 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 outstanding capital stock or any rights,
warrants or options to acquire any stock;
- 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
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 in the Merger
Agreement, or take any action that would make CORT's representations and
warranties not true in all material respects;
- CORT shall not amend its Restated Charter or By-laws;
- CORT shall not acquire any business or any corporation, partnership, joint
venture, association or other business organization or division of a
business organization (or any interest in a business organization) in a
transaction involving aggregate consideration in excess of $25 million, or
form any subsidiaries;
- 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;
- CORT shall not make any capital expenditures or commitments related to
capital expenditures, except capital expenditures or commitments not
exceeding the CORT's budget by more than $1 million in the aggregate as
CORT may, in its discretion, find appropriate;
- CORT shall not (x) incur any indebtedness for borrowed money or guaranty
any indebtedness of another person, other than (A) borrowings in the
ordinary course under existing lines of credit (or under any refinancing
of 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;
- 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;
49
<PAGE>
- 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;
- 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;
- CORT shall not change its accounting policies in any material respect,
except as required by generally accepted accounting principles;
- CORT shall not cancel, terminate, amend, modify or waive any of the terms
of any confidentiality or standstill agreement executed related 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;
- 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 related 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
- CORT shall not, with some exceptions, commit or agree to take any of the
above actions.
OTHER AGREEMENTS. CORT has agreed to take all action necessary under
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 complete the Merger. In
particular, CBF and CBF Sub have agreed to use their commercially reasonable
efforts to obtain financing on terms satisfactory to them. CORT has agreed,
subject to 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 below, or to participate in
any discussions or negotiations regarding, or furnish to any person any
non-public information related to, or to take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or reasonably may be
expected to lead to, any acquisition proposal. However, the above shall not
prohibit Messrs. Alessi and Maffei from furnishing information or requiring CORT
to furnish information to, or entering into discussions or negotiations with,
any person in connection with an unsolicited bona fide acquisition proposal if
that person first enters into a standstill and confidentiality agreement with
CORT on terms no less favorable to CORT than those contained in the
confidentiality agreement with BRS.
TERMINATION
The Merger Agreement may be terminated and abandoned at any time before the
effective time of the Merger, whether before or after adoption of the Merger
Agreement by the stockholders of CORT or CBF Sub:
- by mutual written consent of CBF and CORT;
- by either CORT or CBF if the Merger has not been completed on or before
November 30, 1999, provided that the failure to complete the Merger is not
attributable to the failure of the terminating party to fulfill its
obligations under the Merger Agreement;
- by either CORT or CBF if at the special meeting or any further adjournment
of the special meeting, 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;
50
<PAGE>
- 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 the order, decree
ruling or other action shall have become final and nonappealable;
- 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 complete the Merger or any other
transactions contemplated by the Merger Agreement, after determining, in
good faith, after consultation with its advisors, that the 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 completed and is in
the best interests of the stockholders, and CORT has received advice that
there is a material risk that failure to approve the transaction will be a
breach of the Board of Directors' fiduciary duties, and CORT has received
a written opinion from an investment banking firm that the transaction is
fair from a financial point of view;
- 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 related to a merger, consolidation,
share exchange, business combination or similar transaction involving CORT
or any of its subsidiaries, or any purchase of all or any significant
portion of the assets of CORT or any of its subsidiaries, or any equity
interest in CORT 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 related 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. However, this shall not
prohibit Messrs. Alessi and Maffei from furnishing information or
requiring CORT to furnish information to, or entering into discussions or
negotiations with, any person in connection with an unsolicited bona fide
acquisition proposal if that person first enters into a standstill and
confidentiality agreement with CORT on terms no less favorable to CORT
than those contained in the confidentiality agreement with BRS; (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 in the Merger Agreement; or (iii) approved
another acquisition proposal or alternative transaction;
- by CBF, if any of the conditions to CBF or CBF Sub's obligations contained
in the Merger Agreement shall have become incapable of fulfillment, and
shall not have been waived by CBF;
- by CORT, if any of the conditions to CORT's obligations contained in the
Merger Agreement shall have become incapable of fulfillment, and shall not
have been waived by CORT; or
- 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 completion of high yield debt offerings.
EXPENSES
The Merger Agreement provides that CBF and CBF Sub are entitled to
reimbursement from CORT for expenses incurred in connection with the Merger
Agreement in the event that the Merger Agreement:
- is terminated by CORT after it approves an alternative transaction; or
- is terminated by CBF because the Board of Directors of CORT 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 related to, or took any other action to facilitate
any inquiries or the making of any proposal that constituted, or may
51
<PAGE>
reasonably be expected to lead to, any acquisition proposal in violation
of the terms of the Merger Agreement;
Any reimbursement for expenses will not exceed an aggregate of $2,000,000
plus any fees and expenses incurred in connection with obtaining the financing,
which fees and expenses will not exceed 2.0% of the maximum amount of any
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 of the Merger,
directors' and officers' liability insurance policies. These policies are in
favor of the present and former directors, officers, employees and agents of
CORT who are presently covered under liability insurance policies by CORT
related to actions or omissions occurring prior to the effective time on terms
no less favorable than the insurance maintained by CORT as of the date of the
Merger Agreement. CBF and the surviving corporation, however, shall not be
required to pay an annual premium for this insurance in excess of 200% of the
last annual premium paid before 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 before 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 time. 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 in CORT's Restated
Certificate of Incorporation and Bylaws as of the effective time of the Merger.
The Merger Agreement also provides that all existing indemnification agreements
between CORT and its directors, officers, employees and agents will be continued
after the effective time of the Merger. See "THE MERGER--Indemnification of
Directors and Officers."
ACCOUNTING TREATMENT OF THE MERGER
The transaction has been structured as a merger so that CORT's stockholders
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 CORT's assets and liabilities will not be affected by the
transaction. See "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
FINANCING OF THE MERGER
The completion 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 $496.6 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, stockholders of CORT
and some of their respective affiliates or employees, as described below.
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The expected sources and uses of funds in connection with the Merger are as
follows (in thousands):
<TABLE>
<S> <C>
SOURCES
New Credit Facility............................................... $ 124,011
Senior Subordinated Notes......................................... 250,000
Equity Contribution............................................... 41,861
Equity Rollover................................................... 43,139
Series A-1 Preferred Stock........................................ 37,590
---------
TOTAL SOURCES OF FUNDS............................................ $ 496,601
---------
---------
USES
Payment for Shares in the Merger.................................. $ 288,897
Equity Rollover................................................... 43,139
Series A-1 Preferred Stock........................................ 37,590
Management, Director and Employee Options......................... 14,275
Repayment of Existing Indebtedness................................ 91,200
Fees and Expenses................................................. 21,500
---------
TOTAL USES OF FUNDS............................................... $ 496,601
---------
---------
</TABLE>
DEBT FINANCING
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 Bank of America, N.A., Bankers Trust Company and Credit Suisse
First Boston. 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. Advances under the New Credit Facility are referred to as "Revolving
Loans."
The New Credit Facility will include an expandability clause providing for
additional commitments of up to $100 million to be available at CORT Furniture
Rental's election from existing lenders or from other lenders which would
otherwise constitute eligible assignees under the New Credit Facility. This $100
million of availability would increase the aggregate principal amount available
under the New Credit Facility to $325 million.
Revolving Loans in the aggregate principal amount of $124.0 million, are
anticipated to be drawn on the closing date of the New Credit Facility in
connection with the Merger. Subject to compliance with customary conditions,
Revolving Loans will be available at any time before the final maturity of the
New Credit Facility. Amounts repaid under the New Credit Facility may be
reborrowed before the final maturity of the New Credit Facility, provided that
availability requirements are met.
All obligations of CORT Furniture Rental 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 CORT Furniture Rental) and, to the extent no adverse tax
consequences would result, foreign subsidiary of the surviving corporation. The
New Credit Facility and the related guarantees will be secured by substantially
all the assets of CORT Furniture Rental and its subsidiaries, including but not
limited to (a) a first priority pledge of all the capital stock of CORT
Furniture Rental and each guarantor of its domestic subsidiaries and, to the
extent no adverse tax consequences would result, foreign subsidiaries and (b)
perfected first priority security interests in substantially all of the tangible
assets of CORT Furniture Rental and its subsidiaries.
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Borrowings under the New Credit Facility will bear interest at a floating
rate based upon, at CORT Furniture Rental's option, (i) the higher of the prime
rate of Bank of America, N.A., 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
provided below). CORT Furniture Rental 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, CORT Furniture Rental will be required to pay a commitment fee to the
lenders in the New Credit Facility. This fee is equal to .50% per annum of the
undrawn portion of the commitments related to the facilities beginning 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
and payable quarterly in arrears after that time, 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 some extraordinary
transactions or issuances of debt and equity by CORT Furniture Rental 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. CORT Furniture Rental will pay the lenders syndication
and administration fees, reimburse some expenses and provide indemnities, in
each case which are customary for credit facilities of this type.
THE NOTES
CORT Furniture Rental will issue Notes in an aggregate principal amount of
$250 million in an offering in which Credit Suisse First Boston Corporation will
act as the initial purchaser. 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 by a Rule 144A distribution that
will be completed concurrently with the closing of the Merger.
The Notes will be senior subordinated obligations of CORT Furniture Rental,
subordinated to all existing and future senior indebtedness, including
indebtedness under the New Credit Facility. The Notes will be unconditionally
guaranteed on a senior subordinated basis by each subsidiary of CORT Furniture
Rental that guarantees the New Credit Facility.
The Notes will mature on the tenth anniversary of the date of issuance and
will contain other terms and conditions that are usual and customary for high
yield securities of this type including those regarding redemption and change of
control provisions.
The indenture governing the Notes will contain covenants customary for high
yield securities so that, among other things, it will limit the ability of CORT
Furniture Rental and the guarantors to:
- incur additional indebtedness or permit subsidiaries to incur additional
indebtedness;
- create liens;
- permit the issuance of capital stock by subsidiaries;
- enter into transactions with affiliates;
- issue preferred stock, pay dividends or make other payments or permit
subsidiaries to pay dividends or make other distributions; or
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- enter into mergers, consolidations and agreements to sell assets or permit
other asset sales.
CORT Furniture Rental will, concurrently with the Note offering, enter into
a registration rights agreement with the initial purchasers of the Notes under
which CORT Furniture Rental will agree to file a registration statement related
to an offer to exchange the Notes for new issues of debt securities of CORT
Furniture Rental registered under the Securities Act, with terms substantially
identical to those of the Notes. CORT Furniture Rental may be required to
provide a shelf registration statement to cover resales of the Notes by the
holders of the Notes. If CORT Furniture Rental fails to satisfy these
registration obligations, it may be required to pay liquidated damages to the
holders of Notes.
EQUITY FINANCING
In connection with the Merger, the surviving corporation will procure up to
$122.6 million through equity financing which will include approximately $37.6
million of Series A-1 Preferred Stock issued to the stockholders as part of the
merger consideration. CVC and its affiliates have agreed to provide equity
financing to the surviving corporation by converting approximately 1.4 million
Shares of CORT's common stock held by CVC or held in trust for the benefit of
CVC into stock of the surviving corporation. If and to the extent that BRS or
CBF owns any shares of common stock prior to the effective time of the Merger,
in lieu of all or any portion of BRS' equity investment, it will have the option
to convert that 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 CVC's conversion of Shares.
Alternately, CBF will be entitled to receive the merger consideration in
exchange for any Shares held by it or CBF Sub as of the effective time including
shares of Series A-1 Preferred Stock. 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 class
or series of stock held by the management investors. See "THE MERGER--Payment
for Shares."
BRS has provided CBF Sub with a commitment letter under which BRS and
related investors have committed to invest $42.5 million in securities of CBF
Sub as reduced for securities issued to management, which will be converted in
the Merger into equity securities of the surviving corporation. The investment
will be made on a PARI PASSU basis with the investment by CVC to be retained in
CORT 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 under which CVC has
committed to invest $42.5 million in securities of CBF Sub or the surviving
corporation as reduced for securities issued to
management, by means of a rollover of shares of CORT into the equity capital of
the surviving corporation. This 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.
The commitment letters have been filed as exhibits to the Schedule 13E-3 of
which this Proxy Statement/Prospectus is a part and reference is made to them.
Based on current expectations of management participation, at the time of
the Merger, it is currently expected that BRS and the Affiliated Stockholders
will acquire stock of the surviving corporation as follows:
CVC and its affiliates will exchange in the Merger approximately 1.4 million
Shares for
- 2.5 million shares of Series A-2 Preferred Stock;
- 16.2 million shares of Series B Preferred Stock;
- 13.9 million shares of Series C Preferred Stock; and
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- 2.1 million shares of common stock;
BRS and its affiliates will acquire for approximately $39.7 million in cash
(through the acquisition by CBF of stock of CBF Sub and stock of CORT which will
be exchanged in the Merger):
- 2.5 million shares of Series A-2 Preferred Stock;
- 16.2 million shares of Series B Preferred Stock;
- 13.9 million shares of Series C Preferred Stock; and
- 2.1 million shares of common stock; and
Members of management will exchange approximately 121,000 Shares for, and will
acquire from the surviving corporation for approximately $2.1 million in cash,
an aggregate of:
- 2.5 million shares of Series B Preferred Stock;
- 2.2 million shares of Series C Preferred Stock; and
- 0.8 million shares of common stock.
In the event the Merger is completed (see "SPECIAL FACTORS--Interests of
Certain Persons in the Merger") BRS will be entitled to a transaction fee in the
amount of approximately $3.4 million and an annual management fee in the amount
of $500,000. The amount of the annual management fee may be increased in some
circumstances based upon performance or other criteria to be established by the
Board of Directors of CORT. The shares of Series B Preferred Stock and Series C
Preferred Stock that CVC and its affiliates will own will entitle them to a
liquidation and dividend preference over all other classes of stock including
the Series A-1 Preferred Stock. See "SPECIAL FACTORS--Interests of Certain
Persons in the Merger; Conflicts of Interest."
The Affiliated Stockholders are expected to enter into a stockholders
agreement under which they will agree to protective provisions including
tag-along rights, restrictions on transfer, limitations on affiliate
transactions, board composition that will approximate percentage ownership and
supermajority voting requirements for significant corporate transactions like
issuances of stock, mergers, significant acquisitions and the sale of the
company. No stockholder will have the ability alone to control decisions made by
CORT following the Merger.
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............................................. $7,400,000
Legal and Accounting........................................... $2,500,000
Management and Employee Bonuses................................ $3,500,000
BRS............................................................ $3,563,000
Printing and Distribution...................................... $ 500,000
SEC Filings.................................................... $ 72,600
Miscellaneous.................................................. $ 26,400
----------
TOTAL.......................................................... $21,500,000
----------
----------
</TABLE>
Whether or not the Merger is completed, 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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FEDERAL INCOME TAX CONSEQUENCES
The following summary of federal income tax consequences is based on current
law and provides the material federal income tax consequences of the Merger. The
tax treatment of a stockholder may vary depending upon his, her or its
particular situation. Some 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 as a result of 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.
THE MERGER
The receipt of cash and shares of Series A-1 Preferred Stock for Shares in
connection with 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.
Some 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" related to the stockholder, applying the rules of Section 302
of the Internal Revenue Code of 1986. 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 under the
constructive ownership rules of Section 318 of the Internal Revenue Code),
persons who retain no interest in the voting or common stock of CORT following
the Merger (or whose interest in the stock is materially reduced) should qualify
for sale or exchange treatment, as described above. Stockholders are urged to
consult with their tax advisors about the application of the Section 302 rules
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 related 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 (and would reduce 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 CORT'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 CORT'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 the
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outstanding Series A-1 Preferred Stock. The amount of any 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 the 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 Internal Revenue Code.
There are, however, many exceptions and restrictions relating to the
availability of the dividends-received deduction. For example, there are
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 these
exceptions and restrictions may apply to their particular factual situations.
Under Section 1059 of the Internal Revenue 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 that a corporate holder's tax basis in its Series A-1 Preferred Stock
would have been reduced below zero, the holder must generally recognize gain
upon receipt of this "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 RELATED TO
THE POSSIBLE APPLICATION OF SECTION 1059 OF THE INTERNAL REVENUE CODE TO THEIR
OWNERSHIP OF PREFERRED STOCK.
The declaration and payment of cash dividends related to shares of Series
A-1 Preferred Stock will, after the effective time of the Merger, be limited
under the terms of the financing arrangements of CORT. 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. CORT intends to take the position that, under current law, holders of
Series A-1 Preferred Stock are not required to include any accrued and unpaid
dividends in income until the dividends are declared or paid in cash, and CORT
does not intend to treat any 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 these dividends are includible in income as they
accrue prior to the time that the 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. In addition, subject to
restrictions, the Series A-1 Preferred Stock is redeemable at any time or from
time to time at the option of CORT at specified redemption prices. 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, under Section
305(c) of the Internal Revenue 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 Internal Revenue Code provides that the entire amount
of a redemption premium related to preferred stock that is subject to mandatory
redemption is treated as being
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distributed to the holders of the preferred stock on an economic accrual basis
over the period from issuance to the date of the mandatory redemption. Preferred
stock generally is considered to have a redemption premium for this purpose if
the price at which it must be redeemed exceeds its issue price (its fair market
value at the time of issuance) by more than a DE MINIMIS amount. For this
purpose, the 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
CORT'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, some optional redemption features may
also result in constructive distributions over the period from the date of issue
to the date of the optional redemption distribution. CORT 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 Internal
Revenue Code, any stock of CORT other than the redeemed Series A-1 Preferred
Stock. If a holder does own, actually or constructively, other stock of CORT
(including Series A-1 Preferred Stock not redeemed), a redemption of Series A-1
Preferred Stock may, in some circumstances, be treated as a dividend to the
extent of CORT's current and accumulated earnings and profits (as determined for
federal income tax purposes). This dividend treatment would not be applied if
the redemption is "not essentially equivalent to a dividend" related to the
holder under Section 302(b)(1) of the Internal Revenue 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 CORT. For this purpose,
a redemption of Series A-1 Preferred Stock that results in a reduction in the
proportionate interest in CORT (taking into account any actual ownership of
common stock of CORT and any stock constructively owned) of a holder whose
relative stock interest in CORT 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 CORT.
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 CORT before the redemption (the 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 CORT. If the holder does not retain any actual stock ownership
in CORT (only having a stock interest constructively), the holder may lose the
basis entirely. Under the "extraordinary dividend" provision of Section 1059 of
the Internal Revenue Code, a corporate holder may, under some circumstances, be
required to reduce its basis in its remaining shares of stock of
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CORT (and possibly recognize gain) to the extent the holder claims the
dividends-received deduction related 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 CORT elects to cause the exchange of shares of Series A-1 Preferred Stock
for 12% Junior Subordinated Notes of CORT, 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 12%
Junior Subordinated Notes are publicly traded, gain, if any, recognized upon the
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 12% Junior Subordinated Notes will be
equal to the principal amount of the 12% Junior Subordinated Notes received,
unless either Series A-1 Preferred Stock or the 12% Junior Subordinated Notes
are publicly traded at the time of the exchange. If the shares of Series A-1
Preferred Stock are exchanged for 12% Junior Subordinated Notes before the time
that interest on the 12% Junior Subordinated Notes is required to be paid in
cash at least as frequently as annually, the 12% Junior Subordinated 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 RELATED TO THE POSSIBLE TAX EFFECTS OF AN
EXCHANGE FOR NOTES AND OF HOLDING NOTES.
BACKUP WITHHOLDING
Owners of Shares should be aware that CORT will be required in some 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
- who has provided either an incorrect tax identification number or no
number at all,
- who is subject to backup withholding by the Internal Revenue Service for
failure to report the receipt of interest or dividend income properly, or
- who has failed to certify to CORT 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 the Court, in cash, if the stockholder follows the procedures
under Delaware law which are 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 Delaware General
Corporation Law. A written demand for appraisal of the Shares owned by a
stockholder seeking appraisal must be delivered to CORT by the record holder of
the Shares before the taking of the vote on the Merger Agreement at the special
meeting. Any 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 on the 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 the stockholder intends to demand
appraisal of the 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 the owner or owners. A record
holder who is a broker who holds Shares as nominee for several beneficial owners
may exercise appraisal rights related to the Shares held for one or more
beneficial owners while not exercising these rights related to the Shares held
for other beneficial owners; in this case, the written demand should state 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 the nominee.
Within 10 days after the effective time of the Merger, the surviving
corporation must send a notice as to the effectiveness of the Merger to each
person who has properly demanded appraisal as required by Section 262 of the
Delaware General Corporation Law. Within 120 days after the effective time, the
surviving corporation, or any record holder of shares entitled to appraisal
rights under Section 262 and who has complied with the above 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 related to the
appraisal of the fair value of the Shares. It is the obligation of the
stockholders to initiate all necessary action to perfect
61
<PAGE>
their appraisal rights within the time prescribed in Section 262 of the Delaware
General Corporation Law.
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 for which demands for appraisal were received and the aggregate number of
holders of the Shares. These statements must be mailed within 10 days after a
written request has been received by the surviving corporation.
If a petition for an appraisal is timely filed, after a hearing on the
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 Delaware General Corporation Law 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 may not be a stockholder's exclusive remedy,
depending on the factual circumstances.
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 finds 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 Delaware General Corporation Law will not, after the
effective time, be entitled to vote the Shares subject to the 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
Delaware General Corporation Law fails to perfect, or effectively withdraws or
loses, the right to appraisal, as provided in the Delaware General Corporation
Law, the Shares of the holder will be converted into the right to receive the
merger consideration without interest under 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 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, the 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 Delaware General
Corporation Law for perfecting appraisal rights may result in the loss of these
rights.
The above is only a summary of some of the provisions of Section 262 of the
Delaware General Corporation Law. A copy of the full text of the Section is
attached as Annex C.
62
<PAGE>
It is a condition to the obligations of CBF and CBF Sub to complete 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 Delaware General Corporation Law.
