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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
AMENDMENT NO. 3
WINSLOEW FURNITURE, INC.
(NAME OF THE ISSUER)
TRIVEST FURNITURE CORPORATION
TRIVEST FURNITURE PARTNERS, LTD.
TRIVEST FUND II GROUP, LTD.
EARL W. POWELL
PHILLIP T. GEORGE, M.D.
WILLIAM F. KACZYNSKI, JR.
PETER W. KLEIN
BOBBY TESNEY
STEPHEN C. HESS
VINCENT A. TORTORICI, JR.
R. CRAIG WATTS
RICK J. STEPHENS
JERRY C. CAMP
WINSLOEW FURNITURE, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
975377 10 2
(CUSIP NUMBER OF CLASS OF SECURITIES)
Peter W. Klein, Esq. Vincent A. Tortorici, Jr.
Trivest, Inc. WinsLoew Furniture, Inc.
2665 South Bayshore Drive, Suite 800 160 Village Street
Miami, Florida 33133 Birmingham, Alabama 35242
(305) 858-2200 (205) 408-7600
WITH COPIES TO:
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Bruce E. Macdonough, Esq. James M. Dubin, Esq. James F. Hughey, Jr.
Greenberg Traurig, P.A. Paul, Weiss, Rifkind, Balch & Bingham LLP
1221 Brickell Avenue Wharton & Garrison 1901 Sixth Avenue North
Miami, Florida 33131 1285 Avenue of the Americas Birmingham, Alabama 35203
(305) 579-0500 New York, New York 10019 (205) 251-8100
(212) 373-3000
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(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
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This statement is filed in connection with (check the appropriate box):
a. [x] The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C, or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities
Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or
information statement referred to in checking box (a) are
preliminary copies: [X]
CALCULATION OF FILING FEE
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TRANSACTION VALUE AMOUNT OF FILING FEE
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$249,571,303 .......................... $49,915
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* For purposes of calculating the fee only. Assumes purchase of 7,181,908
shares of Common Stock, par value $.01 per share, of WinsLoew
Furniture, Inc. at $34.75 per share.
[X] Check box if any of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting
fee was previously paid. Identify the previous filing by
registration statement number, or the form or schedule and the
date of its filing.
Amount previously paid: $47,401; $2,514
Form or registration no.: Preliminary Proxy Statement on Schedule 14A
Filing party: WinsLoew Furniture, Inc.
Dates filed: April 20, 1999; June 4, 1999
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This Rule 13e-3 Transaction Statement (this "Statement") is being filed
in connection with the filing by WinsLoew Furniture, Inc. ("WinsLoew" or the
"Company") with the Securities and Exchange Commission (the "Commission") on
July 29, 1999 of a preliminary Proxy Statement on Schedule 14A (the "Proxy
Statement") in connection with a special meeting of the shareholders of
WinsLoew to be held on August 27, 1999. At such meeting, the shareholders of
WinsLoew will vote upon, among other things, the adoption of a Second Amended
and Restated Agreement and Plan of Merger dated as of May 4, 1999 (the "Merger
Agreement") by and among WinsLoew and Trivest Furniture Corporation (the
"Purchaser"), pursuant to which the Purchaser will be merged with and into
WinsLoew.
The following cross reference sheet is being supplied pursuant to
General Instruction F to Schedule 13E-3 and shows the location in the Proxy
Statement of the information required to be included in response to the items of
this Statement. The information in the Schedule 14A which is attached hereto as
Exhibit (d)(3), including all appendices thereto, is hereby expressly
incorporated herein by reference and the responses to each item are qualified in
their entirety by the provisions of the Proxy Statement.