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 completing the Merger. The
address of CBF's and CBF Sub's principal executive offices is c/o Bruckmann,
Rosser, Sherrill & Co., II, L.P., 126 East 56(th) Street, New York, NY 10022. It
is not anticipated that, before 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 of the Merger) 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
completion of the Merger are, expected to be owned by BRS and some of its
affiliates. The Affiliated Stockholders include CVC, James A. Urry, Michael A.
Delaney, Bruce C. Bruckmann, Harold O. Rosser, Stephen C. Sherrill, Stephen F.
Edwards, Paul N. Arnold, Anthony J. Bellerdine, Kenneth W. Hemm, Lloyd Lenson,
Steven D. Jobes, Charles M. Egan, and Frances Ann Ziemniak and other CORT
employees approved by CBF and CORT. The Affiliated Stockholders are expected to
enter into a stockholders agreement governing their respective rights and
obligations. See "FINANCING OF THE MERGER--Equity Financing."
Information regarding the directors and officers of CBF and CBF Sub is
provided in "INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF CORT
FOLLOWING THE MERGER AND CBF."
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are based
on CORT's historical consolidated financial statements.
The pro forma condensed consolidated balance sheet gives effect to the
Merger as if it was completed on June 30, 1999. The pro forma condensed
consolidated statements of operations give effect to the Merger as if it was
completed 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 completed 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 with CORT's Annual
Report on Form 10-K for the year ended December 31, 1998, as amended, the
Consolidated Financial Statements of CORT and these related notes and the other
financial information contained in the documents included in this Proxy
Statement/Prospectus or in the documents attached as exhibits or incorporated 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 CORT's assets and liabilities has not been
affected by the Merger.
63
<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........................... 186,100 500(a) 186,600
---------- ----------- ----------
Total costs and expenses............................................... 266,317 500 266,817
---------- ----------- ----------
Operating earnings....................................................... 52,647 (500) 52,147
Interest expense, net.................................................... 7,837 30,448(b) 38,285
---------- ----------- ----------
Income before income taxes............................................... 44,810 (30,948) 13,862
Income tax expense....................................................... 18,907 (12,379)(c) 6,528
---------- ----------- ----------
Income before extraordinary loss....................................... 25,903 (18,569) 7,334
Preferred stock dividends and accretion.................................. -- 16,195(d) (16,195)
---------- ----------- ----------
Income (loss) before extraordinary loss available to common
stockholders......................................................... $ 25,903 $ (34,764) $ (8,861)
---------- ----------- ----------
---------- ----------- ----------
Earnings (loss) per common share before extraordinary loss............... $ 1.99 $ (1.77)
---------- ----------
---------- ----------
Weighted average number of common shares used in computation............. 13,019 5,000
---------- ----------
---------- ----------
Earnings (loss) per common share before extraordinary loss-- assuming
dilution............................................................... $ 1.92 $ (1.77)
---------- ----------
---------- ----------
Weighted average number of common shares used in computation--assuming
dilution............................................................... 13,491 5,000
---------- ----------
---------- ----------
</TABLE>
64
<PAGE>
CORT BUSINESS SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTED
---------- ----------- ----------
<S> <C> <C> <C>
Revenue:
Furniture rental....................................................... $ 144,891 -- $ 144,891
Furniture sales........................................................ 29,539 -- 29,539
---------- ----------- ----------
Total revenue........................................................ 174,430 -- 174,430
Operating costs and expenses:
Cost of furniture rental............................................... 25,410 -- 25,410
Cost of furniture sales................................................ 18,668 -- 18,668
Selling, general and administrative expenses........................... 102,820 250(a) 103,070
---------- ----------- ----------
Total costs and expenses............................................... 146,898 250 147,148
---------- ----------- ----------
Operating earnings....................................................... 27,532 (250) 27,282
Interest expense, net.................................................... 2,775 16,060(b) 18,835
---------- ----------- ----------
Income before income taxes............................................... 24,757 (16,310) 8,447
Income tax expense....................................................... 10,422 (6,524)(c) 3,898
---------- ----------- ----------
Income before extraordinary loss....................................... 14,386 (9,786) 4,549
Preferred stock dividends and accretion.................................. -- 8,709(d) (8,709)
---------- ----------- ----------
Income (loss) before extraordinary loss available to common
stockholders......................................................... $ 14,335 $ (18,495) $ (4,160)
---------- ----------- ----------
---------- ----------- ----------
Earnings (loss) per common share before extraordinary loss............... $ 1.09 $ (0.83)
---------- ----------
---------- ----------
Weighted average number of common shares used in computation............. 13,092 5,000
---------- ----------
---------- ----------
Earnings (loss) per common share before extraordinary loss-- assuming
dilution............................................................... $ 1.07 $ (0.83)
---------- ----------
---------- ----------
Weighted average number of common shares used in computation--assuming
dilution............................................................... 13,414 5,000
---------- ----------
---------- ----------
</TABLE>
65
<PAGE>
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(a) Reflects the $500,000 annual management fee under 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>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
New Credit Facility:
Interest.............................................. $ 9,400 $ 4,390
Unused Line Fee....................................... 505 250
Senior Subordinated Notes............................... 26,875 13,440
Amortization of financing fees/debt issue costs over the
period of the related financing....................... 1,505 755
------- -------
Total pro forma interest expense.................... $ 38,285 $ 18,835
Historical interest costs............................... (7,837) (2,775)
------- -------
Pro forma adjustment................................ $ 30,448 $ 16,060
------- -------
------- -------
</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
and 1999 of 5.50% and 5.00%, respectively. $124.0 million was assumed to be
utilized to complete 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 10.75%. A 0.125% change in the interest rate on the above loans
would increase or decrease interest expense and net income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------
INTEREST EXPENSE NET INCOME
----------------- -------------
<S> <C> <C>
New Credit Facility............................................. $ 155 $ 93
Senior Subordinated Notes....................................... 313 188
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
----------------------------------
INTEREST EXPENSE NET INCOME
----------------- ---------------
<S> <C> <C>
New Credit Facility....................................... $ 78 $ 47
Senior Subordinated Notes................................. 156 94
</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 in this Proxy Statement/Prospectus at an
incremental effective tax rate of 40%.
(d) Reflects accrued dividends on mandatorily redeemable preferred stock.
66
<PAGE>
CORT BUSINESS SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS ADJUSTED
------------- ---------------------- -----------
<S> <C> <C> <C>
Assets:
Cash and cash equivalents................................... $ 152 -- $ 152
Accounts receivable, net.................................... 18,643 -- 18,643
Prepaid expenses............................................ 6,142 -- 6,142
Rental furniture, net....................................... 202,625 -- 202,625
Property, plant and equipment, net.......................... 44,126 -- 44,126
Investment.................................................. 3,300 -- 3,300
Other receivables and assets, net........................... 3,526 12,201(a) 23,766
8,039(f)
Goodwill, net............................................... 77,059 -- 77,059
------------- ------------ -----------
$ 355,573 $ 20,240 $ 375,813
------------- ------------ -----------
------------- ------------ -----------
Liabilities:
Accounts payable............................................ $ 6,259 -- $ 6,259
Rental security deposits.................................... 9,723 -- 9,723
Accrued expenses............................................ 24,105 -- 24,105
Deferred rental revenue..................................... 13,602 -- 13,602
Existing credit facility.................................... 91,200 (91,200)(b) --
New credit facility......................................... -- 124,011(c) 124,011
Senior subordinated notes................................... -- 250,000(c) 250,000
Deferred income taxes....................................... 20,574 -- 20,574
------------- ------------ -----------
165,463 282,811 448,274
Mandatorily redeemable preferred stock:
Series A-1.................................................. -- 37,590(d) 37,590
Series A-2.................................................. -- 15,000(d) 15,000
Series B.................................................... -- 35,000(d) 35,000
Series C.................................................... -- 30,000(d) 30,000
Stockholders' equity (deficit):
Common stock................................................ 131 50(d)
(131)(e) 50
Additional paid in capital.................................. 106,051 (106,051)(e)
4,950(d) 4,950
Retained earnings (deficit)................................. 83,928 (277,719)(e)
(1,260)(f) (195,051)
------------- ------------ -----------
Total stockholders' equity (deficit)........................ 190,051 (380,161) (190,051)
------------- ------------ -----------
$ 355,573 $ 20,240 $ 375,813
------------- ------------ -----------
------------- ------------ -----------
</TABLE>
67
<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. CORT 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.
(c) Reflects the borrowings under the New Credit Facility and Senior
Subordinated Notes.
(d) Reflects the presently anticipated issuance of securities of CORT 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 before the effective time of the Merger, as follows:
<TABLE>
<CAPTION>
MANAGEMENT EXISTING
INVESTORS STOCKHOLDERS STOCKHOLDERS TOTAL
--------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Mandatorily Redeemable Preferred Stock:
Series A-1...................................................... $ 14,013 $ 2,563 $ 21,014 $ 37,590
Series A-2...................................................... 15,000 -- -- 15,000
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 CORT'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.
68
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of CORT as of
June 30, 1999, and the pro forma capitalization of CORT as of June 30, 1999. The
information below should be read with the pro forma financial statements
included elsewhere in this Proxy Statement/Prospectus. See "PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------
<S> <C> <C>
HISTORICAL AS ADJUSTED
---------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Existing Credit Facility............................................................ $ 91,200 $ --
New Credit Facility................................................................. -- 124,011
Senior Subordinated Notes........................................................... -- 250,000
---------- -----------
Total Debt........................................................................ 91,200 374,011
Mandatorily Redeemable Preferred Stock:
Series A-1 (1)...................................................................... -- 37,590
Series A-2 (2)...................................................................... -- 15,000
Series B (3)........................................................................ -- 35,000
Series C (4)........................................................................ -- 30,000
Total Mandatorily Redeemable
---------- -----------
Preferred Stock................................................................... -- 117,590
Stockholders' Equity (Deficit):
Common Stock (5).................................................................... 131 50
Capital in Excess of Par............................................................ 106,051 4,950
Retained Earnings (deficit)......................................................... 83,928 (195,051)
---------- -----------
Total Stockholders' Equity (Deficit).............................................. 190,110 (190,051)
---------- -----------
Total Capitalization.................................................................. $ 281,310 $ 301,550
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Assumes that no stockholders exercise appraisal rights in connection with
the Merger. Upon the completion of the Merger it is currently anticipated
that approximately 37.3% of these shares will be held by the Investors,
approximately 6.8% will be held by the Management Stockholders and
approximately 55.9% will be held by existing stockholders of CORT.
(2) Upon the completion of the Merger it is currently anticipated that 100% of
these shares will be held by the Investors.
(3) Upon the completion 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 completion 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 completion 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. These
percentages do not give effect to any New Options which may be granted to
management or employees.
See "SECURITY OWNERSHIP OF THE SURVIVING CORPORATION."
69
<PAGE>
BUSINESS OF THE COMPANY
OVERVIEW
CORT Business Services Corporation 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. CORT 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 120
showrooms in 34 states and the District of Columbia. CORT 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. CORT maintains the showroom quality condition of
its merchandise available for rent by selling its previously rented merchandise
through a network of 84 company-operated clearance centers, enabling CORT 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 CORT to maximize the
residual value of its rental merchandise. Furniture sales through clearance
centers and other sales accounted for approximately 17% of CORT'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. CORT 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 like CORT. Since the beginning
of 1993, CORT 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
CORT's success. CORT'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
- making selective acquisitions;
- initiating operations in new markets and adding showrooms and clearance
centers in existing markets;
- expanding its corporate customer base and
- continuing to invest in the development of various new products and
services.
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<PAGE>
ACQUISITIONS
The primary focus of CORT'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, CORT 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 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, CORT acquires existing leases and rental furniture. Additionally,
CORT retains sales personnel with strong local customer relationships. CORT
generally does not acquire showrooms, distribution facilities or clearance
centers in existing markets. However, in new markets, CORT may choose to retain
real estate. CORT 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, CORT 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.
CORT 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 CORT 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
CORT 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, CORT 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
CORT 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. CORT
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, CORT has introduced the high quality brand of office systems furniture
by Herman Miller. CORT continues to increase awareness among its sales force of
the benefits and breadth of its office product offerings through expanded
training programs and to
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focus the efforts of its sales force on these products by increased incentive
compensation for office product rentals.
DEVELOPMENT OF NEW PRODUCTS AND SERVICES
CORT 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 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 CORT to experiment with new 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 the
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
CORT 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
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Housewares Operations do not meet the quantitative thresholds and are aggregated
with furniture rental and furniture sales for reporting purposes.
CORT 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.
PRODUCTS
CORT rents a full line of furniture and accessories throughout the United
States for office and residential purposes. CORT 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, CORT's strategy is to emphasize office furniture rentals. CORT 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, CORT 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.
CORT'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. CORT 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
CORT 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. CORT offers a broad range of household furniture, including dining
room, living room and bedroom pieces, as well as electronic products.
A significant portion of CORT's residential furniture rentals are derived
from corporate relocations and temporary assignments, as new and transferred
employees of CORT's corporate customers enter into leases for residential
furniture. CORT'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, CORT
offers its corporate rental customers a way to reduce the costs of corporate
relocations while developing residential business with new and transferred
employees. CORT's ability to service both corporate and individual needs creates
a broad corporate customer base accompanied by an increasing pool of employees
utilizing CORT's residential services.
OTHER PRODUCTS AND SERVICES
CORT offers several other products and services. CORT offers houseware
amenity packages (including linens, towels, dishes, cookware and other kitchen,
bedroom and bath accessories) for rent to its furniture rental customers. CORT
had generally distributed houseware amenity packages through third-party
contractors either under subcontract arrangements or direct referrals. CORT
continues to
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expand the distribution of its own houseware amenity packages to capture profits
currently realized by third-party contractors.
CORT provides rental specialty furniture for short term use at trade shows,
conventions and special events through its tradeshow furnishings operation. CORT
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 CORT with a
competitive advantage in the tradeshow and convention services business.
CORT established Relocation Central, a website that provides information
about major cities including apartment finders, school systems, movers and local
recreation for relocating individuals. Relocation Central provides CORT with an
additional marketing tool while also providing valuable information to potential
customers. In addition, CORT has developed two other websites, CORT 1 and CORT
Tradeshow, as part of its internet strategy.
OPERATIONS
LEASE TERMS
CORT 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 CORT's rental leases lead to customer
ownership.
CORT'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. CORT 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.
CORT 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.
CORT requires applications from prospective rental customers and performs credit
investigations before approving these applications. In each of the last five
years, CORT'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, CORT 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, CORT ensures customers of CORT Furniture Rental that
they will be satisfied with the furniture they rent or CORT will exchange it for
similar furniture within two business days, free of charge. Additionally, CORT's
employees assist customers with space planning, interior design and apartment
location services.
FURNITURE SALES
For the last five years, CORT has derived 70% 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 CORT 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 CORT. 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
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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 CORT's profitability.
SALES, MARKETING AND ADVERTISING
CORT 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 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 CORT's national distribution network to emphasize
its ability to serve customers throughout the country, CORT 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 CORT University program, which was developed as part
of CORT'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.
CORT 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). CORT 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
CORT 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 the manager's specific market. Each district then places purchase
orders directly with CORT's vendors and shipment is arranged through CORT's
freight analyst directly to the district warehouse.
CORT 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 CORT's furniture
purchases. Management believes that CORT 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. CORT 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 CORT 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 CORT'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, which allows CORT 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 CORT'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.
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In selling furniture through its clearance centers, CORT competes with
numerous used and new furniture retailers, some of which are larger than CORT
and have greater financial resources. Management believes that price and value
are the principal competitive factors in its furniture sales.
EMPLOYEES
On June 30, 1999, CORT employed approximately 2,600 people, of whom
approximately 120 were employed at corporate headquarters. Approximately 900
people were employed as salespersons, 1,350 people were employed in the
warehouse and distribution portion of the business and the remainder in district
and regional administrative positions.
CORT's warehouse and delivery employees in Maryland (approximately 50
persons) are represented by an independent union under a contract which expires
in December 1999. Additionally, approximately 20 of the CORT'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
2002.
CORT believes that its relationships with its employees are good.
TRADEMARKS AND NAME RECOGNITION
CORT engages in business primarily under the CORT Furniture Rental
tradename, which has been used in the furniture rental business for over 20
years. CORT has established its reputation as a provider of quality furniture
and customer service using this name. CORT feels that reputation and name
recognition are important to customers. Therefore, following an acquisition in a
new market, CORT 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 CORT.
PROPERTIES
As of June 30, 1999, CORT carried out its rental, sales and warehouse
operations through 192 facilities, of which 20 were owned and 172 were leased.
The leased facilities have lease terms with expiration dates ranging from 1999
to 2014. Upon the expiration of its leases, CORT generally has been able to
either extend its leases or obtain suitable alternative facilities on
satisfactory terms. Of the 33 leases that expire in 1999, CORT has already or
expects to relocate in 13 of those locations (including its corporate
headquarters), terminate the leases without replacement in 11 of those
locations, extend the lease in seven of those locations and assign the leases in
connection with a small divestiture in two of the locations.
Management seeks to locate properties in new markets where rental, clearance
and warehouse operations can be combined in one facility. As CORT expands in a
particular district, it seeks to open free-standing showrooms and clearance
centers that can be serviced from pre-existing warehouses. CORT's showrooms
generally have 4,500 square feet of floor space. CORT 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.
CORT'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
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showroom locations by reviewing demographic information, accessibility,
visibility, customer traffic, location of competitors and cost.
The metropolitan areas in which CORT operates, together with the current
number of showrooms in each metropolitan area, are listed 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 Des Moines 1
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
</TABLE>
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<TABLE>
<CAPTION>
DISTRICT LOCATIONS NUMBER OF SHOWROOMS
- --------------------------------------------------------- -------------------------
<S> <C> <C>
Tulsa 1
OREGON Portland 1
PENNSYLVANIA Philadelphia(2) 4
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 120
</TABLE>
- ------------------------
(1) Includes locations in Washington, D.C., Maryland and Virginia.
(2) Includes locations in Pennsylvania, New Jersey and Delaware.
CORT distributes its furniture using a fleet of approximately 350 leased and
50 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 June 30, 1999, CORT was involved in legal proceedings arising in the
normal course of its business. CORT believes the outcome of these matters will
not have a material adverse effect on the Company. CORT is also involved in
litigation challenging the Merger. See "SPECIAL FACTORS-- Litigation Challenging
The Merger."
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INFORMATION REGARDING THE DIRECTORS
AND EXECUTIVE OFFICERS OF CORT FOLLOWING
THE MERGER AND CBF
The Merger Agreement provides that the directors of CBF Sub will 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 completion of the Merger. The board is anticipated to
include representatives designated by BRS, CVC and CORT's management as required
by a stockholders agreement expected to be entered into by the Affiliated
Stockholders at the time of the Merger. See "FINANCING OF THE MERGER-Equity
Financing." The officers of CORT will 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.
Listed below is information regarding the directors and executive officers
of CORT. Each individual listed below is a citizen of the United States.
DIRECTORS AND EXECUTIVE OFFICERS OF CORT
<TABLE>
<CAPTION>
NAME PRESENT AGE POSITION WITH CORT
- ------------------------------------------------- --------------- -------------------------------------------------
<S> <C> <C>
Paul N. Arnold 53 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 45 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 45 Vice President--Human Resources & Corporate Risk
Management
William Swets 45 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>
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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 CORT 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 to this time. 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 19 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 to this time.
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 to this time. 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 21 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 to this time.
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 CORT
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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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 Telespectrum
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.
and WLR Foods, 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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MARKET PRICES AND DIVIDENDS ON THE SHARES
CORT's Common Stock began trading on the Nasdaq National Market on November
17, 1995. On December 21, 1995, CORT's Common Stock began trading on the New
York Stock Exchange (symbol "CBZ"). Before November 17, 1995, there was no
market for CORT'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 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.
CORT 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. CORT
intends to retain future earnings to finance further development. The terms of
CORT's existing indebtedness restrict its ability to pay dividends.
The following table lists, 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
Second Quarter......................................................................... 24 15/16 22 3/16
</TABLE>
On July 26, 1996, CORT sold 1,865,100 Shares at a price per share of $18.75
for aggregate proceeds to CORT of $32,672,000 in an underwritten public
offering.
DESCRIPTION OF CAPITAL STOCK PRIOR TO THE MERGER
CORT 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 some of the rights and privileges pertaining to CORT's
capital stock.
Holders of common stock and Class B common stock are entitled to receive
dividends as may be declared by the Board of Directors. Each record holder of
common stock is entitled to convert any or all of the holder's common stock into
the same number of shares of Class B common stock. Each
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record holder of Class B common stock is entitled, if permitted by applicable
law, to convert any or all of the shares of the holder's Class B common stock
into the same number of shares of common stock.
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 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, CORT's Restated Certificate of Incorporation
will be amended and restated as of the effective time of the Merger to provide
for, among other things, the reclassification of its capital stock into two
classes of authorized stock comprised of: (i) 12 million shares of common stock,
of which 6 million shares will be further designated as Class A common stock,
par value $.01 per share and 6 million shares will be further designated as
Class B common stock, par value $.01 per share (together, the "New Common
Stock"); and (ii) 92.3 million shares of preferred stock, of which 13 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"), 16.2 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 some of their
affiliates and employees) and members of our management who participate in the
transaction 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 to the same rights and
privileges, subject to the same qualifications, limitations and restrictions.
The Class A common stock will be entitled to one vote per share and the Class B
common stock will have no voting rights, except as required by law or as
otherwise provided in the surviving corporation's Restated Certificate of
Incorporation related to amendments to the surviving corporation's Restated
Certificate of Incorporation and some significant transactions. In addition,
each share of Class A common stock and Class B common stock will be convertible
at the option of the holder at any time into one share of Class B common stock
or one share of Class A common stock, respectively, as provided in the surviving
corporation's Restated Certificate of Incorporation. In connection with the
Merger, CORT expects to issue up to 5,000,000 shares of Class A common stock.
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's Restated Certificate of Incorporation, the board of
directors of the surviving corporation will be empowered without further
stockholders' action to divide any and all
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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.
SERIES A PREFERRED. Under the surviving company's Restated Certificate of
Incorporation, 27,000,000 shares of Series A Preferred Stock with a stated value
of $3.00 per share and a liquidation preference of $3.00 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 CORT holders will
have no preemptive rights in connection with the Series A Preferred Stock. In
connection with the Merger, (i) each holder of Shares will receive, in exchange
for each Share, in addition to cash consideration of $25.00 (without interest),
one share of Series A-1 Preferred Stock, and (ii) each of BRS and CVC (together
with some of their respective affiliates and employees) will receive 2,500,000
shares of Series A-2 Preferred Stock. In connection with the Merger, CORT
expects to issue approximately 12,500,000 shares of Series A-1 Preferred Stock
and 5,000,000 shares of Series A-2 Preferred Stock. Except as described below,
each series of the Series A Preferred Stock will be identical in all respects
and will entitle holders 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 related to 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 these 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 CORT's securities before the
Merger. Although the stated value of the Series A Preferred Stock is set at its
liquidation value of $3.00 per share, the valuation of the Series A Preferred
Stock is subject to uncertainties and contingencies, all of which are difficult
to predict. 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 in this Proxy Statement/Prospectus 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 these
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 preferences described below, the Series A Preferred Stock,
will, related to dividend rights and rights on liquidation, winding up and
dissolution of the surviving corporation, rank 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 CORT after the
effective time of the Merger, the terms of which specifically provide that the
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"). Related to these same rights, the Series A Preferred Stock will
rank 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 time of
the Merger 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"). Related to these same rights, the Series A Preferred Stock will
rank
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<PAGE>
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 related to dividend distributions or distributions upon 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, related to dividend rights and
rights on liquidation, rank senior to Series A Junior Securities issued by the
surviving corporation (other than related to payments related to 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" 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 for cash dividends on each share of Series A Preferred Stock
at a rate equal to $.36 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 the 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 before the actual dividend payment date. Dividends will
cease to accrue for 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 stated above, unless and until
dividends are declared by the Board of Directors, there will be no obligation to
pay dividends; provided, that dividends will be required to be paid at the time
of repurchase of the Series A Preferred Stock as provided in this Proxy
Statement/Prospectus if not earlier declared and paid. Accrued dividends on the
Series A Preferred Stock if not paid on the first or any later dividend payment
date following accrual will after that time accrue additional dividends,
compounded quarterly, at the rate of 12.0% per annum. All dividends paid related
to shares of Series A Preferred Stock will be paid pro rata to the holders
entitled to them.
In the event that after the fifth (5(th)) anniversary of the effective time
of the Merger cash dividends related to 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 this payment (other than
dividends, other distributions, redemptions, repurchases or acquisitions payable
in Series A Junior Securities and related cash in lieu of fractional shares of
these Series A Junior Securities), unless (i) full accumulated dividends have
been paid or set apart for payment on the Series A Preferred Stock and Series A
Parity Securities for all dividend periods terminating on or before the date of
payment of the dividends or distributions on, or the repurchase or redemption
of, the Series A Parity Securities (the "Series A Parity Payment Date") and (ii)
any of these 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
other outstanding shares of Series A Parity Securities bear to each other.
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<PAGE>
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. These dividends on the
Series A Preferred Stock will be cumulative, whether or not earned or declared,
so that if 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 these 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 as provided by 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. However,
the above will not:
- 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;
- prohibit the surviving corporation from making dividends, other
distributions, redemptions, repurchases or acquisitions related to the
Series B-2 Preferred Stock and 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 after that
time; or
- prohibit the surviving corporation from making dividends, other
distributions, redemptions, repurchases or acquisitions related to 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 the
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 CORT, 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 $3.00 per share (the "Series A Liquidation Preference"),
plus an amount equal to full cumulative dividends (whether or not earned or
declared) accrued and unpaid on those shares, including additional dividends
discussed in the section on dividends above, to the date of the final
distribution and no more, before any distribution is made on any Series A Junior
Securities. This excludes, however, distributions made (x) related to the Series
B-2 Preferred Stock and (y) related to the Series C-2 Preferred Stock, for
amounts accrued related to 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 before any distributions made related to
the Series A Preferred Stock. However, any amounts paid in priority to the
Series A Preferred Stock under clause (x) or clause (y) of the preceding
sentence 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 after that
time. If upon any voluntary or involuntary liquidation, dissolution or winding
up of the surviving corporation, the application of all amounts available for
payments related 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
the 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 as
provided in 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 related to the shares of Series A Preferred Stock.
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OPTIONAL REDEMPTION. The surviving corporation may, at its option, redeem
at any time, from any source of funds legally available for this purpose, in
whole or in part, any or all of the shares of the Series A-1 Preferred Stock, at
redemption prices stated below, plus an amount equal to full cumulative
dividends (whether or not earned or declared) accrued and unpaid on those
shares, including the additional dividends discussed in the section on dividends
above, before 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 before redemption, full accrued and unpaid dividends on this stock
for all dividend periods terminating on or before the redemption date, and an
amount equal to a prorated dividend on this stock for the period from the
dividend payment date immediately before the redemption date, to the redemption
date have been or immediately before the redemption notice are declared and paid
in cash or are declared and there has been a sum set apart sufficient for the
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 the
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 before 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 for this purpose 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 on those shares, including the additional dividends discussed
in the section on dividends above, before the redemption date. All outstanding
shares of the Series A-2 Preferred Stock will be redeemed from funds legally
available for this purpose 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 on those shares, including the additional dividends discussed
in the section on dividends above, before 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
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 the redemption of Series A
Preferred Stock at the holder's address as provided on the stock register of the
surviving corporation on the record date. If written 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 by the
certificates so called for redemption will be found no longer outstanding and
will have the status of authorized but unissued shares of Preferred Stock,
undesignated as to series, (y) dividends related to the shares so called for
redemption will cease to accrue after the redemption date and (z) all rights
related to the shares so called for redemption will after this 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.
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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. However, without the written consent of the holders of 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 this purpose,
the surviving corporation will not
- 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
- amend, alter or repeal any provision of the surviving corporation's
Restated Certificate of Incorporation so as to materially adversely affect
the relative rights and preferences of the Series A-1 Preferred Stock
other than related to establishing a redemption date or price for any
Series A Parity Securities which is no more favorable to the holders of
those securities than the relative rights of the holders of the Series A-1
Preferred Stock.
In addition, 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 this purpose, the surviving
corporation will not
- 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
- amend, alter or repeal any provision of the surviving corporation's
Restated Certificate of Incorporation so as to materially adversely affect
the relative rights and preferences of the Series A-2 Preferred Stock
other than related to establishing a redemption date or price for any
Series A Parity Securities which is no more favorable to the holders of
those securities than the relative rights of the holders of the Series A-2
Preferred Stock.
In addition, in the event that after the fifth (5(th)) anniversary of the
date of issuance of the Series A-1 Preferred Stock, cash dividends related to
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 the
series of Series A Preferred Stock will be entitled to one vote for each share
of this series of Series A Preferred Stock held unless otherwise required by
applicable law. Without limiting the generality of the above, 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 these shares into or exchange these 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 these shares or exchange all of these
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 the shares to be converted or
exchanged, provided that at the time of exchange all accrued and unpaid
dividends on those shares are paid in cash. The JSDs will mature on the
mandatory redemption date of the applicable series of Series A Preferred Stock
converted or exchanged. Interest on the JSDs will be payable, before the fifth
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(5th) anniversary of the date of issuance of the Series A-1 Preferred Stock in
kind, and after that time, in cash, quarterly in arrears.
NO PREEMPTIVE RIGHTS. No holder of Series A Preferred Stock will have any
preemptive rights to subscribe or acquire any unissued shares of capital stock
of the surviving corporation (whether now or later 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 related to the Series A Preferred Stock, can
only be paid by the surviving corporation to the extent funds are legally
available for this purpose under the Delaware General Corporation Law. See "RISK
FACTORS."
SERIES B PREFERRED STOCK
GENERAL. Under the surviving corporation's Restated Certificate of
Incorporation, up to 35,100,000 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 unpaid dividends, will be authorized for issuance. The Series B
Preferred Stock will be, when issued, fully paid and non-assessable and holders
will have no preemptive rights in connection with the Series B Preferred Stock.
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. In connection
with the Merger, CORT 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 holders 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 CORT and other
factors that generally influence the value of securities.
RANK. Except for certain preferences described in this Proxy
Statement/Prospectus, the Series B Preferred Stock will, related 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, related 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 for this purpose, 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 related to the Series C-2 Preferred Stock for amounts
accrued related to any unpaid Series C-2 Annual Dividends). These 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
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later dividend payment date following accrual, will after that time accrue
additional dividends, compounded quarterly, at a rate of 12.5% per annum. It is
anticipated that in the first year following the Merger, CORT will declare and
pay quarterly cash dividends on the Series B-2 Preferred Stock and Series C-2
Preferred Stock in an aggregate amount of up to 4.0 million.
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 on those shares,
including additional dividends, and (y) related to the Series B-2 Preferred
Stock, an amount, in the aggregate, equal to approximately $3.6 million
(together with any additional dividends on those shares, 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. However, distributions
related to the Series B-2 Preferred Stock and the Series C-2 Preferred Stock may
be made prior to any distributions related to 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 after that time. After
payment in full as stated in the preceding sentence, the holders of the Series B
Preferred Stock will 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 related 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 for this purpose 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 on those shares,
including additional dividends, and (y) regarding 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 to convert these shares into or exchange these 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 after this time 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.
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SERIES C PREFERRED STOCK
GENERAL. Under the surviving corporation's Restated Certificate of
Incorporation, up to 30,200,000 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
will have no preemptive rights in connection with the Series C Preferred Stock.
In connection with the Merger, (i) the BRS Holders and the Management
Stockholders will receive shares of Series C-1 Preferred Stock and (ii) CVC
Holders will receive shares of Series C-2 Preferred Stock. In connection with
the Merger, CORT expects to issue up to 16,200,000 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 holders 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 in this Proxy
Statement/Prospectus, the Series C Preferred Stock will, related 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 for this purpose, 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 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) $500,000 and (y) .75% of the surviving
corporation's earnings before interest, tax, depreciation (other than rental
depreciation) and amortization for the year related to which the 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 later
dividend payment date following accrual will after that time accrue additional
dividends, compounded quarterly at a rate of 13.0% per annum. It is anticipated
that in the first year following the Merger, CORT will declare and pay quarterly
cash dividends on the Series B-2 Preferred Stock and Series C-2 Preferred Stock
in an aggregate amount of up to $4.0 million.
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 on those shares,
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. However, 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 related to the Series A Preferred Stock in an amount not
exceed $4.0 million in
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the aggregate in the first year following the Merger and $1.0 million in the
aggregate in each year after that time. After payment in full as stated in the
preceding sentence, the holders of the Series C Preferred Stock will 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 related 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 to convert these shares into or exchange 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 later 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 for this purpose 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 on those
shares, 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.
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. By notice to CORT given on
April 29, 1999, CVC converted all of its shares of non-voting common stock into
voting common stock. On August 12, 1999, CVC deposited shares representing
approximately 33% of CORT's outstanding voting stock into a newly created voting
trust controlled by affiliates of BRS. See "Special Factors--Contacts With Third
Parties."
Except as stated above, there were no transactions in the Shares that were
effected during the past 60 days by (i) CORT, (ii) any director or executive
officer of CORT, (iii) any persons controlling CORT or (iv) any director or
executive officer of the persons ultimately in control of CORT, CBF or CBF Sub.
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SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND DIRECTORS AND OFFICERS
The following table presents information related to beneficial ownership of
common stock as of August 15, 1999 by (i) each of CORT's directors and some of
its executive officers, (ii) each person who is known by CORT to own
beneficially more than 5% of CORT's common stock and (iii) by all of CORT's
directors and executive officers as a group. CORT 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.(4) .......................................
399 Park Avenue, 14th Floor
New York, New York 10043 5,778,518 44.1%
T. Rowe Price Associates, Inc.(5) .......................................
100 E. Pratt Street
Baltimore, MD 21202 1,366,400 10.4%
All Directors and Executive Officers as a group
(17 persons) 993,111(2) 7.3%
</TABLE>
- ------------------------
* Less than 1%.
(1) CORT has two authorized classes of common stock: common stock (voting) and
Class B common stock (nonvoting). There are no shares of CORT's Class B
common stock issued and outstanding.
(2) Includes shares under option which are exercisable or will become
exercisable within 60 days of August 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 Messrs.
Arnold, Bruckmann, Alessi, Maffei, Egan, Urry, Delaney, Lenson, Hemm, Jobes
and Ms. Ziemniak, respectively, and 582,045 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 CORT.
(4) 4,350,411 shares of common stock owned by CVC is subject to a Voting Trust
Agreement dated as of August 12, 1999. The voting trustees are Harold O.
Rosser, Stephen C. Sherrill and Stephen F. Edwards. The voting trustees'
address is c/o Bruckmann, Rosser, Sherrill & Co., Inc., 126 East 56th
Street, New York, New York 10022. The voting trustees possess all voting
rights related to the shares held in trust. The Voting Trust Agreement shall
terminate upon the earlier of the disposition of the shares held in trust,
CVC's election to convert the shares held in trust into non-voting common
stock or the completion of the transactions related to the Merger Agreement.
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(5) 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 found to be a beneficial owner of these
securities; however, Price Associates expressly disclaims that it is, in
fact, the beneficial owner of these securities.
SECURITY OWNERSHIP OF THE SURVIVING CORPORATION
The following table presents information related to the presently
anticipated beneficial ownership of the securities of the surviving corporation
immediately following completion of the Merger. The amounts listed below assume
an overall equity contribution of $122.6 million of which approximately $39.7
million is assumed to have been provided by each of BRS (together with some of
its employees and affiliates, the "BRS Holders") and CVC (together with some of
its employees and affiliates, the "CVC Holders") and $5.5 million of which is
assumed to have been provided by the Management Stockholders. These amounts do
not reflect the issuance of additional shares of surviving corporation common
stock which may be purchased by persons after the effective time of the merger
or the issuance of any options to acquire securities of the surviving
corporation which may be granted to CORT's employees. See "SPECIAL
FACTORS--Interests of Certain Persons in the Merger." BRS and CVC have committed
to CBF to invest (directly or indirectly) $42.5 million each in securities of
the surviving corporation as reduced for securities issued to management. 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. These investors are expected to enter into a stockholders
agreement governing their respective rights and obligations. See "FINANCING OF
THE MERGER--Equity Financing."
<TABLE>
<CAPTION>
NUMBER AND PERCENT OF SHARES IN THE SURVIVING
CORPORATION
--------------------------------------------------
SERIES A-1
NAME OF BENEFICIAL PREFERRED SERIES A-2 SERIES B SERIES C
OWNER COMMON STOCK (1) STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
- ---------------------- ----------------- -------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
BRS Holders........... 2,087,500/41.75% 260,735/2.1% 2,500,000/50.00% 16,236,111/46.39% 13,916,667/46.39%
CVC Holders........... 2,087,500/41.75% 4,410,579/35.2% 2,500,000/50.00% 16,236,111/46.39% 13,916,667/46.39%
Management
Stockholders........ 825,000/16.50% 854,202/6.8% -- 2,527,778/7.22% 2,166,667/7.22%
Public................ -- 7,004,596/55.9% -- -- --
</TABLE>
- ------------------------
(1) Does not include issuance of any options to CORT's employees to be
designated by CORT 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 "SPECIAL FACTORS--Interests of Certain Persons in the
Merger; Conflicts of Interest." Assumes CORT does not issue any warrants in
the debt financing transactions described in "FINANCING OF THE MERGER."
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INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, which have been filed by CORT with the Securities
and Exchange Commission under to the Exchange Act (File No. 1-14146), are
incorporated in this Proxy Statement/ Prospectus by reference and shall be found
to be a part of this Proxy Statement/Prospectus for purposes of the Exchange
Act:
(a) The Company's Annual Report on Form 10-K for the year ended December 31,
1998 and amendment thereto;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999.
(d) The Company's Report on Form 8-K dated March 29, 1999.
(e) The Company's Report on Form 8-K dated April 29, 1999.
All documents filed by CORT under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Proxy Statement/Prospectus and before the
Special Meeting and any adjournment or postponement of the Special Meeting,
shall be found to be incorporated by reference in this Proxy
Statement/Prospectus and to be a part of it for purposes of the Exchange Act
from the date of the filing of the documents. Any statement contained in this
Proxy Statement/Prospectus, in a supplement to this Proxy Statement/Prospectus
or in a document incorporated or found to be incorporated by reference in this
Proxy Statement/Prospectus will be found to be modified or superseded for
purposes of this Proxy Statement/Prospectus to the extent that a statement
contained in this Proxy Statement/ Prospectus or in any subsequently filed
supplement to this Proxy Statement/Prospectus or in any document that also is or
is found to be incorporated by reference in this Proxy Statement/Prospectus
modifies or supersedes the statement. Any statement so modified or superseded
shall not be found, except as so modified or superseded, to be a part of this
Proxy Statement/Prospectus.
ADDITIONAL AVAILABLE INFORMATION
CORT, CBF, CBF Sub, BRS and the Affiliated Stockholders have filed with the
Securities and Exchange Commission a Rule 13e-3 Transaction Statement on
Schedule 13E-3 under the Exchange Act and a Form S-4 under the Securities Act
related to the transactions described in this Proxy Statement/ Prospectus. As
permitted by the rules and regulations of the Securities and Exchange
Commission, this Proxy Statement/Prospectus omits information and exhibits
contained in the Schedule 13E-3 and Form S-4. The Schedule 13E-3 and Form S-4
(including exhibits) and amendments to Schedule 13E-3 and Form S-4 may be
inspected and copied at, or obtained from, the Securities and Exchange
Commission's offices provided below. For further information, reference is made
to the Schedule 13E-3 and Form S-4 and the exhibits to these documents.
Statements contained in this Proxy Statement/ Prospectus concerning documents
filed with the Securities and Exchange Commission as exhibits to the Schedule
13E-3 or Form S-4 or attached as Annexes to this Proxy Statement/Prospectus are
not necessarily complete and, in each instance, reference is made to the copy of
the document filed as an exhibit. Each statement in this Proxy
Statement/Prospectus concerning these exhibits is qualified by these documents.
CORT is currently subject to the informational and reporting requirements of
the Exchange Act, and as required by the Act files periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
These reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Securities and Exchange 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 reports and other information may also be
obtained upon payment of the Securities and Exchange Commission's
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<PAGE>
prescribed rates by writing to its 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
Securities and Exchange Commission also maintains a Web site at
http://www.sec.gov that contains reports and other information regarding
registrants that file electronically with the Securities and Exchange
Commission.
Some of the documents discussed in this Proxy Statement/Prospectus,
including, without limitation, the Schedule 13E-3 and Form S-4 and all exhibits
to these documents and the opinion of STES, are also available for inspection
and copying at the principal executive offices of CORT 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 CORT's Secretary at the above
address, CORT will mail to the stockholder a copy of any of these documents at
the expense of the stockholder.
If the Merger is completed, CORT will deregister the Shares and will no
longer be subject to the requirements of the Exchange Act related to these
securities. See "SPECIAL FACTORS--Effects of the Merger."
LEGAL MATTERS
The validity of the CORT preferred stock to be issued to CORT stockholders
in connection with the Merger will be passed upon by Dechert Price & Rhoads,
Philadelphia, Pennsylvania, special counsel to CORT.
EXPERTS
The consolidated financial statements and schedules of CORT 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 in this Proxy
Statement/Prospectus in reliance upon the reports of KPMG LLP, independent
certified public accountants, incorporated by reference in this Proxy
Statement/Prospectus, and upon the authority of this 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 completed, the next Annual Meeting of Stockholders of
CORT is expected to be held shortly after termination of the Merger Agreement.
Any stockholder who wishes to present a proposal for action at the Annual
Meeting must comply with the applicable rules and regulations of the Securities
and Exchange Commission then in effect and CORT's By-Laws. Under regulations
issued by the Securities and Exchange Commission, stockholder proposals intended
for presentation at the next Annual Meeting of Stockholders must be received by
CORT's Secretary within a reasonable period before CORT begins to print and mail
its proxy materials if the proposals are to be considered for inclusion in
CORT's Proxy Statement for the next Annual Meeting of the Stockholders.
OTHER MATTERS
CORT 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 of that business is first given to
stockholders in the manner prescribed by Delaware law and CORT'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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
CBF HOLDING LLC
CBF MERGERCO INC.
AND
CORT BUSINESS SERVICES CORPORATION
DATED AS OF
AUGUST 12, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ARTICLE I.
THE MERGER............................................................................................ A-4
SECTION I.1 The Merger.............................................................................. A-4
SECTION I.2 Closing................................................................................. A-4
SECTION I.3 Effective Time.......................................................................... A-5
SECTION I.4 Effects of the Merger................................................................... A-5
SECTION I.5 Certificate of Incorporation; By-laws................................................... A-5
SECTION I.6 Directors............................................................................... A-5
SECTION I.7 Officers................................................................................ A-5
ARTICLE II.
EFFECT OF THE MERGER ON THE SECURITIES OF THE CONSTITUENT CORPORATIONS................................ A-5
SECTION II.1 Effect on Capital Stock................................................................ A-5
SECTION II.2 Stock Options.......................................................................... A-6
SECTION II.3 Exchange of Certificates............................................................... A-7
ARTICLE III.
REPRESENTATIONS AND WARRANTIES........................................................................ A-9
SECTION III.1 Representations and Warranties of the Company......................................... A-9
SECTION III.2 Representations and Warranties of Parent and Sub...................................... A-14
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER............................................. A-16
SECTION IV.1 Conduct of Business of the Company..................................................... A-16
SECTION IV.2 Plans.................................................................................. A-17
ARTICLE V.