CROSS REFERENCE SHEET
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ITEM IN SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PROXY STATEMENT
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Item 1(a) ......................... Outside Front Cover Page; "Introduction"; "Summary -- Parties to the Merger"
Item 1(b) ......................... Outside Front Cover Page; "Summary--Record Date and Quorum";
"--Market Prices of Common Stock and Dividends"; "Market Prices of Common Stock
and Dividends"
Item 1(c) ......................... "Summary--Market Prices of Common Stock and Dividends"; "Market Prices of
Common Stock and Dividends"
Item 1(d) ......................... "Dividends"; "Market Prices of Common Stock and Dividends"
Item 1(e) ......................... None
Item 1(f) ......................... "Dividends"; "Market Prices of Common Stock and Dividends"
Item 2(a) ......................... "Introduction"; "Summary--Parties to the Merger"; "Management--Directors and
Executive Officers of WinsLoew"; "Certain Information Concerning the Purchaser
and Other Affiliates"
Item 2(b)-(d) ..................... "Management--Directors and Executive Officers of WinsLoew"; "Certain
Information Concerning the Purchaser and Other Affiliates"
Item 2(e) ......................... None
Item 2(f) ......................... None
Item 2(g) ......................... "Management--Directors and Executive Officers of WinsLoew"; "Certain
Information Concerning the Purchaser and Other Affiliates"
Item 3(a)(1) ...................... "Certain Transactions"
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ITEM IN SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PROXY STATEMENT
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Item 3(a)(2) ...................... "Summary--Conflicts of Interest"; "--Certain Effects of the Merger";
"Special Factors--Background of the Merger"; "--Conflicts of Interest";
"--Certain Effects of the Merger"
Item 3(b) ......................... "Summary--Conflicts of Interest"; "--Certain Effects of the Merger";
"Special Factors--Background of the Merger"; "--Conflicts of Interest";
"--Certain Effects of the Merger"
Item 4(a) ......................... "Introduction"; "Summary--The Merger"; "--Effective Time of the Merger
and Payment for Shares"; "--Certain Effects of the Merger"; "--Conditions to
the Merger, Termination and Expenses"; "--Rights of Dissenting Shareholders";
"The Merger"; "Rights of Dissenting Shareholders"; Appendix A
Item 4(b) ......................... "Introduction"; "Summary--Purpose of the Special Meeting"; "--Parties to the
Merger"; "--Purpose and Reasons of the Affiliates for the Merger";
"--Conflicts of Interest"; "--Rights of Dissenting Shareholders"; "Special
Factors--Purpose and Reasons of the Affiliates for the Merger"; "--Conflicts of
Interest"; "--Certain Effects of the Merger"; "The Merger--Termination Fee";
"Rights of Dissenting Shareholders"
Item 5(a), (b) .................... "Summary--Purpose and Reasons of the Affiliates for the Merger";
"--Conflicts of Interest"; "--Certain Effects of the Merger"; "--Financing of the
Merger"; "Special Factors--Background of the Merger"; "--Purpose and Reasons of
the Affiliates for the Merger"; "--Conflicts of Interest";
"--Certain Effects of the Merger"; "--Conduct of WinsLoew's Business After the
Merger"
Item 5(c) ......................... "Special Factors--Conflicts of Interest"; "--Conduct of WinsLoew's Business
After the Merger"
Item 5(d) ......................... "Summary--Conflicts of Interest"; "--Financing of the Merger"; "Special
Factors--Conflicts of Interest"; "The Merger--Financing"
Item 5(e) ......................... "Summary--Financing of the Merger"; "--Certain Effects of the Merger";
"Special Factors--Certain Effects of the Merger"; "--Conduct of WinsLoew's Business
After the Merger"; "The Merger--Financing"
Item 5(f), (g) .................... "Summary--Certain Effects of the Merger"; "Special Factors--Certain Effects of
the Merger"
Item 6(a) ......................... "Summary--Financing of the Merger"; "The Merger--Financing"
Item 6(b) ......................... "The Merger--Expenses of the Transaction"
Item 6(c) ......................... "Summary--Financing of the Merger"; "The Merger--Financing"