ADDITIONAL AGREEMENTS................................................................................. A-17
SECTION V.1 Meeting of Stockholders................................................................. A-17
SECTION V.2 Proxy Statement; Schedule 13E-3......................................................... A-18
SECTION V.3 Access to Information; Confidentiality.................................................. A-18
SECTION V.4 Commercially Reasonable Efforts......................................................... A-19
SECTION V.5 Financing............................................................................... A-19
SECTION V.6 Indemnification; Directors' and Officers' Insurance..................................... A-20
SECTION V.7 Public Announcements.................................................................... A-21
SECTION V.8 Acquisition Proposals................................................................... A-21
SECTION V.9 Stockholder Litigation.................................................................. A-22
SECTION V.10 Board Action Relating to Stock Option Plans and Options................................ A-22
SECTION V.11 Notices of Certain Events.............................................................. A-22
SECTION V.12 Exchange Act and Stock Exchange Filings................................................ A-23
SECTION V.13 Purchase of Common Stock............................................................... A-23
ARTICLE VI.
CONDITIONS PRECEDENT.................................................................................. A-23
SECTION VI.1 Conditions to Each Party's Obligation to Effect the Merger............................. A-23
SECTION VI.2 Conditions to Obligations of Parent and Sub............................................ A-24
SECTION VI.3 Conditions to Obligations of the Company............................................... A-24
ARTICLE VII.
TERMINATION, AMENDMENT AND WAIVER..................................................................... A-25
SECTION VII.1 Termination........................................................................... A-25
SECTION VII.2 Effect of Termination................................................................. A-26
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SECTION VII.3 Expenses.............................................................................. A-26
SECTION VII.4 Amendment............................................................................. A-27
SECTION VII.5 Extension; Waiver..................................................................... A-27
SECTION VII.6 Procedure for Termination, Amendment, Extension or Waiver............................. A-27
ARTICLE VIII.
GENERAL PROVISIONS...................................................................................... A-27
SECTION VIII.1 Nonsurvival of Representations and Warranties........................................ A-27
SECTION VIII.2 Fees and Expenses.................................................................... A-27
SECTION VIII.3 Definitions.......................................................................... A-27
SECTION VIII.4 Notices.............................................................................. A-28
SECTION VIII.5 Interpretation....................................................................... A-29
SECTION VIII.6 Counterparts......................................................................... A-29
SECTION VIII.7 Entire Agreement; Third-Party Beneficiaries.......................................... A-29
SECTION VIII.8 Governing Law........................................................................ A-29
SECTION VIII.9 Assignment........................................................................... A-29
SECTION VIII.10 Enforcement......................................................................... A-29
SECTION VIII.11 Severability........................................................................ A-30
SECTION VIII.12 WAIVER OF JURY TRIAL................................................................ A-30
SECTION VIII.13 Time is of the Essence.............................................................. A-30
</TABLE>
<TABLE>
<S> <C> <C> <C>
Exhibits
Schedule I -- Affiliated Stockholders.................................... A-32
Exhibit 2.1(c) -- Retained Shares............................................ A-33
Exhibit A -- Restated Charter........................................... A-34
Exhibit B -- Equity Commitment Letters.................................. A-62
Exhibit C -- Financing Letters.......................................... A-68
</TABLE>
A-3
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated August 12,
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") amends and restates in its entirety the Agreement and Plan of Merger
by and among Parent, Sub and the Company dated as of March 25, 1999 as amended
by Amendment No. 1 thereto dated July 26, 1999. 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
representations, warranties, covenants and agreements contained in this
Agreement, and intending to be legally bound, the parties agree as follows:
ARTICLE I.
THE MERGER
SECTION I.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 I.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 53(rd)
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Street, New York, New York 10022, or such other date, time or place as agreed to
in writing by the Parties.
SECTION I.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 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 I.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 I.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 I.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 I.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 II.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) STOCK OF SUB. Each share of common stock of Sub issued and
outstanding immediately prior to the Effective Time shall be converted
into one share of Surviving Company Common. Each share of Series A-1
preferred stock of Sub issued and outstanding immediately prior to the
Effective Time shall be converted into one share of Senior Preferred.
Each share of Series A-2 preferred stock of Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one share
of Series A-2 Preferred Stock. Each share of Series B preferred stock of
Sub issued and outstanding immediately prior to the Effective Time shall
be converted into one share of Series B-1 Preferred Stock. Each share of
Series C preferred stock of Sub issued and outstanding immediately prior
to the Effective Time shall be converted into one share of Series C-1
Preferred Stock. All of such shares of
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Senior Preferred and 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, $25 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 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 II.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
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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 $28.00 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 $28.00 minus the exercise price and
the denominator of which is $3.00 (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 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. Notwithstanding the foregoing, each In the Money Option issued pursuant
to the Company's 1995 Directors Stock Option Plan or the Company's 1997
Directors Stock Option Plan held by any Affiliated Stockholder shall be
converted as of the Effective Time into one or more options ("SURVIVING COMPANY
OPTIONS") to acquire such number of Surviving Company Securities as the
Surviving Company shall determine; provided that as of the date of issuance of
such Surviving Company Options the excess of the stated value of the Surviving
Company Securities issuable upon exercise of any such Surviving Company Option
over the exercise price thereof shall not exceed the difference of $28.00 minus
the exercise price of the corresponding In the Money Option so converted. Until
surrendered to the Company, after the Effective Time each certificate or other
instrument representing the grant of any In the Money Option shall represent for
all purposes only the right to receive the cash consideration or Surviving
Company Options described above.
SECTION II.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 product of (A) the number of Company
Shares issued and outstanding at the Effective Time MULTIPLIED BY (B) the Per
Share Cash Amount 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 2.1 (including any fractional shares).
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(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 which immediately prior to the Effective Time
represented shares of either Common Shares or Retained Shares (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), 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 or the Retained
Share Merger 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 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 or Retained Share Merger 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
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payment of earnings shall not delay the receipt by holders of Certificates of
the Merger Consideration or Retained Share Merger 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 III.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Parent and Sub as follows:
(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 By-laws, 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
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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 August 12, 1999 (the
"STOCK REFERENCE DATE"), 13,096,560 shares of Voting Common were issued
and outstanding, 1,356,346 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, 13,096,560 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. 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,
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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
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,
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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 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
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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.
(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.
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SECTION III.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 1,000 shares of common
stock, par value $.01 per share, 1,000 shares of which are presently
issued and outstanding. Such 1,000 shares of Sub common stock constitute
all of the issued and outstanding capital stock of Sub and all of such
stock is validly issued, fully paid and nonassessable. Immediately prior
to the Effective Time, the authorized capital stock of Sub shall consist
of (i) 2,500,000 shares of common stock, and (ii) 55,000,000 shares of
preferred stock, par value $.01 per share, which may be issued from time
to time in one or more series by resolution of the board of directors of
Sub. Immediately following the Effective Time, the issued and outstanding
capital stock of the Surviving Corporation shall consist of at least (i)
5,000,000 shares of Common Stock, (ii) 12,530,657 shares of Series A-1
Preferred Stock, (iii) 5,000,000 shares of Series A-2 Preferred Stock,
(iv) 35,000,000 shares of Series B Preferred Stock, and (v) 30,000,000
shares of Series C Preferred Stock. The ownership of the issued and
outstanding shares of the capital stock of the Surviving Corporation 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
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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, 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 (i) a commitment letter dated August 12, 1999 from Bruckmann,
Rosser, Sherrill & Co. II, 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 $42,500,000; and
(ii) a commitment letter dated August 12, 1999 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 $42,500,000 (collectively, the
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<PAGE>
"EQUITY LETTERS"); (iii) a commitment letter from Bank of America, N.A.,
Bankers Trust Company and Credit Suisse First Boston with regard to a
$225 million revolving credit facility; and (iv) a letter from Credit
Suisse First Boston regarding the issuance of $250 million of senior
subordinated notes (collectively the "DEBT FINANCING LETTERS").
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS
PRIOR TO MERGER
SECTION IV.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 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
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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;
(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 IV.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 V.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
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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 V.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 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 V.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,
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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.
(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 V.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 V.5 FINANCING. Parent and Sub shall use their commercially
reasonable efforts to satisfy on or before the Closing Date all requirements of
the Debt 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
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offer an "equity kicker" in excess of those explicitly provided for in the Debt
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 V.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 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
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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 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 V.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 V.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.
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(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 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 V.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 V.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 V.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,
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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 V.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 V.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.
ARTICLE VI.
CONDITIONS PRECEDENT
SECTION VI.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
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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 VI.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.
(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 VI.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.
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ARTICLE VII.
TERMINATION, AMENDMENT AND WAIVER
SECTION VII.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) [INTENTIONALLY OMITTED]
(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
(ii) if the Merger shall not have been consummated on or before
November 30, 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
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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
(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 VII.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 VII.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
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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 VII.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 VII.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
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 VII.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 VIII.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 VIII.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 VIII.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;
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(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 Debt 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 Series A-1 Preferred Stock, par value
$.01 per share, of the Surviving Company, which stock shall have an initial
liquidation preference of $3.00 per share and the other material terms set
forth in EXHIBIT A hereto.
(i) "SURVIVING COMPANY SECURITIES" means, collectively, the Series A-2
Preferred Stock, par value $.01 per share, of the Surviving Corporation (the
"SERIES A-2 PREFERRED STOCK"), the Series B-1 Preferred Stock, par value
$.01 per share ("SERIES B-1 PREFERRED STOCK"), the Series B-2 Preferred
Stock, par value $.01 per share ("SERIES B-2 PREFERRED STOCK"), and such
other shares of Series B Preferred Stock, par value $.01 per share, of the
Surviving Corporation, which may be issued from time to time in multiple
series or classes at the discretion of the board of directors of the
Surviving Corporation (collectively, the "SERIES B PREFERRED STOCK"), the
Series C-1 Preferred Stock, par value $.01 per share ("SERIES C-1 PREFERRED
STOCK"), the Series C-2 Preferred Stock, par value $.01 per share ("SERIES
C-2 PREFERRED STOCK"), and such other shares of Series C Preferred Stock,
par value $.01 per share, of the Surviving Corporation, which may be issued
from time to time in multiple series or classes at the discretion of the
board of directors of the Surviving Corporation (collectively, the "SERIES C
PREFERRED STOCK"), and the common stock, par value $.01 per share, of the
Surviving Corporation, which common stock may be issued in multiple series
or classes at the discretion of the board of directors of the Surviving
Corporation ("SURVIVING COMPANY COMMON") in each case, having the terms and
preferences set forth in EXHIBIT A hereto.
(j) "VOTING COMMON" means the Common Stock, par value $.01 per share,
of the Company.
SECTION VIII.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
CBF Holding LLC
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56(th) 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
A-28
<PAGE>
(b) if to the Company, to
Cort Business Services 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 VIII.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 VIII.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 VIII.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 VIII.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 VIII.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
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 VIII.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
A-29
<PAGE>
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 VIII.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 VIII.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 VIII.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.
* * * * *
A-30
<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:
-----------------------------------------
Name:
Title:
Attest:
-----------------------------------------
Name:
Title:
CBF HOLDING LLC
By:
-----------------------------------------
Name:
Title:
Attest:
-----------------------------------------
Name:
Title:
CBF MERGERCO INC.
By:
-----------------------------------------
Name:
Title:
Attest:
-----------------------------------------
Name:
Title:
</TABLE>
A-31
<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) ................. 5,778,518 -- 5,778,518 44.1224%
James A. Urry....................................... 5,933 -- 5,933 0.0453%
Michael A. Delaney.................................. 2,500 -- 2,500 0.0191%
Bruce C. Bruckmann.................................. 174,505 -- 174,505 1.3324%
Paul N. Arnold...................................... 27,406 -- 27,406 0.2093%
Steven D. Jobes..................................... 3,350 -- 3,350 0.0256%
Charles M. Egan..................................... 15,314 -- 15,314 0.1169%
Frances Ann Ziemniak................................ 21,977 -- 21,977 0.1678%
Kenneth W. Hemm..................................... 23,899 -- 23,899 0.1825%
Anthony J. Bellerdine............................... 999 -- 999 0.0076%
Lloyd Lenson........................................ 48,246 -- 48,246 0.3684%
--------------- --------------- -------------- -----------
TOTAL........................................... 6,102,647 -- 6,102,647 46.5973%
--------------- --------------- -------------- -----------
--------------- --------------- -------------- -----------
</TABLE>
- ------------------------
(1) 4,350,411 shares of voting common stock owned by Citicorp Venture Capital,
Ltd are subject to a Voting Trust Agreement dated as of August 12, 1999. The
voting trustees under the agreement are Harold O. Rosser, Stephen C.
Sherrill and Stephen F. Edwards.
A-32
<PAGE>
EXHIBIT 2.1(c)
1. Citicorp Venture Capital, Ltd., and its Affiliates and Associates
(collectively, "CVC HOLDERS") shall have the right to exchange up to such number
of shares of Common Stock of the Company (valued at $28.00 per share) as would
result in the following number of shares of the respective series and class of
Surviving Company Securities being issuable to the CVC Holders in the aggregate:
(i) 17,500,000 shares of Series B-2 Preferred Stock, LESS one-half of the total
number of shares of Series B Preferred Stock issued to the Company's Managers
(as defined below) in connection with the Merger and the related transactions,
(ii) 15,000,000 shares of Series C-2 Preferred Stock, LESS one-half of the total
number of shares of Series C Preferred Stock issued to the Managers in
connection with the Merger and the related transactions, (iii) 2,500,000 shares
of Surviving Company Common, LESS one-half the total number of shares of
Surviving Company Common issued to the Managers in connection with the Merger
and the related transactions, and (iv) up to 7,000,000 shares of Series A-2
Preferred Stock.
2. Parent, Sub, and Bruckmann, Rosser, Sherrill & Co. II, L.P., and their
respective Affiliates and Associates (collectively, "BRS HOLDERS") shall have
the right to exchange up to such number of shares of Common Stock of the Company
(valued at $28.00 per share) as would result in the following number of shares
of the respective series and class of Surviving Company Securities being
issuable to the BRS Holders in the aggregate when combined with the number of
such shares received in exchanged for stock of Sub exchanged pursuant to Section
2.1(a) of the Agreement: (i) 17,500,000 shares of Series B-1 Preferred Stock,
LESS one-half of the total number of shares of Series B Preferred Stock issued
to the Managers in connection with the Merger and the related transactions, (ii)
15,000,000 shares of Series C-1 Preferred Stock, LESS one-half the total number
of shares of Series C Preferred Stock issued to the Managers in connection with
the Merger and the related transactions, (iii) 2,500,000 shares of Surviving
Company Common, LESS one-half the total number of shares of Surviving Company
Common issued to the Managers in connection with the Merger and the related
transactions, and (iv) up to 7,000,000 shares of Series A-2 Preferred Stock.
3. The officers, directors and employees of the Company approved by Parent
and the Company (collectively, "MANAGERS"), shall have the right to exchange up
to 208,281 shares of Common Stock of the Company in the aggregate, such that the
total number of shares of Surviving Company Securities issuable to the Managers
in the aggregate, together with any such shares purchased by the Managers, shall
be not more than 2,527,778 shares of Series B-1 Preferred Stock, 2,166,667
shares of Series C-1 Preferred Stock, and 825,000 shares of Surviving Company
Common.
A-33
<PAGE>
EXHIBIT A
RESTATED
CERTIFICATE OF INCORPORATION
OF
CORT BUSINESS SERVICES CORPORATION
ARTICLE FIRST
The name of the Corporation is CORT Business Services Corporation.
ARTICLE SECOND
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.
ARTICLE THIRD
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.
ARTICLE FOURTH
AUTHORIZED CAPITAL STOCK
SECTION 1. AUTHORIZED SHARES
The total number of shares of capital stock which the Corporation has
authority to issue is 104,200,000 shares, consisting of:
(a) 12,000,000 shares of Common Stock, $.01 par value per share, of which
6,000,000 shares shall be further designated as Class A Common Stock (the
"CLASS A COMMON STOCK") and 6,000,000 shares shall be further designated
as Class B Common Stock (the "CLASS B COMMON STOCK" and together with the
Class A Common Stock, the "COMMON STOCK");
(b) 27,000,000 shares of Series A Preferred Stock, par value $.01 per share,
of which 13,000,000 shares shall be further designated as Series A-1
Preferred Stock (the "SERIES A-1 PREFERRED STOCK") and 14,000,000 shares
shall be further designated as Series A-2 Preferred Stock (the "SERIES
A-2 PREFERRED STOCK" and together with the Series A-1 Preferred Stock,
the "SERIES A PREFERRED STOCK");
(c) 35,100,000 shares of Series B Preferred Stock, par value $.01 per share,
of which 18,800,000 shares shall be further designated as Series B-1
Preferred Stock (the "SERIES B-1 PREFERRED STOCK") and 16,300,000 shares
shall be further designated as Series B-2 Preferred Stock (the "SERIES
B-2 PREFERRED STOCK" and together with the Series B-1 Preferred Stock,
the "SERIES B PREFERRED STOCK"); and
(d) 30,100,000 shares of Series C Preferred Stock, par value $.01 per share,
of which 16,100,000 shares shall be further designated as Series C-1
Preferred Stock (the "SERIES C-1 PREFERRED STOCK") and 14,000,000 shares
shall be further designated as Series C-2 Preferred Stock (the "SERIES
C-2 PREFERRED STOCK," together with the Series C-1 Preferred Stock, the
"SERIES C PREFERRED STOCK").
A-34
<PAGE>
The Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock are collectively referred to herein as the "Preferred Stock".
The Common Stock and Preferred Stock are collectively referred to herein as the
"Capital Stock".
SECTION 2. SERIES A PREFERRED STOCK
Except as otherwise provided in this Section 2 or as otherwise required by
applicable law, all shares of Series A Preferred Stock (each such share, a
"SERIES A SHARE") shall be identical in all respects and shall entitle the
holders thereof to the same rights and privileges, subject to the same
qualifications, limitations and restrictions.
(a) DIVIDENDS.
(i) GENERAL OBLIGATION. Each Holder of Series A Preferred Stock shall 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 $.36 per share PER ANNUM. All dividends
shall be cumulative, whether or not earned or declared, and shall accrue on
a daily basis from the date of issuance of Series A Preferred Stock, and
shall be payable quarterly in arrears on each Dividend Payment Date. Each
dividend on Series A Preferred Stock shall be payable to the holders of
record of Series A Preferred Stock as they appear on the stock register of
the Corporation on such record date as may be fixed by the Board, which
record date shall not be less than 10 nor more than 60 days prior to the
applicable Dividend Payment Date. Dividends shall cease to accrue in respect
of shares of Series A Preferred Stock on the date of their repurchase or
redemption by the Corporation unless the Corporation shall have failed to
pay the relevant repurchase or redemption price on the date fixed for
repurchase or redemption. Notwithstanding anything to the contrary set forth
above, unless and until such dividends are declared by the Board of
Directors, there shall be no obligation to pay such dividends whether or not
there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends; PROVIDED, that such dividends shall
be required to be paid at the time of the repurchase or redemption of the
Series A Shares 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 shall thereafter accrue
additional dividends ("ADDITIONAL DIVIDENDS") in respect thereof, compounded
quarterly, at the rate of 12.0% per annum. The date on which the Corporation
initially issues any Series A Share will be deemed to be its "date of
issuance" regardless of the number of times transfer of such Series A Share
is made on the stock records maintained by or for the Corporation and
regardless of the number of certificates which may be issued to evidence
such Series A Share.
(ii) All dividends paid with respect to shares of Series A Preferred
Stock pursuant to Section 2(a)(i) shall be paid PRO RATA to the holders of
Series A Shares entitled thereto.
(iii) DIVIDEND PAYMENT DATES. Quarterly cash dividends described above
shall be payable in arrears on each of March 31, June 30, September 30 and
January 31 of each year (each a "DIVIDEND PAYMENT DATE"), commencing on the
second Dividend Payment Date after the date of issuance of such Series A
Preferred Stock.
(iv) Dividends on account of arrears for any past Dividend Period and
dividends in connection with any optional redemption pursuant to Section
2(d)(i) may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to the holders of record of Series A Shares
on any date as may be fixed by the Board of Directors, which date is not
more than 60 days prior to the payment of such dividends.
(v) DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. If at any time the
Corporation elects to pay dividends in cash and pays less than the total
amount of dividends then accrued and unpaid with
A-35
<PAGE>
respect to the Series A Preferred Stock, such payment will be distributed
ratably among the holders of Series A Shares based upon the aggregate
accrued and accumulated but unpaid dividends on the Series A Shares held by
each such holder and the aggregate amount of dividends to be paid thereby,
and any amounts of such dividends remaining thereafter shall, until paid to
the holder thereof, remain Additional Dividends with respect to such Series
A Share.
(vi) PAYMENT OF STOCK DIVIDENDS. In the sole discretion of the
Corporation, in addition to dividends accruing on the Series A Shares, the
board of directors may issue additional Series A Shares in the form of a
stock dividend on the then outstanding Series A Preferred Stock, which
additional shares shall have the liquidation value determined by the board
of directors of the Corporation.
(b) RANK; PRIORITY.
(i) Except as otherwise described below in this paragraph (b), with
respect to dividend rights and rights on liquidation, winding up and
dissolution of the Corporation, the Series A Preferred Stock shall rank
senior to Series A Junior Securities, on a parity with Series A Parity
Securities and junior to Series A Senior Securities.
(ii) So long as any Series A Shares remain outstanding, the Corporation
shall not (i) declare any dividends on any Series A Junior Securities, (ii)
repurchase or otherwise redeem any Series A Junior Securities, or (iii) set
aside or apply any funds for the purchase, redemption or other acquisition
by the Corporation for value of any shares of Series A Junior Securities
(either pursuant to any applicable sinking fund requirement or otherwise)
unless (x) in the case of clause (i) above, full Accumulated Dividends have
been paid or set apart for payment on the Series A Shares for all Dividend
Periods terminating on or prior to the date of payment of such dividends on
Series A Junior Securities and (y) in the case of clauses (ii) and (iii)
above, all of the then outstanding Series A Shares have been purchased,
redeemed or otherwise acquired by the Corporation or funds in an amount
sufficient to pay the aggregate redemption price of such Series A Shares
have been set apart for payment upon the purchase, redemption or acquisition
of such shares; PROVIDED, HOWEVER, that the foregoing will not: (i) prohibit
the Corporation from repurchasing shares of Series A Junior Securities,
pursuant to a written plan or agreement, from a holder who is, or was, an
employee of the Corporation; (ii) prohibit the Corporation from making
dividends, distributions or payments in respect of the Series B-2 Preferred
Stock or in respect of the Series C-2 Preferred Stock in an amount not to
exceed $4.0 million in the aggregate in the first year following date of
issuance of the Series A Shares, and $1.0 million in the aggregate in each
year thereafter; or (iii) prohibit the Corporation from making dividends,
other distributions, redemptions, repurchases or acquisitions in respect of
Series A Junior Securities payable in Series A Junior Securities or options,
warrants or other rights to subscribe for or purchase shares of Series A
Junior Securities, including any dividends declared in connection with any
stock splits, stock dividends, share combinations, share exchanges,
recapitalization or other transaction in which such dividends are made in
the form of Series A Junior Securities.
(iii) So long as any Series A Preferred Stock is outstanding, no
dividends shall 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), 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") or (ii) any
such dividends are declared and paid PRO RATA so that the amounts of
A-36
<PAGE>
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 as of such Series A Parity Payment Date. In
the event that Series A Parity Securities are issued in multiple classes or
series, dividends, distributions, redemptions, repurchases and acquisitions
made on any one class or series of Series A Parity Securities pursuant to
this paragraph (b)(iii) must be made on a PARI PASSU basis with each other
outstanding class or series. In addition, if the Corporation in any manner
subdivides or combines the outstanding shares of any class or series of
Series A Parity Securities, the outstanding shares of each other class or
series of Series A Parity Securities shall be proportionately subdivided or
combined.
(c) LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, BEFORE any distribution or payment is made upon any Series A Junior
Securities (except for distributions or payments made in respect of the Series
B-2 Preferred Stock or the Series C-2 Preferred Stock for amounts accrued and
accumulated in respect of the Series B-2 Liquidation Premium (as defined in
Section 3 of this Article Fourth) and the Series C-2 Annual Dividend (as defined
in Section 4 of this Article Fourth), respectively, which distributions or
payments, to the extent made prior to any distributions or payments in respect
of the Series A Preferred Stock, shall not exceed $4,000,000 in the aggregate in
the first year following the date of issuance of the Series A Shares and
$1,000,000 in the aggregate in each year thereafter), the holders of Series A
Shares then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders an amount in cash per
share equal to the Series A Liquidation Value (plus all Accumulated Dividends,
accrued and unpaid thereon, including Additional Dividends), and the holders of
Series A Shares as such will not be entitled to any further payment. If upon any
such liquidation, dissolution or winding up of the Corporation, the
Corporation's assets available to be distributed among the holders of the Series
A Shares and the holders of all Series A Parity Securities are insufficient to
permit payment to such holders of the aggregate amount which they are entitled
to be paid pursuant to this Section, then the entire assets to be distributed to
the holders of Series A Preferred Stock and the Series A Parity Securities shall
be distributed ratably among such holders based upon the aggregate liquidation
preference to which each is entitled (plus all Accumulated Dividends, including
Additional Dividends) with respect to the Series A Shares or Series A Parity
Securities held by each such holder. After payment in full in accordance with
the preceding sentence, the holders of Series A Shares 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 Corporation in respect of the
shares of Series A Preferred Stock held thereby. Neither the consolidation,
merger or other business combination of the Corporation into or with one or more
corporations, nor the voluntary sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) by the Corporation of
all or any part of its property or assets, nor the reduction of the capital
stock of the Corporation, will be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 2 so long as
the holders of the Series A Junior Securities do not receive consideration in
respect of such securities with rights and preferences in respect of dividends,
distributions, liquidation or redemption senior to (i) the Series A Preferred
Stock or (ii) such other consideration as may be received by the holders of
Series A Preferred Stock in respect of such shares in connection with any such
transaction.
(d) REDEMPTIONS.
(i) OPTIONAL REDEMPTIONS. The Corporation may, at its option, redeem at
any time or from time to time, from any source of funds legally available
therefor, all or any portion of the Series A-1 Preferred Stock then
outstanding at a price per share set forth below, plus an amount equal to
full Accumulated Dividends, accrued and unpaid thereon, including Additional
Dividends, for all Dividend Periods terminating on or prior to the
Redemption Date; PROVIDED, that (x) all
A-37
<PAGE>
partial redemptions of Series A-1 Preferred Stock pursuant to this
subparagraph (d)(i) shall be made PRO RATA among the holders of such stock
on the basis of the number of shares held by each such holder and the total
number of such shares outstanding, and (y) no partial redemption of Series
A-1 Preferred Stock pursuant to this subparagraph (d)(i) 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 on the Redemption Date. Redemptions made pursuant to
this subparagraph (d)(i) will not relieve the Corporation of its obligations
to redeem outstanding Series A-1 Preferred Stock pursuant to subparagraph
(d)(ii) of this Section 2. The redemption prices for optional redemptions
are as follows:
<TABLE>
<CAPTION>
REDEMPTION PRICE PER SHARE AS A % OF
THE
REDEMPTION DATE SERIES A LIQUIDATION VALUE
- ------------------------------------------------------ --------------------------------------
<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>
(ii) MANDATORY REDEMPTION. The Corporation shall redeem from funds
legally available therefor all outstanding shares of the Series A-1
Preferred Stock 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 Value PLUS an amount equal to full Accumulated Dividends
accrued and unpaid thereon, including Additional Dividends, for all Dividend
Periods prior to the Redemption Date. The Corporation shall redeem from
funds legally available therefor all outstanding shares of the Series A-2
Preferred Stock 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 price per share equal to the Series A Liquidation Value PLUS an
amount equal to full Accumulated Dividends accrued and unpaid thereon,
including Additional Dividends, for all Dividend Periods prior to the
Redemption Date. The Corporation shall not have the right nor the power to,
and the holders thereof shall not have the right to require the Corporation
to, redeem any shares of Series A-2 Preferred Stock prior to the scheduled
Redemption Date. Notwithstanding the foregoing, the preceding sentence shall
not prohibit the Corporation from acquiring from any holder thereof, with
such holder's consent, any shares of Series A-2 Preferred Stock held by such
holder subject to paragraph (b) of this Section 2.
(iii) AVAILABLE FUNDS. Subject to the rights of any Series A Senior
Securities or Series A Parity Securities, if the Corporation's funds which
are legally available for redemption of Series A Shares on any Redemption
Date are insufficient to redeem the total number of Series A Shares to be
redeemed on such date, those funds which are legally available will be used
to redeem the maximum possible number of Series A Shares ratably among the
holders of the Series A Shares to be redeemed based upon the aggregate
Series A Liquidation Value of such shares (plus all accrued and unpaid
dividends thereon) held by each such holder and the aggregate Series A
Liquidation Value to be paid at such time, and other shares not so redeemed
shall remain issued and outstanding until redeemed in accordance with the
terms thereof. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Series A Shares,
such funds will immediately be used to redeem the balance of the Series A
Shares which the Corporation has become obligated to redeem on any
Redemption Date but which it has not redeemed.
A-38
<PAGE>
(iv) 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 Corporation on
such record date provided that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for the
redemption of any shares of Series A Preferred Stock to be redeemed except
as to the holder or holders thereof to whom the Corporation has failed to
give said notice or except as to the holder or holders thereof whose notice
was defective. In addition to any information required by law or by the
applicable rules of any exchange upon which shares of Series A Preferred
Stock may be listed or admitted to trading, the Redemption Notice shall
state:
(A) the redemption price;
(B) whether all or less than all of the outstanding shares of Series
A Preferred Stock redeemable thereunder are to be redeemed and the
aggregate number of shares of Series A Preferred Stock being redeemed;
(C) the number of shares of Series A Preferred Stock held, as of the
appropriate record date, by the holder that the Corporation intends to
redeem;
(D) the Redemption Date;
(E) that the holder is to surrender to the Corporation, at the place
or places where certificates for shares of Series A Preferred Stock are
to be surrendered for redemption, in the manner and at the price
designated, his, her or its certificate or certificates representing the
shares of Series A Preferred Stock to be redeemed;
(F) that dividends on the shares of Series A Preferred Stock to be
redeemed shall cease to accumulate on such Redemption Date unless the
Corporation defaults in the payment of the redemption price; and
(G) the name and address of the Exchange Agent (as defined in
paragraph (d)(vii) below).
(v) SURRENDER OF CERTIFICATES. Each holder of Series A Shares shall
surrender the certificate or certificates representing such shares of Series
A Preferred Stock being so redeemed to the Corporation, duly endorsed, in
the manner and at the place designated in the Redemption Notice, and on the
Redemption Date the full redemption price for such shares shall be payable
in cash to the Person whose name appears on such certificate or certificates
as the owner thereof, and each surrendered certificate shall be canceled and
retired. In the event that less than all of the shares represented by any
such certificate are redeemed, a new certificate shall be issued to the
holder thereof within three Business Days after redemption representing the
unredeemed shares.
(vi) DIVIDENDS AFTER REDEMPTION DATE. If a Redemption Notice has been
properly mailed, unless the 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 or
subject to conversion 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.
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(vii) DEPOSIT OF FUNDS. The Corporation's obligation to deliver funds in
accordance with this Section 2(d) shall be deemed fulfilled if, on or before
a Redemption Date, the Corporation shall deposit with the Exchange Agent (as
defined below) such funds as are required to be delivered by the Corporation
pursuant to this Section 2(d) upon the occurrence of the related redemption
consideration sufficient to pay all accrued and unpaid dividends on the
shares to be redeemed, in trust for the account of the holders of the shares
to be redeemed (and so as to be and continue to be available therefor), with
irrevocable instructions and authority to such Exchange Agent that such
shares and funds be delivered upon redemption of the shares of Series A
Preferred Stock so called for redemption. Any interest accrued on such funds
shall be paid to the Corporation from time to time. Upon surrender of the
certificates pursuant to Section 2(d)(v), each surrendering holder of Series
A Shares for redemption shall thereupon be entitled to any funds payable
pursuant to this Section 2(d) following such surrender and following the
date of such redemption. For purposes of this Article Fourth, the term
"EXCHANGE AGENT" shall mean a bank or trust corporation, or an Affiliate of
a bank or trust corporation, in each case organized under the laws of the
United States, any state thereof or the District of Columbia, doing business
in the State of New York and having total assets of at least $100 million,
calculated in accordance with generally accepted accounting principles.
(e) CONVERSION AND EXCHANGE OF SERIES A PREFERRED STOCK.
(i) CONVERSION AT OPTION OF CORPORATION. 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 Corporation. At any time, however, the Corporation may cause the holders
of any series of the Series A Preferred Stock to convert all (but not less
than all) of such shares or exchange all (but not less than all) of such
shares into a new issue of 12% junior subordinated debt securities of the
Corporation (the "JSDS") having an aggregate principal amount equal to the
aggregate Series A Liquidation Value of such shares to be converted or
exchanged; PROVIDED, that at the time of such exchange all Accumulated
Dividends accrued and unpaid thereon, including Additional Dividends, are
paid in cash. Notwithstanding the foregoing, the Corporation shall not cause
the holders of the Series A-2 Preferred Stock to convert or exchange such
shares pursuant to this paragraph (e)(1) unless the Corporation
contemporaneously also converts all of the then outstanding shares of Series
A-1 Preferred Stock into JSDs. 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 anniversary of the date of issuance of the Series A-1 Preferred Stock
in kind, and thereafter, in cash, quarterly in arrears.
(ii) TERMS OF JSDS. In addition to the interest rate and principal
amount, which shall be as described in this paragraph (e)(i), the JSDs shall
have such other terms and conditions as determined by the board of directors
of the Corporation prior to any conversion and set forth in a form of JSD
which shall be attached as an annex to the Conversion Notice described in
paragraph (e)(iii) below.
(iii) NOTICE OF CONVERSION. At least 30 days and not more than 60 days
prior to the date fixed for any conversion of Series A Preferred Stock,
written notice (the "CONVERSION 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 conversion of Series A Preferred Stock at such
holder's address as set forth on the stock register of the Corporation on
such record date provided that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for the
conversion of any shares of Series A Preferred Stock to be redeemed except
as to the holder or holders thereof to whom the Corporation has failed to
give said notice or except as to the holder or holders thereof whose notice
was defective. In addition to any information required by law or by the
applicable rules of any exchange upon which shares of Series A Preferred
Stock may be
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listed or admitted to trading, the Conversion Notice shall (x) include a
form of JSD setting forth the terms and conditions determined by the board
of directors of the Corporation pursuant to paragraph (e)(ii) above, and (y)
state:
(A) that all of the outstanding shares of Series A Preferred Stock
are to be converted;
(B) the number of shares of Series A Preferred Stock held, as of the
appropriate record date, by the holder;
(C) the Conversion Date;
(D) that the holder is to surrender to the Corporation, at the place
or places where certificates for shares of Series A Preferred Stock are
to be surrendered for conversion, in the manner and for the JSDs
designated, his, her or its certificate or certificates representing the
shares of Series A Preferred Stock; and
(E) that dividends on the shares of Series A Preferred Stock shall
cease to accumulate on such Conversion Date unless the Corporation fails
to deliver the JSDs.
(iv) Each holder of Series A Shares shall surrender the certificate or
certificates representing such shares of Series A Preferred Stock being so
converted to the Corporation, duly endorsed, in the manner and at the place
designated in the Conversion Notice. Each conversion of Series A Shares
shall 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 at
such time the rights of the holder of the converted Series A Shares as such
holder shall cease, and the person or persons in whose name or names the
JSDs are to be issued upon such conversion shall be deemed to have become
the holder or holders of record of the JSDs represented thereby.
(v) ISSUANCE OF JSDS. Within five (5) Business Days after the surrender
of certificates of Series A Shares, the Corporation shall issue and deliver
in accordance with the surrendering holder's instructions the JSDs issuable
upon such conversion.
(vi) NO CHARGE. The issuance JSDs upon conversion of the Series A Shares
will be made without charge to the holders of such Series A Shares of any
issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion and the related issuance of JSDs.
(f) VOTING RIGHTS.
(i) The holders of Series A Preferred Stock shall not be entitled or
permitted to vote on any matter required or permitted to be voted upon by
the stockholders of the Corporation, except as otherwise required by
Delaware law or the Certificate of Incorporation except that, (A) without
the written consent of the holders of 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
Corporation shall not (x) create, authorize or issue any other class or
series of Stock entitled to a preference prior to the Series A-1 Preferred
Stock upon any dividend or distribution or any liquidation, distribution of
assets, dissolution or winding up of the Corporation, or (y) amend, alter or
repeal any provision of the Corporation's Certificate of Incorporation so as
to materially adversely affect the relative rights and preferences of the
Series A-1 Preferred Stock (other than with resepct to establishing a
redemption date or price for any Series A Parity Securities which is no more
favorable to the holders of those securities than the relative rights of the
holders of the Series A-1 Preferred Stock), and (B) 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 Corporation shall not (x)
create, authorize or issue any other class or series of Stock entitled to a
preference prior to the Series A-2 Preferred Stock
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upon any dividend or distribution or any liquidation, distribution of
assets, dissolution or winding up of the Corporation, or (y) amend, alter or
repeal any provision of the Corporation's Certificate of Incorporation so as
to materially adversely affect the relative rights and preferences of the
Series A-2 Preferred Stock (other than with respect to establishing a
redemption date or price for any Series A Parity Securities which is no more
favorable to the holders of those securities than the relative rights of the
holders of the Series A-1 Preferred Stock).
(ii) Without limiting the generality of the foregoing, in no event shall
the holders of Series A Preferred Stock be entitled to vote (individually or
as a class) on any merger or consolidation involving the Corporation, any
sale of all or substantially all of the assets of the Corporation or any
similar transaction.
(iii) Notwithstanding the foregoing, in the event that after the fifth
(5(th)) anniversary of the date of issuance of the Series A Shares, 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) (an "EVENT OF
NONCOMPLIANCE"), at the request of the holders of a majority of the Series
A-1 Preferred Stock, the number of directors constituting the Board shall be
increased by one, and the holders of a majority of the Series A-1 Preferred
Stock (to the exclusion of all other classes and series of Capital Stock)
shall be entitled to elect the individual (the "SERIES A DIRECTOR") to fill
such newly created directorship, to remove the Series A Director and to fill
any vacancy in such directorship. Such special rights of the holders of
Series A-1 Preferred Stock shall continue until such time as there is no
longer any Event of Noncompliance in existence, at which time (i) the Series
A Director shall be automatically removed as a director and the number of
directors constituting the Board will be reduced by one (subject to later
increase as described above or as otherwise permitted herein) and (ii) such
special rights shall terminate subject to revesting upon the occurrence of a
subsequent Event of Noncompliance which gives rise to such special rights
hereunder.
(iv) In any case in which the holders of Series A Preferred Stock shall
be entitled to vote pursuant to this Section 2(f), each holder shall be
entitled to one vote for each share of Series A Preferred Stock held unless
otherwise required by applicable law.
(g) REISSUANCE OF SERIES A PREFERRED STOCK. Shares of Series A Preferred
Stock which have been issued and reacquired in any manner, including shares
purchased, redeemed or exchanged, shall have the status of authorized and
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock, all subject to the conditions and restrictions on issuance
set forth in any resolution or resolutions adopted by the Board of Directors
providing for the issuance of any series of Preferred Stock; except that the
Corporation may reissue shares of Series A Preferred Stock which are reacquired
by the Corporation from a holder who is, or was, an employee or director of the
Corporation (or its Affiliates) to another employee or director of the
Corporation or its subsidiaries.
(h) BUSINESS DAY. If any payment shall be required by the terms hereof to
be made on a day that is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.
(i) NO PREEMPTIVE RIGHTS. No holder of Series A Preferred Stock will
possess any preemptive rights to subscribe for or acquire any unissued shares of
Capital Stock of the Corporation (whether now or hereafter authorized) or
securities of the Corporation convertible into or carrying a right to subscribe
to or acquire shares of Capital Stock of the Corporation.
(j) PROHIBITIONS AND RESTRICTIONS IMPOSED BY SENIOR SECURITIES AND
INDEBTEDNESS. To the extent that any action required to be taken by the
Corporation under this Section 2 shall be prohibited or restricted by the terms
of any Series A Senior Securities or any contract or instrument to which the
Corporation is a party or by which it is bound in respect of the incurrence of
indebtedness, the Corporation's actions shall be delayed until such time as such
prohibition or restriction is no longer in force; PROVIDED, HOWEVER, that in no
event shall any such delay affect the right of the holders of the
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Series A-1 Preferred Stock to elect the Series A-1 Director pursuant to
paragraph (f)(iii) of this Section 2.
(k) DEFINITIONS. The following definitions apply only to this Section 2.
"ACCUMULATED DIVIDENDS" means (i) with respect to any share of Series A
Preferred Stock, the dividends that have accrued on such share as of such
specific date for Dividend Periods ending on or prior to such date (whether
or not earned or declared) and that have not previously been paid in cash,
and (ii) with respect to any Series A Parity Security, the dividends that
have accrued and are due on such security as of such specific date (whether
or not earned or declared).
"AFFILIATE" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise).
"BUSINESS DAY" means any day, excluding Saturday, Sunday, and any day
which shall be in the City of New York a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close.
"DIVIDEND PERIOD" means the Initial Dividend Period and, thereafter,
each quarterly period between subsequent consecutive Dividend Payment Dates.
"EVENT OF NONCOMPLIANCE" has the meaning set forth in Section 2(f).
"INITIAL DIVIDEND PERIOD" means the dividend period commencing on the
Issue Date and ending on the first Dividend Payment Date to occur
thereafter.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, an incorporated or unincorporated organization and a
governmental entity or any department, agency or political subdivision
thereof.
"REDEMPTION DATE" as to any Series A Share means the date specified in
the Redemption Notice at the Corporation's option; PROVIDED, that no such
date will be a Redemption Date unless the Series A Liquidation Value plus
all Accumulated Dividends, accrued and unpaid thereon, including Additional
Dividends, is actually paid, and if not so paid, the Redemption Date will be
the date on which such amount is fully paid.
"SERIES A JUNIOR SECURITIES" means the Series B Preferred Stock, the
Series C Preferred Stock, the Common Stock, and each other class of Capital
Stock or class or series of preferred stock issued by the Corporation after
the date hereof the terms of which specifically provide that such class or
series shall rank junior to the Series A Preferred Stock as to dividend
distributions or distributions upon the liquidation, winding up or
dissolution of the Corporation, provided that the Series B Preferred Stock
and the Series C-2 Preferred Stock shall not be junior to the Series A
Preferred Stock with respect to dividends, distributions or payments in an
amount not to exceed $4.0 million in the aggregate in the first year
following the date of issuance of the Series A Shares, and $1.0 million in
the aggregate in each year thereafter.
"SERIES A LIQUIDATION VALUE"of any Series A Share will be an amount
equal to $3.00 per share.
"SERIES A PARITY SECURITIES" means each other class of Capital Stock or
class or series of preferred stock issued by the Corporation after the date
hereof 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 or
dissolution of the Corporation.
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"SERIES A SENIOR SECURITIES" means each other class of Capital Stock or
other class or series of preferred stock issued by the Corporation (in
accordance with paragraph 2(f) above) that by its terms is senior to the
Series A Preferred Stock with respect to dividend distributions or
distributions upon the liquidation, winding up and dissolution of the
Corporation.
(l) NOTICES
Except as otherwise expressly provided, all notices referred to herein will
be in writing and will be delivered by registered or certified mail, return
receipt requested, postage prepaid and will be deemed to have been given when so
mailed (i) to the Corporation, at its principal executive offices and (ii) to
any stockholder, at such holder's address as it appears in the stock records of
the Corporation (unless otherwise indicated by any such holder).