Item 6(d) ......................... Not applicable
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ITEM IN SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PROXY STATEMENT
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Item 7(a)-(c) ..................... "Summary"; "Special Factors--Background of the Merger"; "--The Special
Committee's and the Board's Recommendation"; "--Opinion of Financial
Advisor"; "--Purpose and Reasons of the Affiliates for the Merger"; "--Conflicts
of Interest"
Item 7(d) ......................... "Introduction"; "Summary--The Merger"; "--Purpose and Reasons of the Affiliates
for the Merger"; "--Conflicts of Interest"; "--Certain Effects of the Merger";
"--Federal Income Tax Consequences"; "--Rights of Dissenting Shareholders";
"--Accounting Treatment"; "--Financing of the Merger"; "Special
Factors--Background of the Merger"; "--Purpose and Reasons of the Affiliates for
the Merger"; "--Conflicts of Interest"; "--Certain Effects of the Merger";
"--Conduct of WinsLoew's Business After the Merger"; "--Certain Risks in the
Event of Bankruptcy"; "The Merger--Conversion of Securities"; "--Cash-out
of WinsLoew Stock Options"; "--Financing"; "--Accounting Treatment"; "Rights of
Dissenting Shareholders"; "Federal Income Tax Consequences"; "Principal
Shareholders and Stock Ownership of Management"
Item 8(a), (b) ................... "Summary--The Special Committee's and the Board's Recommendation"; "--Opinion of
Financial Advisor"; "--Position of the Affiliates as to Fairness of the
Merger"; "--Conflicts of Interest"; "--Rights of Dissenting Shareholders";
"Special Factors--Background of the Merger"; "--The Special Committee's and the
Board's Recommendation"; "--Opinion of Financial Advisor"; "--Position of the
Affiliates as to Fairness of the Merger"; "--Conflicts of Interest"; "Rights of
Dissenting Shareholders"
Item 8(c) ......................... "Introduction"; "Summary--Vote Required"; "Special Factors--The Special
Committee's and the Board's Recommendation"; "The Special
Meeting--Voting Procedures; Required Vote"; "The Merger--Conditions"
Item 8(d) ......................... "Summary--The Special Committee's and the Board's Recommendation"; "--Opinion of
Financial Advisor"; "Special Factors--Background of the Merger"; "--The
Special Committee's and the Board's Recommendation"; "--Opinion of Financial
Advisor"
Item 8(e) ......................... "Summary--The Special Committee's and the Board's Recommendation"; "--Conflicts
of Interest"; "Special Factors--The Special Committee's and the Board's
Recommendation"; "--Conflicts of Interest"
Item 8(f) ......................... None
Item 9(a)-(c) ..................... "Summary--The Special Committee's and the Board's Recommendation";
"--Opinion of Financial Advisor"; "Special Factors--Background of the Merger"; "--The
Special Committee's and the Board's Recommendation"; "--Opinion of Financial Advisor";
Appendix B
Item 10(a) ........................ "Summary--Purpose and Reasons of the Affiliates for the Merger";
"--Conflicts of Interest"; "Special Factors--Purpose and Reasons of the
Affiliates for the Merger"; "--Conflicts of Interest"; "Principal Shareholders
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ITEM IN SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PROXY STATEMENT
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and Stock Ownership of Management"
Item 10(b) ........................ "Market Prices of Common Stock and Dividends"
Item 11 ........................... "Introduction"; "Summary--Vote Required"; "--Parties to the Merger";
"--Conflicts of Interest"; "--Financing of the Merger"; "Special
Factors--Background of the Merger"; "--Purpose and Reasons of the Affiliates for
the Merger"; "--Conflicts of Interest"; "--Certain Effects of the Merger"; "The
Merger--Financing"
Item 12(a), (b) ................... "Introduction"; "Summary--Vote Required"; "--Purpose and Reasons of the
Affiliates for the Merger"; "--The Special Committee's and the Board's
Recommendation"; "--Conflicts of Interest"; "Special Factors--The Special
Committee's and the Board's Recommendation"; "--Purpose and Reasons of the