SECTION 3. SERIES B PREFERRED STOCK
Except as otherwise provided in this Section 3 or as otherwise required by
applicable law, all shares of Series B Preferred Stock (each such share, a
"Series B Share") shall be identical in all respects and shall entitle the
holders thereof to the same rights and privileges, subject to the same
qualifications, limitations and restrictions.
(a) DIVIDENDS.
(i) GENERAL OBLIGATION. Each holder of Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board cash dividends on
each Series B Share at a rate equal to $.125 per share per annum. Such
dividends on the Series B Preferred Stock shall be cumulative, whether or
not earned or declared, and shall accrue on a daily basis from the date of
issuance of Series B Preferred Stock, and shall be payable quarterly in
arrears on each Series B Dividend Payment Date if declared by the Board.
Each dividend on Series B Preferred Stock shall be payable to the holders of
record of Series B Preferred Stock as they appear on the stock register of
the Corporation on such record date as may be fixed by the Board. Dividends
shall cease to accrue in respect of shares of Series B Preferred Stock on
the date of their repurchase or redemption by the Corporation unless the
Corporation shall have failed to pay the relevant repurchase or redemption
price on the date fixed for repurchase or redemption. Notwithstanding
anything to the contrary set forth above, unless and until such dividends
are declared by the Board of Directors, there shall be no obligation to pay
such dividends whether or not there are profits, surplus or other funds of
the Corporation legally available for the payment of dividends; PROVIDED,
that such dividends shall be required to be paid at the time of the
repurchase or redemption of the Series B Shares as provided herein if not
earlier declared and paid. Accrued dividends on the Series B Preferred Stock
if not paid on the first or any subsequent Series B Dividend Payment Date
following accrual shall thereafter accrue additional dividends ("ADDITIONAL
DIVIDENDS") in respect thereof, compounded quarterly, at the rate of 12.5%
per annum. In addition, special dividends will accrue with respect to the
Series B-2 Preferred Stock at a rate of 12.5% per annum, compounded
quarterly, on the Series B-2 Liquidation Premium. All of such dividends will
accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends. The date on which the Corporation initially issues any
Share will be deemed to be its "date of issuance" regardless of the number
of times transfer of such Share is made on the stock records maintained by
or for the Corporation and regardless of the number of certificates which
may be issued to evidence such Share.
(ii) SERIES B DIVIDEND PAYMENT DATES. To the extent that all accrued and
accumulated dividends are not paid on each March 31, June 30, September 30
and December 31 of each year (the "SERIES B DIVIDEND PAYMENT DATES"),
commencing on the second Series B Dividend Payment Date following the
issuance of the Series B Shares, all dividends which have accrued and
accumulated on each such share outstanding during the period ending upon
each such date (including dividends
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on the Series B-2 Preferred Stock for amounts accrued and accumulated in
respect of the Series B-2 Liquidation Premium) will be accumulated as
described above as Additional Dividends.
(iii) DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. If at any time the
Corporation elects to pay dividends in cash and pays less than the total
amount of dividends then accrued with respect to the Series B Preferred
Stock, such payment will be distributed (x) first, ratably among the holders
of the Series B-2 Preferred Stock until an amount which, together with cash
dividends theretofore paid on the Series C-2 Preferred Stock (other than in
respect of the Series C-2 Annual Dividend) is equal to the Series B-2
Liquidation Premium (plus, all Accumulated Dividends thereon) shall have
been paid, and (y) second, ratably among the holders of the Series B
Preferred Stock based upon the aggregate accrued and accumulated but unpaid
dividends on the Series B Shares held by each such holder and the aggregate
amount of dividends to be paid thereby, and any amounts of such dividends
remaining thereafter shall, until paid to the holder thereof, remain
Additional Dividends with respect to such Series B Share.
(iv) PAYMENT OF STOCK DIVIDENDS. In the sole discretion of the
Corporation, any dividends accruing on the Series B Shares may be paid, in
lieu of cash dividends, by the issuance of additional Series B Shares
(including fractional Series B Shares) having an aggregate Series B
Liquidation Value at the time of such payment equal to the amount of the
dividend to be paid; provided, that if the Corporation pays less than the
total amount of dividends then accrued and accumulated on the Series B
Preferred Stock in the form of additional Series B Shares, such payment in
Series B Shares shall be made PRO RATA to the holders of Series B Shares
based upon the aggregate accrued and accumulated but unpaid dividends on the
Series B Shares held by each such holder and the aggregate amount of
dividends to be paid in the form of Series B Shares.
(b) RANK; PRIORITY.
(i) Except as otherwise described below, with respect to dividend rights
and rights on liquidation, winding up and dissolution of the Corporation,
the Series B Senior Securities shall rank junior to the Series B Senior
Securities on a parity with the Series B Parity Securities and senior to the
Series B Junior Securities.
(ii) Unless otherwise waived in writing by the holders of a majority of
the outstanding shares of Series B-2 Preferred Stock, the holders of Series
B-2 Preferred Stock shall be entitled to receive a quarterly dividend
(ratably among such holders based upon the number of shares of Series B-2
Preferred Stock held by each such holder as of the time of such
distribution) equal to the aggregate accrued and accumulated but unpaid
dividends on such Series B-2 Shares (plus, all Accumulated Dividends) on
each Series B Dividend Payment Date (PROVIDED, that the aggregate amount of
such dividends together with cash dividends paid on the Series C-2 Preferred
Stock (other than in respect of the Series C-2 Annual Dividend) shall not
exceed the sum of the Series B-2 Liquidation Premium plus, all Accumulated
Dividends thereon), and no distribution or dividend on or redemption or
repurchase of any Series A Shares, Series B Parity Securities or Series B
Junior Securities (other than pursuant to paragraph (b)(ii) of Section 4) or
any portion thereof shall be made until such dividends are paid in full;
PROVIDED, HOWEVER, that no more than $4 million in the aggregate in the
first year following the date of issuance of the Series B Preferred Stock
(and $1 million in each subsequent year), may be paid to the holders of the
Series B-2 Preferred Stock (pursuant to this paragraph (b)(ii)) and the
holders of the Series C-2 Preferred stock (pursuant to paragraph (b)(ii) of
Section 4) prior to any distribution or dividend on or redemption or
repurchase of any Series A Shares.
(iii) So long as any Series B Shares remain outstanding, the Corporation
shall not (i) declare any dividends on any Series B Junior Securities, (ii)
repurchase or otherwise redeem any Series B Junior Securities, or (iii) set
aside or apply any funds for the purchase, redemption or other acquisition
by the Corporation for value of any shares of Series B Junior Securities
(either
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pursuant to any applicable sinking fund requirement or otherwise) unless (x)
in the case of clause (i) above, full Accumulated Dividends have been paid
or set apart for payment on the Series B Shares for all Dividend Periods
terminating on or prior to the date of payment of such dividends on Series B
Junior Securities and (y) in the case of clauses (ii) and (iii) above, all
of the then outstanding Series B Shares have been purchased, redeemed or
otherwise acquired by the Corporation or funds in an amount sufficient to
pay the aggregate redemption price of such Series B Shares have been set
apart for payment upon the purchase, redemption or acquisition of such
shares; PROVIDED, HOWEVER, that the foregoing will not: (i) prohibit the
Corporation from repurchasing shares of Series B Junior Securities, pursuant
to a written plan or agreement, from a holder who is, or was, an employee of
the Corporation; (ii) prohibit the Corporation from making dividends, other
distributions, redemptions, repurchases or acquisitions in respect of the
Series C-2 Annual Dividend (as defined in Section 4 of this Article Fourth)
or in respect of the Series C-2 Preferred Stock (other than in respect of
the Series C-2 Annual Dividend) in an amount such that such dividends
together with dividends paid in respect of the Series B-2 Preferred Stock do
not exceed the Series B-2 Liquidation Premium (plus, all Accumulated
Dividends thereon); or (iii) prohibit the Surviving Corporation from making
dividends, other distributions, redemptions, repurchases or acquisitions in
respect of Series B Junior Securities payable in Series B Junior Securities
or options, warrants or other rights to subscribe for or purchase shares of
Series A Junior Securities (and cash in lieu of any fractional shares of
such Series B Junior Securities), including any dividends declared in
connection with any stock splits, stock dividends, share combinations, share
exchanges, recapitalization or other transaction in which such dividends are
made in the form of Series B Junior Securities.
(iv) So long as any Series B Preferred Stock is outstanding, no
dividends shall be declared by the Board of Directors or paid or funds set
apart for the payment of dividends or other distributions on any Series B
Parity Securities for any period, and no Series B 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 B Junior Securities and cash
in lieu of fraction share of such Series B Junior Securities in connection
therewith), unless (i) full Accumulated Dividends have been paid or set
apart for such payment on the Series B Preferred Stock and Series B 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 B Parity Securities (the "Series B Parity Payment
Date") or (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 B
Preferred Stock and each other share of Series B 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 B Preferred Stock and such other outstanding shares of Series B
Parity Securities bear to each other as of such Series B Parity Payment
Date. In the event that Series B Parity Securities are issued in multiple
classes or series, dividends, distributions, redemptions, repurchases and
acquisitions made on any one class or series of Series B Parity Securities
pursuant to this paragraph (b)(iv) (other than any payments made to the
holders of the Series B-2 Preferred Stock for amounts for which the Series
B-2 Preferred Stock is entitled to a priority pursuant to paragraph (b)(ii))
must be made on a PARI PASSU basis with each other outstanding class or
series. In addition, if the Corporation in any manner subdivides or combines
the outstanding shares of any class or series of Series B Parity Securities,
the outstanding shares of each other class or series of Series B Parity
Securities shall be proportionately subdivided or combined.
(c) LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, the holders of the Series B Preferred Stock then outstanding will
be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount in cash per share equal to the Series
B Liquidation Value, plus (x) all Accumulated Dividends accrued and unpaid
thereon, including
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Additional Dividends, and (y) with respect to the Series B-2 Preferred Stock, an
amount equal to the Series B-2 Liquidation Premium (plus all Accumulated
Dividends accrued and unpaid thereon, including Additional Dividends), AFTER
distributions or payments are made in respect of any Series B Senior Securities
but BEFORE any distribution or payment is made in respect of any of the Series B
Junior Securities (EXCEPT, that distributions or payments in respect of the
Series B-2 Preferred Stock or the Series C-2 Preferred Stock for amounts accrued
and accumulated in respect of the Series B-2 Liquidation Premium and the Series
C-2 Annual Dividend (as defined in Section 4 of this Article Fourth),
respectively, shall be made on a PARI PASSU basis PRIOR to any distribution or
payment in respect of the Series A Preferred Stock or the Series B-1 Preferred
Stock; PROVIDED, HOWEVER, that such distributions or payments to the extent made
PRIOR to any distribution or payment made in respect of the Series A Preferred
Stock shall not exceed $4.0 million in the aggregate in the first year following
the date of issuance of the Series B Preferred Stock and $1.0 million in the
aggregate in each year thereafter). After payment in full in accordance with the
preceding sentence, the holders of Series B Preferred Stock will not be entitled
to any further payment. The Corporation will mail written notice of such
liquidation, dissolution or winding up, not less than 10 days prior to the
payment date stated therein, to each record holder of Series B Preferred Stock.
If upon any such liquidation, dissolution or winding up of the Corporation, the
Corporation's assets available to be distributed among the holders of the Series
B Shares and the holders of all Series B Parity Securities are insufficient to
permit payment to such holders of the aggregate amount which they are entitled
to be paid pursuant to this Section, then the entire assets to be distributed to
the holders of Series B Preferred Stock and the Series B Parity Securities shall
be distributed (x) first, ratably among the holders of the Series B-2 Preferred
Stock to the extent of the dividend preference set forth in paragraph (b)(ii) of
this Section 3, and (y) second, ratably among such holders based upon the
aggregate liquidation preference to which each is entitled (plus all Accumulated
Dividends, including Additional Dividends) with respect to the Series B Shares
held by each such holder. After payment in full in accordance with the preceding
sentence, the holders of Series B Shares 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 Corporation in respect of the Shares of Series
B Preferred Stock held thereby. Neither the consolidation, merger or other
business combination of the Corporation into or with one or more corporations,
nor the voluntary sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) by the Corporation of all or any part
of its property or assets, nor the reduction of the capital stock of the
Corporation, will be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of this Section 3 so long as the holders of
the Series B Junior Securities do not receive consideration in respect of such
securities with rights and preferences in respect of dividends, distributions,
liquidation or redemption senior to (i) the Series B Preferred Stock or (ii)
such other consideration as may be received by the holders of Series B Preferred
Stock in respect of such shares in connection with any such transaction.
(d) REDEMPTIONS.
(i) SCHEDULED REDEMPTIONS. Subject to the terms and conditions of the
Series B Senior Securities (including without limitation paragraph (b) of
Section 2 of this Article Fourth), the Corporation shall redeem from funds
legally available therefor all outstanding shares of the Series B Preferred
Stock on the date that is thirty days after the twentieth (20(th))
anniversary of the date of issuance of the Series B Preferred Stock, at the
per share redemption price set forth below. The Corporation shall not have
the right nor the power to, and the holders thereof shall not have the right
to require the Corporation to, redeem any shares of the Series B Preferred
Stock prior to the scheduled Redemption Date. Notwithstanding the foregoing,
the preceding sentence shall not prohibit the Corporation from acquiring
from any holder thereof, with such holder's consent, any shares of Series B
Preferred Stock held by such holder.
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(ii) REDEMPTION PRICE. For each Series B Share which is to be redeemed
the Corporation will be obligated on the Redemption Date to pay to the
holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such share) an amount in immediately
available funds equal to the equal to the Series B Liquidation Value, plus
(x) all Accumulated Dividends accrued and unpaid thereon, including
Additional Dividends, and (y) with respect to shares of Series B-2 Preferred
Stock, an amount equal to the Series B-2 Liquidation Premium (plus all
Accumulated Dividends accrued and unpaid thereon, including Additional
Dividends). If the Corporation's funds which are legally available for
redemption of Series B Shares on any Redemption Date are insufficient to
redeem the total number of Series B Shares to be redeemed on such date,
those funds which are legally available will be used to redeem the maximum
possible number of Series B Shares ratably among the holders of the Series B
Shares to be redeemed based upon the aggregate Series B Liquidation Value of
such shares (plus all Accumulated Dividends accrued and unpaid thereon
(including, with respect to shares of Series B-2 Preferred Stock, an amount
equal to the Series B-2 Liquidation Premium, plus, in each case, all
Additional Dividends) held by each such holder and the aggregate amount to
be paid, and other shares not so redeemed shall remain issued and
outstanding until redeemed in accordance with the terms thereof. At any time
thereafter when additional funds of the Corporation are legally available
for the redemption of Series B Shares, such funds will immediately be used
to redeem the balance of the Series B Shares which the Corporation has
become obligated to redeem on any Redemption Date but which it has not
redeemed.
(iii) NOTICE OF REDEMPTION. The Corporation will mail written notice (a
"REDEMPTION NOTICE") of the redemption of Series B Preferred Stock to each
record holder not more than 30 nor less than 10 days prior to the date on
which such redemption is to be made. Each holder of Series B Shares shall
surrender the certificate or certificates representing such shares of Series
B Preferred Stock being so redeemed to the Corporation, duly endorsed, in
the manner and at the place designated in the Redemption Notice, and on the
Redemption Date the full redemption price for such shares shall be payable
in cash to the Person whose name appears on such certificate or certificates
as the owner thereof, and each surrendered certificate shall be canceled and
retired. In the event that less than all of the shares represented by any
such certificate are redeemed, a new certificate shall be issued to the
holder thereof within three Business Days of redemption representing the
unredeemed shares.
(iv) DIVIDENDS AFTER REDEMPTION DATE. No Series B Share is entitled to
any dividends accruing after the date on which the Series B Liquidation
Value (plus all accrued and unpaid dividends thereon) of such Series B
Shares is paid in full. On such date all rights of the holder of such Series
B Shares will cease, and such Share will not be deemed to be outstanding.
(v) REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Series B Shares which are
redeemed or otherwise acquired by the Corporation will be canceled and will
not be reissued, sold or transferred.
(vi) OTHER REDEMPTIONS OR ACQUISITIONS. Subject to the terms and
conditions of the Series B Senior Securities, the Corporation shall not
redeem or otherwise acquire any Series B Preferred Stock, except as
expressly authorized herein or pursuant to a purchase offer made pro rata to
all holders of the Series B Preferred Stock on the basis of the number of
shares of such stock owned by each such holder.
(vii) DEPOSIT OF FUNDS. The Corporation's obligation to deliver funds in
accordance with this Section 3(d) shall be deemed fulfilled if, on or before
a Redemption Date, the Corporation shall deposit with the Exchange Agent
such funds as are required to be delivered by the Corporation pursuant to
this Section 3(d) upon the occurrence of the related redemption
consideration sufficient to pay all accrued and unpaid dividends on the
shares to be redeemed, in trust for the account of the holders of the shares
to be redeemed (and so as to be and continue to be available
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therefor), with irrevocable instructions and authority to such Exchange
Agent that such shares and funds be delivered upon redemption of the shares
of Series B Preferred Stock so called for redemption. Any interest accrued
on such funds shall be paid to the Corporation from time to time. Upon
surrender of the certificates pursuant to paragraph (d)(iii) above, each
surrendering holder of Series B Shares for redemption shall thereupon be
entitled to any funds payable pursuant to this Section 3(d) following such
surrender and following the date of such redemption.
(e) VOTING RIGHTS.
(i) The holders of Series B Preferred Stock shall not be entitled or
permitted to vote on any matter required or permitted to be voted upon by
the shareholders of the Corporation, except as otherwise required by
Delaware law or the Certificate of Incorporation except that, without the
written consent of the holders of a majority of the outstanding shares of
Series B Preferred Stock or the vote of the holders of a majority of the
outstanding shares of Series B Preferred Stock at a meeting of the holders
of Series B Preferred Stock called for such purpose, the Corporation shall
not (a) create, authorize or issue any other class or series of Capital
Stock entitled to a preference prior to a Series B Preferred Stock upon any
dividend or distribution or any liquidation, distribution of assets,
dissolution or winding up of the Corporation, or (b) amend, alter or repeal
any provision of the Corporation's Certificate of Incorporation so as to
materially adversely affect the relative rights and preferences of the
Series B Preferred Stock.
(ii) Without limiting the generality of the foregoing, in no event shall
the holders of Series B Preferred Stock be entitled to vote (individually or
as a class) on any merger or consolidation involving the Corporation, any
sale of all or substantially all of the assets of the Corporation or any
similar transaction.
(iii) In any case in which the holders of Series B Preferred Stock shall
be entitled to vote pursuant to this Section 3(e), each holder shall be
entitled to one vote for each share of Series B Preferred Stock held unless
otherwise required by applicable law.
(f) REISSUANCE OF SERIES B PREFERRED STOCK. Shares of Series B Preferred
Stock which have been issued and reacquired in any manner, including shares
purchased, redeemed or exchanged, shall have the status of authorized and
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock, all subject to the conditions and restrictions on issuance
set forth in any resolution or resolutions adopted by the Board of Directors
providing for the issuance of any series of Preferred Stock; except that the
Corporation may reissue shares of Series B Preferred Stock which are reacquired
by the Corporation from a holder who is, or was, an employee or director of the
Corporation (or its Affiliates) to another employee or director of the
Corporation or its subsidiaries.
(g) BUSINESS DAY. If any payment shall be required by the terms hereof to
be made on a day that is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.
(h) NO PREEMPTIVE RIGHTS. No holder of Series B Preferred Stock will
possess any preemptive rights to subscribe for or acquire any unissued shares of
Capital Stock of the Corporation (whether now or hereafter authorized) or
securities of the Corporation convertible into or carrying a right to subscribe
to or acquire shares of Capital Stock of the Corporation.
(i) PROHIBITIONS AND RESTRICTIONS IMPOSED BY SENIOR SECURITIES AND
INDEBTEDNESS. To the extent that any action required to be taken by the
Corporation under this Section 3 shall be prohibited or restricted by the terms
of any Series B Senior Securities or any contract or instrument to which the
Corporation is a party or by which it is bound in respect of the incurrence of
indebtedness, the Corporation's actions shall be delayed until such time as such
prohibition or restriction is no longer in force.
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(j) DEFINITIONS. The following definitions apply to this Section 3 only.
"ACCUMULATED DIVIDENDS" means (i) with respect to any share of Series B
Preferred Stock, the dividends that have accrued on such share as of such
specific date for Dividend Periods ending on or prior to such date (whether
or not earned or declared) and that have not previously been paid in cash,
and (ii) with respect to any Series B Parity Security, the dividends that
have accrued and are due on such security as of such specific date (whether
or not earned or declared).
"AFFILIATE" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise).
"BUSINESS DAY" means any day, excluding Saturday, Sunday, and any day
which shall be in the City of New York a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close.
"DIVIDEND PERIOD" means the Initial Dividend Period and, thereafter,
such quarterly period between subsequent consecutive Series B Dividend
Payment Dates.
"INITIAL DIVIDEND PERIOD" means the dividend period commencing on the
Issue Date and ending on the first Series B Dividend Payment Date to occur
thereafter.
"PERSON" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an incorporated or unincorporated organization and a
governmental entity or any department, agency or political subdivision
thereof.
"REDEMPTION DATE" as to any Series B Share means the date specified in
any Redemption Notice; PROVIDED, that no such date will be a Redemption Date
unless the applicable Series B Liquidation Value PLUS, in the case of Series
B-2 Preferred Stock, the Series B-2 Liquidation Premium (plus, in each case,
all Accumulated Dividends accrued and unpaid thereon) is actually paid, or
set aside for payment in full on such date, and if not so paid or set aside
for payment in full, the Redemption Date will be the date on which such
amount is fully paid.