Affiliates for the Merger"; "--Conflicts of Interest"; "The Special
Meeting--Voting Procedures; Required Vote"
Item 13(a) ........................ "Summary--Rights of Dissenting Shareholders"; "Rights of Dissenting
Shareholders"
Item 13(b) ........................ Not applicable
Item 13(c) ........................ Not applicable
Item 14(a) ........................ "Selected Consolidated Financial Data"; "Management's Discussion and Analysis
of Results of Operations and Financial Condition"; "Index to Financial
Statements"
Item 14(b) ........................ Not applicable
Item 15(a) ........................ "Summary--Parties to the Merger"; "--Conflicts of Interest"; "--Conditions to the
Merger, Termination and Expenses"; "--Financing of the Merger"; "The Special
Meeting--Proxy Solicitation"; "Special Factors--Conflicts of Interest"; "The
Merger--Expenses"; "--Termination Fee"; "--Financing"
Item 15(b) ........................ "The Special Meeting--Proxy Solicitation"
Item 16 ........................... Proxy Statement
Item 17(a)-(f) .................... Not applicable
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth on the cover page to the Proxy
Statement and in the sections entitled "Introduction" and "Summary--Parties to
the Merger" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth on the cover page to the Proxy
Statement and in the sections entitled "Summary--Record Date and Quorum,"
"--Market Prices of Common Stock and Dividends" and "Market Prices of Common
Stock and Dividends" of the Proxy Statement is incorporated herein by reference.
(c) The information set forth in the sections entitled
"Summary--Market Prices of Common Stock and Dividends" and "Market Prices of
Common Stock and Dividends" of the Proxy Statement is incorporated herein by
reference.
(d) The information set forth in the section entitled "Market Prices
of Common Stock and Dividends" of the Proxy Statement is incorporated herein by
reference.
(e) None.
(f) The information set forth in the section entitled "Market Prices
of Common Stock and Dividends" of the Proxy Statement is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a) The information set forth in the sections entitled
"Introduction", "Summary--Parties to the Merger," "Management--Directors and
Executive Officers of WinsLoew" and "Certain Information Concerning the
Purchaser and Other Affiliates" of the Proxy Statement is incorporated herein by
reference.
(b)-(d), (g) The information set forth in the sections entitled
"Summary--Parties to the Merger," "Management--Directors and Executive Officers
of WinsLoew" and "Certain Information Concerning the Purchaser and the Other
Affiliates" of the Proxy Statement is incorporated herein by reference.
(e), (f) Neither the Purchaser nor any executive officer, director or
person controlling the Purchaser or any Affiliate has during the last five years
(i) been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)( 1) The information set forth in the section entitled "Certain
Transactions" of the Proxy Statement is incorporated herein by reference.
(a)( 2) The information set forth in the sections entitled
"Summary--Conflicts of Interest," "--Certain Effects of the Merger," "Special
Factors--Background of the Merger," "--Conflicts of Interest" and "--Certain
Effects of the Merger" of the Proxy Statement is incorporated herein by
reference.
(b) The information set forth in the sections entitled
"Summary--Conflicts of Interest," "--Certain Effects of the Merger," "Special
Factors--Background of the Merger," "--Purpose and Reasons of the Affiliates for
the Merger," "--Conflicts of Interest" and "--Certain Effects of the Merger" of
the Proxy Statement is incorporated herein by reference.
7
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ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the sections entitled
"Introduction," "Summary--The Merger," "--Effective Time of the Merger and
Payment for Shares," "--Certain Effects of the Merger," "--Conditions to the
Merger, Termination and Expenses," "--Rights of Dissenting Shareholders," "The
Merger" and "Rights of Dissenting Shareholders" of the Proxy Statement and
Appendix A to the Proxy Statement is incorporated herein by reference.
(b) The information set forth in the sections entitled
"Introduction," "Summary--Purpose of the Special Meeting," "--Parties to the
Merger," "--Purpose and Reasons of the Affiliates for the Merger," "--Conflicts
of Interest," "--Rights of Dissenting Shareholders," "Special Factors--Purpose
and Reasons of the Affiliates for the Merger," "--Conflicts of Interest,"
"--Certain Effects of the Merger" "The Merger--Termination Fee" and "Rights of
Dissenting Shareholders" of the Proxy Statement is incorporated herein by
reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a), ( b) The information set forth in the sections entitled
"Summary--Purpose and Reasons of the Affiliates for the Merger," "--Conflicts of
Interest," "--Certain Effects of the Merger," "--Financing of the Merger,"
"Special Factors--Background of the Merger," "--Purpose and Reasons of the
Affiliates for the Merger," "--Conflicts of Interest," "--Certain Effects of the
Merger" and "--Conduct of WinsLoew's Business After the Merger" of the Proxy
Statement is incorporated herein by reference.
(c) The information set forth in the sections entitled "Special
Factors--Conflicts of Interest" and "--Conduct of WinsLoew's Business After the
Merger" of the Proxy Statement is incorporated herein by reference.
(d) The information set forth in the sections entitled
"Summary--Conflicts of Interest," "--Financing of the Merger," "Special
Factors--Conflicts of Interest" and "The Merger--Financing" of the Proxy
Statement is incorporated herein by reference.
(e) The information set forth in the sections entitled
"Summary--Financing of the Merger," "--Certain Effects of the Merger," "Special
Factors--Certain Effects of the Merger," "--Conduct of WinsLoew's Business After
the Merger" and "The Merger--Financing" of the Proxy Statement is incorporated
herein by reference.
(f), ( g) The information set forth in the sections entitled
"Summary--Certain Effects of the Merger" and "Special Factors--Certain Effects
of the Merger" of the Proxy Statement 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 "The Merger--Financing" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in the section entitled "The
Merger--Expenses of the Transaction" of the Proxy Statement is incorporated
herein by reference.
(c) The information set forth in the sections entitled
"Summary--Financing of the Merger" and "The Merger--Financing" of the Proxy
Statement is incorporated herein by reference.
(d) Not applicable.
8
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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," "--The Special Committee's and the
Board's Recommendation," "--Opinion of Financial Advisor," "--Purpose and
Reasons of the Affiliates for the Merger" and "--Conflicts of Interest" of the
Proxy Statement is incorporated herein by reference.
(d) The information set forth in the sections entitled
"Introduction," "Summary--The Merger," "--Purpose and Reasons of the Affiliates
for the Merger," "--Conflicts of Interest," "--Certain Effects of the Merger,"
"--Federal Income Tax Consequences," "--Rights of Dissenting Shareholders,"
"--Accounting Treatment," "--Financing of the Merger," "Special
Factors--Background of the Merger," "--Purpose and Reasons of the Affiliates for
the Merger," "--Conflicts of Interest," "--Certain Effects of the Merger,"
"--Conduct of WinsLoew's Business After the Merger," "--Certain Risks in the
Event of Bankruptcy," "The Merger--Conversion of Securities," "--Cash-out of
WinsLoew Stock Options," "--Financing," "--Accounting Treatment," "Rights of
Dissenting Shareholders," "Federal Income Tax Consequences" and "Principal
Shareholders and Stock Ownership of Management" of the Proxy Statement is
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a), ( b) The information set forth in the sections entitled
"Summary--The Special Committee's and the Board's Recommendation," "--Opinion of
Financial Advisor," "--Position of the Affiliates as to Fairness of the Merger,"
"--Conflicts of Interest," "--Rights of Dissenting Shareholders," "Special
Factors--Background of the Merger," "--The Special Committee's and the Board's
Recommendation," "--Opinion of Financial Advisor," "--Position of the Affiliates
as to Fairness of the Merger," "--Conflicts of Interest" and "Rights of
Dissenting Shareholders" of the Proxy Statement are incorporated herein by
reference.
(c) The information set forth in the sections entitled
"Introduction," "Summary--Vote Required," "Special Factors--The Special
Committee's and the Board's Recommendation," "The Special Meeting--Voting
Procedures; Required Vote" and "The Merger--Conditions" of the Proxy Statement
is incorporated herein by reference.