"SERIES B JUNIOR SECURITIES" means, collectively, the Common Stock,
Series C Preferred Stock and each other class or series of Capital Stock of
the Corporation issued after the date hereof of the terms of which
specifically provide that such class or series shall rank junior to the
Series B Preferred Stock as to dividend distributions or distributions upon
the liquidation, winding up or dissolution of the Corporation, provided that
the Series C-2 Preferred Stock shall not be junior to the Series B Preferred
Stock to the extent of the Series C-2 Annual Dividend and shall not be
junior to the Series B Preferred Stock in an amount such that such dividends
together with dividends paid in respect of the Series B-2 Preferred Stock
(in preference to the Series B-1 Preferred Stock) do not exceed the Series
B-2 Liquidation Premium (plus, all Accumulated Dividends thereon).
"SERIES B LIQUIDATION VALUE" of any Series B Share will be an amount
equal to $1.00 per share.
"SERIES B PARITY SECURITIES" means each other class of Capital Stock or
class or series of preferred stock issued by the Corporation after the date
hereof the terms of which do not specifically provide that they rank junior
to Series B Preferred Stock or senior to Series B Preferred Stock as to
dividend distributions or distributions upon liquidation, winding up or
dissolution of the Corporation.
"SERIES B SENIOR SECURITIES" means the Series A Preferred Stock and each
other class of capital stock or other class or series of Preferred Stock
issued by the Corporation that by its terms is
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senior to the Series B Preferred Stock with respect to dividend
distributions or distributions upon the liquidation, winding up or
dissolution of the Corporation.
"SERIES B-2 LIQUIDATION PREMIUM" with respect to the Series B-2
Preferred Stock means an amount, in the aggregate, equal to $3,400,000.
(k) NOTICES. Except as otherwise expressly provided, all notices referred
to herein will be in writing and will be delivered by registered or certified
mail, return receipt requested, postage prepaid and will be deemed to have been
given when so mailed (i) to the Corporation, at its principal executive offices
and (ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
SECTION 4. SERIES C PREFERRED STOCK
Except as otherwise provided in this Section 4 or as otherwise required by
applicable law, all shares of Series C Preferred Stock (each such share, a
"SERIES C SHARE") shall be identical in all respects and shall entitle the
holders thereof to the same rights and privileges, subject to the same
qualifications, limitations and restrictions.
(a) DIVIDENDS.
(i) GENERAL OBLIGATION. Each holder of Series C Preferred Stock shall be
entitled to receive, when, as and if declared by the Board cash dividends on
each Series C Share at a rate equal to $.13 per share PER ANNUM. Such
dividends on the Series C 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 C Preferred Stock, and will be payable quarterly in
arrears on each Series C Dividend Payment Date if so declared by the Board.
In addition, the holders of Series C-2 Preferred Stock will be entitled to
receive, when, as and if declared by the Board, an annual cash dividend
(ratably among such holders based upon the number of shares of Series C-2
Preferred Stock held by each such holder as of the time of such
distribution) in an aggregate amount equal to the Series C-2 Annual
Dividend. Dividends shall cease to accrue in respect of shares of Series C
Preferred Stock on the date of their repurchase or redemption by the
Corporation unless the Corporation shall have failed to pay the relevant
repurchase or redemption price on the date fixed for repurchase or
redemption. Notwithstanding anything to the contrary set forth above, unless
and until such dividends are declared by the Board of Directors, there shall
be no obligation to pay such dividends whether or not there are profits,
surplus or other funds of the Corporation legally available for the payment
of dividends; PROVIDED, that such dividends shall be required to be paid at
the time of the repurchase or redemption of the Series C Shares as provided
herein if not earlier declared and paid. Accrued dividends (including the
Series C-2 Annual Dividend) on the Series C Preferred Stock if not paid on
the first or any subsequent Series C Dividend Payment Date following accrual
shall thereafter accrue additional dividends ("ADDITIONAL DIVIDENDS") in
respect thereof, compounded quarterly, at the rate of 13.0% per annum. The
date on which the Corporation initially issues any Series C Share will be
deemed to be its "date of issuance" regardless of the number of times
transfer of such Series C Share is made on the stock records maintained by
or for the Corporation and regardless of the number of certificates which
may be issued to evidence such Series C Share.
(ii) All dividends paid with respect to shares of Series C Preferred
Stock pursuant to Section 2(a)(i) shall be paid PRO RATA to the holders of
Series C Shares entitled thereto.
(iii) DIVIDEND REFERENCE DATES. To the extent that all accrued and
accumulated dividends are not paid on each March 31, June 30, September 30
and December 31 of each year (the "SERIES C DIVIDEND REFERENCE DATES"),
commencing on the second Series C Dividend Reference Date following the
issuance of the Series C Shares, all dividends which have accrued and
accumulated on each such share outstanding during the period ending upon
each such date (including dividends
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on the Series C-2 Preferred Stock in respect of the Series C-2 Annual
Dividend) will be accumulated as described above as Additional Dividends.
(iv) Dividends on account of arrears for any past Dividend Period and
dividends in connection with any mandatory redemption pursuant to Section
4(d) may be declared and paid at any time, without reference to any regular
Series C Dividend Reference Date, to the holders of record of the Series C
Shares on any date as may be fixed by the Board of Directors, which date is
not more than 10 days prior to the payment of such dividends.
(v) DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. If at any time the
Corporation elects to pay dividends in cash and pays less than the total
amount of dividends then accrued with respect to the Series C Preferred
Stock, such payment will be distributed (x) first, ratably among the holders
of the Series C-2 Preferred Stock until an amount which, together with cash
dividends theretofore paid on the Series B-2 Preferred Stock, is equal to
the Series B-2 Liquidation Premium (plus, all Accumulated Dividends thereon)
shall have been paid, (y) second, ratably among the holders of the Series
C-2 Preferred Stock as payment of amounts accrued with respect to the Series
C-2 Annual Dividend, and (z) third, ratably among the holders of the Series
C Preferred Stock based upon the aggregate accrued and accumulated but
unpaid dividends on the Series C Shares held by each such holder and the
aggregate amount of dividends to be paid thereby, and any amounts of such
dividends remaining thereafter shall, until paid to the holder thereof,
remain Additional Dividends with respect to such Series C Share.
(vi) PAYMENT OF STOCK DIVIDENDS. In the sole discretion of the
Corporation, any dividends accruing on the Series C Shares may be paid, in
lieu of cash dividends, by the issuance of additional Series C Shares
(including fractional Series C Shares) having an aggregate Series C
Liquidation Value at the time of such payment equal to the amount of the
dividend to be paid; PROVIDED, that if the Corporation pays less than the
total amount of dividends then accrued and accumulated on the Series C
Preferred Stock in the form of additional Series C Shares, such payment in
Series C Shares shall be made PRO RATA to the holders of Series C Shares
based upon the aggregate accrued and accumulated but unpaid dividends on the
Series C Shares held by each such holder.
(b) RANK; PRIORITY.
(i) Except as otherwise described below, with respect to dividend rights
and rights on liquidation, winding up and dissolution of the Corporation,
the Series C Preferred Stock shall rank junior to the Series C Senior
Securities, on a parity with the Series C Parity Securities and senior to
the Series C Junior Securities.
(ii) Unless otherwise waived in writing by the holders of a majority of
the outstanding shares of Series C-2 Preferred Stock, the holders of Series
C-2 Preferred Stock shall be entitled to receive a quarterly dividend
(ratably among such holders based upon the number of shares of Series C-2
Preferred Stock held by each such holder as of the time of such
distribution) (x) until such time as the sum of all such dividends, together
with cash dividends paid on the Series B-2 Preferred Stock, equals the
Series B-2 Liquidation Premium (plus, all Accumulated Dividends thereon) and
(y) for amounts which have accrued and accumulated in respect of the Series
C-2 Annual Dividend (plus, all Accumulated Dividends thereon) on each Series
C Dividend Payment Date occurring in any calendar year, and no distribution
or dividend on or redemption or repurchase of any Series A Shares, Series B
Shares occurring in any calendar year, Series C Parity Securities or Series
C Junior Securities or any portion thereof shall be made until the aggregate
amount of Accumulated Dividends in respect of the Series C-2 Annual Dividend
and the aggregate other Accumulated Dividends in respect of the Series C-2
Preferred Stock in an amount that, together with cash dividends paid on the
Series B-2 Preferred Stock, equals the Series B-2 Liquidation Premium (plus,
all Accumulated Dividends thereon), for all Dividend Periods terminating on
or prior to the date of payment of such dividend distribution, repurchase or
redemption has been paid in full to
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the holders of the outstanding shares of Series C-2 Preferred Stock;
PROVIDED, HOWEVER, that no more than $4 million in the aggregate in the
first year following the date of issuance of the Series C Preferred Stock
(and $1 million in each subsequent year), may be paid to the holders of the
Series C-2 Preferred Stock (pursuant to this paragraph (b)(ii)) and the
holders of the Series B-2 Preferred Stock (pursuant to paragraph (b)(ii) of
Section 3) prior to any distribution or dividend on or redemption or
repurchase of any Series A Shares.
(iii) So long as any Series C Shares remain outstanding, the Corporation
shall not (i) declare any dividends on any Series C Junior Securities, (ii)
repurchase or otherwise redeem any Series C Junior Securities, or (iii) set
aside or apply any funds for the purchase, redemption or other acquisition
by the Corporation for value of any shares of Series C Junior Securities
(either pursuant to any applicable sinking fund requirement or otherwise)
unless (x) in the case of clause (i) above, full Accumulated Dividends have
been paid or set apart for payment on the Series C Senior Securities for all
Dividend Periods terminating on or prior to the date of payment of such
dividends on such Series C Junior Securities and (y) in the case of clauses
(ii) and (iii) above, all of the then outstanding shares of Series C Senior
Securities have been purchased, redeemed or otherwise acquired by the
Corporation or funds in an amount sufficient to pay the aggregate redemption
price of such Series C Senior Securities have been set apart for payment
upon the purchase, redemption or acquisition of such shares; PROVIDED,
HOWEVER, that the foregoing will not: (i) prohibit the Corporation from
repurchasing shares of Series C Junior Securities, pursuant to a written
plan or agreement, from a holder who is, or was, an employee of the
Corporation; or (ii) prohibit the Surviving Corporation from making
dividends, other distributions, redemptions, repurchases or acquisitions in
respect of Series C Junior Securities payable in Series C Junior Securities
or options, warrants or other rights to subscribe for or purchase shares of
Series C Junior Securities (and cash in lieu of any fractional shares of
such Series C Junior Securities), including any dividends declared in
connection with any stock splits, stock dividends, share combinations, share
exchanges, recapitalization or other transaction in which such dividends are
made in the form of Series C Junior Securities.
(iv) So long as any Series C Preferred Stock is outstanding, no
dividends shall be declared by the Board of Directors or paid or funds set
apart for the payment of dividends or other distributions on any Series C
Parity Securities for any period, and no Series C 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 C Junior Securities and cash
in lieu of fraction share of such Series C Junior Securities in connection
therewith), unless (i) full Accumulated Dividends have been paid or set
apart for such payment on the Series C Preferred Stock and Series C 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 C Parity Securities (the "SERIES C PARITY PAYMENT
DATE") or (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 C
Preferred Stock and each other share of Series C 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 C Preferred Stock and such other outstanding shares of Series C
Parity Securities bear to each other as of such Series C Parity Payment
Date. In the event that Series C Parity Securities are issued in multiple
classes or series, dividends, distributions, redemptions and acquisitions
made on any one class or series of Series C Parity Securities pursuant to
this paragraph (b)(iv) (other than the payments to the holders of the Series
C-2 Preferred Stock for amounts accrued in respect of the Series C-2 Annual
Dividend and for which the Series C-2 Preferred Stock is otherwise entitled
to a priority pursuant to paragraph (b)(ii) of this Section 4) must be made
on a PARI PASSU basis with each other outstanding class or series. In
addition, if the Corporation in any manner subdivides or combines the
outstanding shares of any class or series of Series C Parity Securities, the
outstanding shares of each other class or series of Series C Parity
Securities shall be proportionately subdivided or combined.
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(c) LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, the holders of the Series C Preferred Stock then outstanding will
be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount in cash per share equal to the Series
C Liquidation Value (plus all Accumulated Dividends accrued and unpaid thereon
(including with respect to the Series C-2 Preferred Stock, amounts accrued and
accumulated in respect of the Series C-2 Annual Dividend plus all Accumulated
Dividends therein, including Additional Dividends), AFTER distributions or
payments are made in respect of the Series C Senior Securities but BEFORE any
distribution or payment is made in respect of any of the Series C Junior
Securities (EXCEPT, that distributions or payments made in respect of the Series
C-2 Preferred Stock for amounts accrued and accumulated in respect of the Series
C-2 Annual Dividend shall be made on a PARI PASSU basis with distributions or
payments made in respect of the Series B-2 Preferred Stock for amounts accrued
and accumulated in respect of the Series B-2 Liquidation Premium (as defined in
Section 3 of this Article Fourth) PRIOR to any distribution or payment in
respect of the Series A Preferred Stock, the Series B-1 Preferred Stock or the
Series C-1 Preferred Stock; PROVIDED, that such distributions or payments to the
extent made PRIOR to any distribution or payment made in respect of the Series A
Preferred Stock shall not exceed, together with any distributions or payment
made on the Series B-2 Preferred Stock prior to the Series A Preferred Stock or
the Series B-1 Preferred Stock, $4.0 million in the aggregate in the first year
following the date of issuance of the Preferred Stock and $1.0 million in the
aggregate in each year thereafter). After payment in full in accordance with the
preceding sentence, the holders of Series C Preferred Stock will not be entitled
to any further payment. The Corporation will mail written notice of such
liquidation, dissolution or winding up, not less than 10 days prior to the
payment date stated therein, to each record holder of Series C Preferred Stock.
If upon any such liquidation, dissolution or winding up of the Corporation, the
Corporation's assets available to be distributed among the holders of the Series
C Shares and the holders of all Series C Parity Securities are insufficient to
permit payment to such holders of the aggregate amount which they are entitled
to be paid pursuant to this Section, then the entire assets to be distributed to
the holders of Series C Preferred Stock and the Series C Parity Securities shall
be distributed (x) first, ratably among the holders of the Series C-2 Preferred
Stock to the extent of the dividend preference set forth in paragraph (b)(ii) of
this Section 4, and (y) second, ratably among such holders based upon the
aggregate liquidation preference to which each is entitled (plus all Accumulated
Dividends, including Additional Dividends) with respect to the Series C Shares
or Series C Parity Securities held by each such holder. After payment in full in
accordance with the preceding sentence, the holders of Series C Shares 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 Corporation in
respect of the shares of Series C Preferred Stock held thereby. Neither the
consolidation, merger or other business combination of the Corporation into or
with one or more corporations, nor the voluntary sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or other consideration) by the
Corporation of all or any part of its property or assets, nor the reduction of
the capital stock of the Corporation, will be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
4 so long as the holders of the Series C Junior Securities do not receive
consideration in respect of such securities with rights and preferences in
respect of dividends, distributions, liquidation or redemption senior to (i) the
Series C Preferred Stock or (ii) such other consideration as may be received by
the holders of Series C Preferred Stock in respect of such shares in connection
with any such transaction.
(d) REDEMPTIONS.
(i) SCHEDULED REDEMPTIONS. Subject to the terms and conditions of the
Series C Senior Securities (including without limitation paragraph (b) of
Section 2 of this Article Fourth) the Corporation shall redeem from funds
legally available therefor all outstanding shares of the Series C Preferred
Stock on the date that is thirty days after the twentieth (20th) anniversary
of the date of issuance of the Series C Preferred Stock, at the per share
redemption price set forth below. The Corporation shall not have the right
nor the power to, and the holders thereof shall
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not have the right to require the Corporation to, redeem any shares of
Series C Preferred Stock prior to the scheduled Redemption Date.
Notwithstanding the foregoing, the preceding sentence shall not prohibit the
Corporation from acquiring from any holder thereof, with such holder's
consent, any shares of Series C Preferred Stock held by such holder.
(ii) REDEMPTION PRICE. For each Series C Share which is to be redeemed
the Corporation will be obligated on the Redemption Date to pay to the
holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such share) an amount in immediately
available funds equal to the Series C Liquidation Value, plus all
Accumulated Dividends accrued and unpaid thereon (including, with respect to
the Series C-2 Preferred Stock, amounts accrued and unpaid in respect of the
Series C-2 Annual Dividend, plus, in each case Additional Dividends), for
all Dividend Periods prior to the Redemption Date,. If the Corporation's
funds which are legally available for redemption of Series C Shares on any
Redemption Date are insufficient to redeem the total number of Series C
Shares to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of Series C Shares
ratably among the holders of the Series C Shares to be redeemed based upon
the aggregate Series C Liquidation Value of such shares (plus all
Accumulated Dividends accrued and unpaid thereon (including, with respect to
shares of Series C-2 Preferred Stock, amounts accrued and unpaid in respect
of the Series C-2 Annual Dividend, plus, in each case, all Additional
Dividends)) held by each such holder and other shares not so redeemed shall
remain issued and outstanding until redeemed in accordance with the terms
thereof. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of Series C Shares, such funds will
immediately be used to redeem the balance of the Series C Shares which the
Corporation has become obligated to redeem on any Redemption Date but which
it has not redeemed.
(iii) NOTICE OF REDEMPTION. The Corporation will mail written notice of
each redemption of Series C Preferred Stock to each record holder not more
than 30 nor less than 10 days prior to the date on which such redemption is
to be made. Each holder of Series C Shares shall surrender the certificate
or certificates representing such shares of Series C Preferred Stock being
so redeemed to the Corporation, duly endorsed, in the manner and at the
place designated in the Redemption Notice, and on the Redemption Date the
full redemption price for such shares shall be payable in cash to the Person
whose name appears on such certificate or certificates as the owner thereof,
and each surrendered certificate shall be canceled and retired. In the event
that less than all of the shares represented by any such certificate are
redeemed, a new certificate shall be issued to the holder thereof within
three Business Days after redemption representing the unredeemed shares.
(iv) DIVIDENDS AFTER REDEMPTION DATE. No Series C Share is entitled to
any dividends accruing after the date on which the Series C Liquidation
Value (plus all accrued and unpaid dividends thereon) of such Series C
Shares is paid in full. On such date all rights of the holder of such Series
C Shares will cease, and such Share will not be deemed to be outstanding.
(v) REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Series C Shares which are
redeemed or otherwise acquired by the Corporation will be canceled and will
not be reissued, sold or transferred.
(vi) OTHER REDEMPTIONS OR ACQUISITIONS. Subject to the terms and
conditions of the Series C Senior Securities, the Corporation shall not
redeem or otherwise acquire any Series C Preferred Stock, except as
expressly authorized herein or pursuant to a purchase offer made pro rata to
all holders of the Series C Preferred Stock on the basis of the number of
shares of such stock owned by each such holder.
(vii) DEPOSIT OF FUNDS. The Corporation's obligation to deliver funds in
accordance with this Section 4(d) shall be deemed fulfilled if, on or before
a Redemption Date, the Corporation shall
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deposit with the Exchange Agent such funds as are required to be delivered
by the Corporation pursuant to this Section 4(d) upon the occurrence of the
related redemption consideration sufficient to pay all accrued and unpaid
dividends on the shares to be redeemed, in trust for the account of the
holders of the shares to be redeemed (and so as to be and continue to be
available therefor), with irrevocable instructions and authority to such
Exchange Agent that such shares and funds be delivered upon redemption of
the shares of Series C Preferred Stock so called for redemption. Any
interest accrued on such funds shall be paid to the Corporation from time to
time. Upon surrender of the certificates pursuant to paragraph (d)(iii)
above, each surrendering holder of Series C Shares for redemption shall
thereupon be entitled to any funds payable pursuant to this Section 4(d)
following such surrender and following the date of such redemption.
(e) VOTING RIGHTS.
(i) The holders of Series C Preferred Stock shall not be entitled or
permitted to vote on any matter required or permitted to be voted upon by
the shareholders of the Corporation, except as otherwise required by
Delaware law or the Certificate of Incorporation except that, without the
written consent of the holders of a majority of the outstanding shares of
Series C Preferred Stock or the vote of the holders of a majority of the
outstanding shares of Series C Preferred Stock at a meeting of the holders
of Series C Preferred Stock called for such purpose, the Corporation shall
not (a) create, authorize or issue any other class or series of Capital
Stock entitled to a preference prior to a Series C Preferred Stock upon any
dividend or distribution or any liquidation, distribution of assets,
dissolution or winding up of the Corporation, or (b) amend, alter or repeal
any provision of the Corporation's Certificate of Incorporation so as to
materially adversely affect the relative rights and preferences of the
Series C Preferred Stock.
(ii) Without limiting the generality of the foregoing, in no event shall
the holders of Series C Preferred Stock be entitled to vote (individually or
as a class) on any merger or consolidation involving the Corporation, any
sale of all or substantially all of the assets of the Corporation or any
similar transaction.
(iii) In any case in which the holders of Series C Preferred Stock shall
be entitled to vote pursuant to this Section 4(e), each holder shall be
entitled to one vote for each share of Series C Preferred Stock held unless
otherwise required by applicable law.
(f) REISSUANCE OF SERIES C PREFERRED STOCK. Shares of Series C Preferred
Stock which have been issued and reacquired in any manner, including shares
purchased, redeemed or exchanged, shall have the status of authorized and
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock, all subject to the conditions and restrictions on issuance
set forth in any resolution or resolutions adopted by the Board of Directors
providing for the issuance of any series of Preferred Stock; except that the
Corporation may reissue shares of Series C Preferred Stock which are reacquired
by the Corporation from a holder who is, or was, an employee or director of the
Corporation (or its Affiliates) to another employee or director of the
Corporation or its subsidiaries.
(g) BUSINESS DAY. If any payment shall be required by the terms hereof to
be made on a day that is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.
(h) NO PREEMPTIVE RIGHTS. No holder of Series C Preferred Stock will
possess any preemptive rights to subscribe for or acquire any unissued shares of
Capital Stock of the Corporation (whether now or hereafter authorized) or
securities of the Corporation convertible into or carrying a right to subscribe
to or acquire shares of Capital Stock of the Corporation.
(i) PROHIBITIONS AND RESTRICTIONS IMPOSED BY SENIOR SECURITIES AND
INDEBTEDNESS. To the extent that any action required to be taken by the
Corporation under this Section 2 shall be prohibited or restricted by the terms
of any Series C Senior Securities or any contract or instrument to which the
Corporation is a party or by which it is bound in respect of the incurrence of
indebtedness, the
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Corporation's actions shall be delayed until such time as such prohibition or
restriction is no longer in force.
(j) DEFINITIONS. The following definitions apply to this Section 4 only.
"ACCUMULATED DIVIDENDS" means (i) with respect to any share of Series C
Preferred Stock, the dividends that have accrued on such share as of such
specific date for Dividend Periods ending on or prior to such date (whether
or not earned or declared) and that have not previously been paid in cash,
and (ii) with respect to any Series C Parity Security, the dividends that
have accrued and are due on such security as of such specific date (whether
or not earned or declared).
"AFFILIATE" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise).
"BUSINESS DAY" means any day, excluding Saturday, Sunday, and any day
which shall be in the City of New York a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close.
"DIVIDEND PERIOD" means the Initial Dividend Period and, thereafter,
such quarterly period between subsequent consecutive Series C Dividend
Payment Dates.
"INITIAL DIVIDEND PERIOD" means the dividend period commencing on the
Issue Date and ending on the first Series C Dividend Payment Date to occur
thereafter.
"PERSON" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an incorporated or unincorporated organization and a
governmental entity or any department, agency or political subdivision
thereof.
"REDEMPTION DATE" as to any Series C Share means the date that specified
in any Redemption Notice; PROVIDED, that no such date will be a Redemption
Date unless the applicable Series C Liquidation Value (plus all Accumulated
Dividends accrued and unpaid thereon (including, with respect to the Series
C-2 Preferred Stock, amounts accrued and unpaid in respect of the Series C-2
Annual Dividend, and, in each case, all Additional Dividends) is actually
paid, or set aside for payment in full on such date, and if not so paid or
set aside for payment in full, the Redemption Date will be the date on which
such amount is fully paid.
"SERIES C JUNIOR SECURITIES" means, collectively, the Common Stock and
each other class or series of Capital Stock of the Corporation the terms of
which provide that such class or series will rank junior to the Series C
Preferred Stock as to dividend distributions or distributions upon the
liquidation, winding up or dissolution of the Corporation.
"SERIES C LIQUIDATION VALUE" of any Series C Share will be an amount
equal to $1.00 per share.
"SERIES C PARITY SECURITIES" means each other class of Capital Stock or
class or series of preferred stock issued by the Corporation after the date
hereof the terms of which do not specifically provide that they rank junior
to Series C Preferred Stock or senior to Series C Preferred Stock as to
dividend distributions or distributions upon liquidation, winding up or
dissolution of the Corporation.
"SERIES C SENIOR SECURITIES" means the Series A Preferred Stock, the
Series B Preferred Stock and each other class of capital stock or other
class or series of Preferred Stock issued by the Corporation that by its
terms is senior to the Series C Preferred Stock with respect to dividend
distributions or distributions upon the liquidation, winding up or
dissolution of the Corporation.
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"SERIES C-2 ANNUAL DIVIDEND" with respect to the Series C-2 Preferred
Stock means an amount, in the aggregate, equal to the greater of (x)
$500,000 and (y) .75% of the Corporations earnings before interest, tax
depreciation (other than rental depreciation) and amortization for the year
with respect to which such dividend will be paid.
(k) NOTICES. Except as otherwise expressly provided, all notices referred
to herein will be in writing and will be delivered by registered or certified
mail, return receipt requested, postage prepaid and will be deemed to have been
given when so mailed (i) to the Corporation, at its principal executive offices
and (ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
SECTION 5. COMMON STOCK
Except as otherwise provided in this Section 5 or as otherwise required by
applicable law, all shares of Common Stock shall be identical in all respects
and shall entitle the holders thereof to the same rights and privileges, subject
to the same qualifications, limitations and restrictions.
(a) 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.
(b) 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.
(c) LIQUIDATION. Subject to the provisions of the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock, the
holders of the Common Stock shall be entitled to participate ratably on a per
share basis in all distributions to the holders of Common Stock in any
liquidation, dissolution or winding up of the Corporation.
(d) CONVERSION OF COMMON STOCK.
(i) RIGHT TO CONVERT. 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 convert any or all of the shares of
such 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
determines in its sole discretion that it 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 Corporation.
(ii) SURRENDER OF CERTIFICATES. 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
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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.
(iii) ISSUANCE OF CERTIFICATES. 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.
(iv) 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.
(e) 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.
(f) SUBDIVISION AND COMBINATION 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.
(g) REGISTRATION OF TRANSFER. The Corporation shall keep at its principal
office (or such other place as the Corporation reasonably designates) a register
for the registration of shares of Common Stock. Upon the surrender of any
certificate representing shares of any class of Common Stock at such place, the
Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares of such class represented by the surrendered certificate and the
Corporation shall forthwith cancel such surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
shares of such class as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance.
(h) REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the
Corporation (provided that an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing one or more shares of any class of Common Stock, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is a
financial institution or other
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institutional investor its own agreement will be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
(i) NOTICES. All notices referred to herein shall be in writing, and shall
be delivered by registered or certified mail, return receipt requested, postage
prepaid, and shall be deemed to have been given when so mailed (i) to the
Corporation at its principal executive offices and (ii) to any stockholder at
such holder's address as it appears in the stock records of the Corporation
(unless otherwise specified in a written notice to the Corporation by such
holder).
(j) ACTION BY WRITTEN CONSENT. Any action required to be taken at any
annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken and bearing the dates
of signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than a majority of
the shares entitled to vote, or, if greater, not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
(k) AMENDMENT AND WAIVER. No amendment or waiver of any provision of this
Section 5 shall be effective without the prior consent of the holders of a
majority of the then outstanding shares of Common Stock voting as a single
class. For purposes of votes on amendments and waivers to this Section 5, each
share of Common Stock shall be entitled to one vote. No amendment directly to
any terms or provisions of any class of Common Stock that adversely affects such
class of Common Stock vis-a-vis any other class of Common Stock shall be
effective without the prior consent of the holders of a majority of the then
outstanding shares of such class of Common Stock (it being understood that the
issuance of preferred stock shall not be deemed to adversely affect the Common
Stock).
ARTICLE FIFTH
The name and mailing address of the incorporator are Luann M. Taiariol, 4000
Bell Atlantic Tower, 1717 Arch Street, Philadelphia, Pennsylvania 19103-2793.
ARTICLE SIXTH
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.
ARTICLE SEVENTH
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.
ARTICLE EIGHTH
The Board of Directors may fill any vacancy on the Board at any time after
the commencement of such vacancy.
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ARTICLE NINTH
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.
ARTICLE TENTH
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.
ARTICLE ELEVENTH
The Company shall not be governed by the provisions of Section 203 of the
General Corporation Law of Delaware.
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BRUCKMANN, ROSSER, SHERRILL & CO. II, L.P.
126 EAST 56TH STREET, 29TH FLOOR
NEW YORK, NEW YORK 10022
August 12, 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 $42.5 million 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
Amended and Restated 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 dated as of
August 12, 1999 (as the same may be further 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 (including receipt of debt financing), 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;
(c) 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;
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(d) Citicorp Venture Capital, Ltd. ("CVC") shall have placed in trust
with one or more representatives of BRS, such number of shares of voting
common stock of CORT as will permit BRS, together with CVC and the
members of CORT's management as BRS shall approve (assuming acceleration
and exercise of all outstanding options by such members), to approve the
adoption of the Merger Agreement at a meeting of CORT's shareholders,
absent any special consent as may otherwise be required.
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) November 30, 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).
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
the 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. II, 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. II, L.P.
126 East 56th Street, 29th Floor
New York, New York 10022
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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.
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.
* * * * *
Very truly yours,
BRUCKMANN, ROSSER, SHERRILL & CO. II,
L.P.
By: BRSE, L.L.C.
Its: General Partner
<TABLE>
<S> <C> <C>
By: -----------------------------------------
Name:
Title:
</TABLE>
<TABLE>
<S> <C>
Agreed and Accepted:
CBF MERGERCO INC.
By:
-------------------------
Name:
Title:
</TABLE>
A-64
<PAGE>
CITICORP VENTURE CAPITAL, LTD.
399 PARK AVENUE
NEW YORK, NEW YORK 10022
August 12, 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 $42.5 million 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 Amended and Restated 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 dated as of August
12, 1999, as the same may be further 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 (including receipt of debt financing), 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,
CVC 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) November 30, 1999, and (ii) the termination of the Merger Agreement
pursuant to the terms and conditions thereof.
A-65
<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. II, 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)
A-66
<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.
* * * * *
Very truly yours,
<TABLE>
<S> <C> <C>
CITICORP VENTURE CAPITAL, LTD.
By:
-----------------------------------------
Name:
Title:
</TABLE>
Agreed and Accepted:
<TABLE>
<S> <C>
CBF MERGERCO INC.
----------------------------------------
Name:
Title:
By:
</TABLE>
A-67
<PAGE>
EXHIBIT C
July 6, 1999
Mr. Walker Simmons
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 $473 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 (as described in the attached Term Sheet, the "CREDIT
FACILITIES") 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 $100 million prior to or concurrently with the Acquisition.
In connection with the foregoing, each of the following financial
institutions is pleased to offer to be an agent in the capacity indicated (each,
in such capacity, an "AGENT" and, collectively, the "AGENTS") for the Credit
Facilities, and to offer its respective commitment to provide a portion of the
Credit Facilities in the amount indicated, in each case upon and subject to the
terms and conditions of this letter (the "COMMITMENT LETTER") and the Summary of
Terms and Conditions attached hereto as Annex I (the "TERM SHEET"):
<TABLE>
<CAPTION>
FINANCIAL INSTITUTION AGENT CAPACITY COMMITMENT
- ------------------------------ -------------------------- --------------
<S> <C> <C>
Bank of America, N.A. Administrative Agent $ 146,250,000
Bankers Trust Company Syndication Agent $ 50,625,000
Credit Suisse First Boston Documentation Agent $ 28,125,000
</TABLE>
The commitments of the respective financial institutions set forth above are
several (and not joint) obligations of such entities. All capitalized terms used
and not otherwise defined herein shall have the meanings set forth in the Term
Sheet.
A-68
<PAGE>
Mr. Walker Simmons
July 6, 1999
Page 2
Each of the following financial institutions is pleased to advise you of its
willingness, as an arranger for the Senior Credit Facilities in the capacity
indicated (each, in such capacity, an "ARRANGER" and, collectively, the
"ARRANGERS"), to seek to form a syndicate of financial institutions (the
"LENDERS") reasonably acceptable to you and the Arrangers for the Senior Credit
Facilities:
<TABLE>
<CAPTION>
FINANCIAL INSTITUTION ARRANGER CAPACITY
- ------------------------------------ ----------------------
<S> <C>
Bank of America Securities LLC Sole Lead Arranger and
Sole Book Manager
Credit Suisse First Boston Co-Arranger
Deutsche Bank Securities, Inc. Co-Arranger
</TABLE>
No additional agents, co-agents or arrangers will be appointed and no other
titles will be awarded without the prior written approval of the Arrangers.
The commitments of the Agents and the Arrangers hereunder are subject to the
satisfaction of each of the following conditions precedent in a manner
acceptable to the Agents and the Arrangers 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, the Agents and the Arrangers (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 the Agents and the Arrangers in their sole discretion.
Furthermore, the commitments of the Agents and the Arrangers hereunder are
based upon the financial and other information regarding the Borrower, the
Acquired Company and their respective subsidiaries previously provided to the
Agents and the Arrangers and are subject to the condition, among others, that
there shall not have occurred after the date of such information, in the opinion
of the Agents and the Arrangers, 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.
The Arrangers intend 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, the
Arrangers in achieving a syndication of the Credit Facilities that is
satisfactory to them. Such assistance by you and the Acquired Company shall
include using commercially reasonable efforts to (a) provide and cause your
advisors to provide us and the other Lenders upon request with all information
reasonably deemed necessary by us 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) upon reasonable
A-69
<PAGE>
Mr. Walker Simmons
July 6, 1999
Page 3
request assist in the preparation of an Information Memorandum to be used in
connection with the syndication of the Credit Facilities and (c) otherwise
assist in syndication efforts, including by making available mutually agreed
upon officers and advisors 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 the
Agents and the Arrangers.
It is understood and agreed that the Agents and the Arrangers, 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 the Agents and the Arrangers and that any syndication pursuant to
written commitments prior to execution of definitive documentation will reduce
the commitment of the Agents by the amount of such commitments.
It shall be a condition to the Arrangers' commitments hereunder and the
Arrangers' agreements 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 us 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 us 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, the Agents and the
Arrangers will be using and relying on the Information and the Projections
without independent verification thereof.
By executing this letter agreement, you agree to reimburse the Agents and
the Arrangers 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 the Agents 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 the Agents, the
Arrangers and their affiliates and their respective directors, officers,
employees and agents (the "INDEMNIFIED PARTIES") from and 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 such Indemnified Parties.
A-70
<PAGE>
Mr. Walker Simmons
July 6, 1999
Page 4
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 the Agents and the Arrangers 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, the Agents and the Arrangers will
act in the capacities identified for the Credit Facilities. The Agents reserve
the right to allocate, in whole or in part, to their affiliates (including an
Arranger) certain fees payable to them in their sole discretion. You acknowledge
and agree that the Agents may share with any of their affiliates (including the
Arrangers) 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 between
NationsBank, N.A. (now known as Bank of America, N.A.) and Bruckmann, Rosser,
Sherrill & Co., Inc.
This letter agreement may not be assigned by the Sponsors without the prior
written consent of the Agents and the Arrangers.
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., Thursday, July
8, 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 the Agents and
the Arrangers, 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 the Agents, the
Arrangers, 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 the Agents or the
Arrangers to make any oral
A-71
<PAGE>
Mr. Walker Simmons
July 6, 1999
Page 5
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.
<TABLE>
<S> <C> <C>
Very truly yours,
BANK OF AMERICA, N.A.
By:
-----------------------------------------
Title:
BANC OF AMERICA SECURITIES LLC
By:
-----------------------------------------
Title:
BANKERS TRUST COMPANY
By: /s/
-----------------------------------------
Title:
DEUTSCHE BANK SECURITIES, INC.
By: /s/
-----------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON
By: /s/
-----------------------------------------
Title:
By: /s/
-----------------------------------------
Title:
</TABLE>
A-72
<PAGE>
Mr. Walker Simmons
July 6, 1999
Page 6
<TABLE>
<S> <C> <C>
ACCEPTED AND AGREED TO:
CBF Holding LLC
/s/
-----------------------------------------
Title:
Date:
By:
CBF MERGERCO INC.
/s/
-----------------------------------------
Title:
Date:
By:
CITICORP VENTURE CAPITAL, LTD.
/s/
-----------------------------------------
Title:
Date:
By:
</TABLE>
A-73
<PAGE>
ANNEX I
CORT FURNITURE RENTAL CORPORATION
SUMMARY OF TERMS & CONDITIONS
JULY 6, 1999
<TABLE>
<S> <C>
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:.............................. Bank of America, N.A. (the "AGENT" or "Bank of
America") will act as sole and exclusive
administrative and collateral agent. As such, Bank of
America 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. Bankers Trust Company will act
as Syndication Agent and Credit Suisse First Boston
will act as Documentation Agent. No other agents or
co-agents may be appointed without the prior written
consent of the Agents and the Arrangers.
SOLE LEAD ARRANGER & SOLE BOOK
MANAGER:.......................... Banc of America Securities LLC ("BAS").
CO-ARRANGERS:....................... Deutsche Bank Securities, Inc. and Credit Suisse
First Boston
LENDERS:............................ A syndicate of financial institutions (including Bank
of America) arranged by the Arrangers, which
institutions shall
</TABLE>
A-74
<PAGE>
<TABLE>
<S> <C>
be acceptable to the Borrower and the Agents
(collectively, the "LENDERS").
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 Bank of
America (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 Bank of America, 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
</TABLE>
A-75
<PAGE>
<TABLE>
<S> <C>
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
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 bas-
kets 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:
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(a) The negotiation, execution and delivery of
definitive documentation with respect to the
Credit Facilities satisfactory to the Agents, the
Arrangers and the Lenders.
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(b) A certified copy of the purchase agreement
(including all amendments, supplements, schedules
and exhibits thereto) regarding the Acquisition
(the "PURCHASE AGREEMENT") which shall 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 $100 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 $122 million.
(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 repre-
sented 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 doc-
uments 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.
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(g) Receipt of all governmental, equityholder and
third party consents (including Hart-Scott-Rodino
clearance and the consent, if 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 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 Agents, the
Arrangers and the Lenders all fees and expenses
due and payable at Closing.
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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
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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) 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):
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(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.
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The financial covenants will give pro forma effect
for acquisitions and dispositions, where appropriate.
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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 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
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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.
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.
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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 Bank of America 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:
APPLICABLE
APPLICABLE BASE RATE
LEVEL TOTAL FUNDED DEBT/EBITDA LIBOR MARGIN MARGIN
----- --------------------------------------------------------- ------------- -----------
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>
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COST AND YIELD PROTECTION:.......... The usual for transactions and facilities of this
type, including, without limitation, in respect of
prepayments, changes in
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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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August 25, 1999
Mr. Walker Simmons
CBF Holding, L.L.C.
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street
New York, New York 10022
Re: Commitment Letter dated July 6, 1999 (as amended and modified, the
"COMMITMENT LETTER") from Bank of America, N.A., Banc of America
Securities LLC, Bankers Trust Company, Deutsche Bank Securities, Inc.
and Credit Suisse First Boston accepted by CBF Holding LLC and CBF
Mergerco Inc. as of July 8, 1999 providing commitments for $225 million
in Senior Secured Bank Acquisition Credit Facilities in respect of CORT
Furniture Rental Corporation. Terms used but not otherwise defined shall
have the meanings provided in the Commitment Letter.
Ladies and Gentlemen:
This letter should serve to confirm our mutual agreement to amend the Commitment
Letter in the following respects:
1. In the opening paragraph of the Commitment Letter the reference to
the purchase price of "approximately $473 million" is amended to read
"approximately $497 million".
2. In the last paragraph on page 4 of the Commitment Letter the
reference to the commitment termination date of "Friday, October 29, 1999"
is amended to read "Tuesday, November 30, 1999".
3. In the section of the Term Sheet entitled "Conditions Precedent to
Closing":
(i) in clause (b) the reference to an aggregate purchase price not to
exceed "$453 million" is amended to read "$476 million"; and
(ii) in clause (c) the reference at the end of subclause (iii) to the
initial advance under the Credit Facilities not to exceed "$122 million"
is amended to read "$125 million".
This letter agreement shall be governed by and construed in accordance with the
laws of the State of New York.
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Very truly yours,
BANK OF AMERICA, N.A.
By:
-----------------------------------------
Title:
BANC OF AMERICA SECURITIES LLC
By:
-----------------------------------------
Title:
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BANKERS TRUST COMPANY
By:
-----------------------------------------
Title:
DEUTSCHE BANK SECURITIES, INC.
By:
-----------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON
By:
-----------------------------------------
Title:
By:
-----------------------------------------
Title:
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ACCEPTED AND AGREED TO:
CBF HOLDING LLC CITICORP VENTURE CAPITAL, LTD.
---------------------------------------- ----------------------------------------
By: By:
Title: Title:
Date: Date:
CBF MERGERCO INC.
----------------------------------------
By:
Title:
Date:
</TABLE>
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<PAGE>
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 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.
A-86
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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.
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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
</TABLE>
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<PAGE>
ANNEX B
August 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 Amended and Restated Agreement and Plan of Merger
dated as of August 12, 1999 (the "Agreement"), with CBF Holding LLC ("Parent")
and CBF Mergerco, 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) $25.00 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
B-1
<PAGE>
Board of Directors
August 25, 1999
Page 2
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
B-2
<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
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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.
(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
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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 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.
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(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 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.
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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 99(d)(7)
PRESS RELEASE
FOR IMMEDIATE RELEASE
CORT ANNOUNCES MERGER PRICE INCREASE
FAIRFAX, Va., August 12, 1999 - CORT Business Services
Corporation (NYSE: CBZ) today announced that the consideration to be offered to
shareholders in its previously announced merger with an investor group had been
increased to $28 per share, consisting of $25 in cash and $3 in liquidation
value in a series of newly issued 12% preferred stock. As previously announced
on March 26, 1999, CORT entered into a merger agreement with an investor group
that includes Bruckmann, Rosser, Sherrill & Co., Inc. ("BRS") and members of the
Company's management team. The terms of the merger agreement provided for
consideration of $26.50 per share, consisting of $24 in cash and $2.50 in
liquidation value in a new series of preferred stock. 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.
CORT said the price increase followed negotiations between
CORT and members of the investor group. As a result of the price increase, CORT
said that the shareholders meeting to vote on the proposed merger, currently set
for August 18, 1999, would be postponed to a later date in October in order to
allow CORT to make necessary filings with the Securities and Exchange Commission
and provide additional proxy materials to shareholders to reflect the increase
in consideration.
CORT also said that it has been advised by CVC that CVC had
deposited shares representing approximately 33% of CORT's outstanding voting
stock into a newly created voting trust controlled by affiliates of BRS. The
affiliates of BRS have advised CORT that they intend to vote their shares in
favor of the proposed merger and against any competing transaction. CVC, a
licensed small business investment company, said that the voting trust was
created in order to comply with a directive received by CVC from the Small
Business Administration requiring CVC to reduce its control of CORT's voting
stock to shares representing less than 25% of CORT's issued and outstanding
voting shares.
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 120 rental showrooms, 84 furniture clearance centers and 76 warehouses
in 34 states and the District of Columbia.