(d) The information set forth in the sections entitled "Summary--The
Special Committee's and the Board's Recommendation," "--Opinion of Financial
Advisor," "Special Factors--Background of the Merger," "--The Special
Committee's and the Board's Recommendation" and "--Opinion of Financial Advisor"
of the Proxy Statement is incorporated herein by reference.
(e) The information set forth in the sections entitled "Summary--The
Special Committee's and the Board's Recommendation," "--Conflicts of Interest,"
"Special Factors--The Special Committee's and the Board's Recommendation" and
"--Conflicts of Interest" of the Proxy Statement is incorporated herein by
reference.
(f) None.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in the sections entitled
"Summary--The Special Committee's and the Board's Recommendation," "--Opinion of
Financial Advisor," "Special Factors--Background of the Merger," "--The Special
Committee's and the Board's Recommendation" and "--Opinion of Financial Advisor"
of the Proxy Statement and in Appendix B to the Proxy Statement is incorporated
herein by reference.
9
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ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in the sections entitled
"Summary--Purpose and Reasons of the Affiliates for the Merger," "--Conflicts of
Interest," "Special Factors--Purpose and Reasons of the Affiliates for the
Merger," "--Conflicts of Interest," "Principal Shareholders and Stock Ownership
of Management" of the Proxy Statement is incorporated herein by reference.
(b) "Market Prices of Common Stock and Dividends."
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth in the sections entitled "Introduction,"
"Summary--Vote Required," "--Parties to the Merger," "--Conflicts of Interest,"
"--Financing of the Merger," "Special Factors--Background of the Merger,"
"--Purpose and Reasons of the Affiliates for the Merger," "--Conflicts of
Interest," "--Certain Effects of the Merger" and "The Merger--Financing" of the
Proxy Statement is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD
TO THE TRANSACTION.
(a), ( b) The information set forth in the sections entitled
"Introduction," "Summary--Vote Required," "--Purpose and Reasons of the
Affiliates for the Merger," "--The Special Committee's and the Board's
Recommendation," "--Conflicts of Interest," "Special Factors--The Special
Committee's and the Board's Recommendation," "--Purpose and Reasons of the
Affiliates for the Merger," "--Conflicts of Interest" and "The Special
Meeting--Voting Procedures; Required Vote" of the Proxy Statement is
incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the sections entitled
"Summary--Rights of Dissenting Shareholders" and "Rights of Dissenting
Shareholders" of the Proxy Statement is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in the section entitled "Selected
Consolidated Financial Data" of the Proxy Statement and in the Consolidated
Financial Statements of the Company for the fiscal years ended December 31, 1997
and December 31, 1998, which are included in the Proxy Statement, is
incorporated herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in the sections entitled
"Summary--Parties to the Merger," "--Conflicts of Interest," "--Conditions to
the Merger, Termination and Expenses," "--Financing of the Merger," "The Special
Meeting--Proxy Solicitation," "Special Factors--Conflicts of Interest," "The
Merger--Expenses," "--Termination Fee" and "--Financing" of the Proxy Statement
is incorporated herein by reference.
(b) The information set forth in the section entitled "The Special
Meeting--Proxy Solicitation" of the Proxy Statement is incorporated herein by
reference.
10
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ITEM 16. ADDITIONAL INFORMATION.
The entirety of the Proxy Statement is incorporated herein by
reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) BankBoston, N.A. commitment letter to Trivest Furniture
Corporation dated March 29, 1999 (filed as Exhibit (c)(2) to
this Schedule 13E-3 as filed on April 19, 1999).
(a)(2) BankBoston, N.A. confirmation letter with respect to $33.00 per
share purchase price to Trivest Furniture Corporation dated
March 29, 1999 (filed as Exhibit (c)(3) to this Schedule 13E-3
as filed on April 19, 1999).
(a)(3) Trivest, Inc. commitment letter to Trivest Furniture Corporation
dated March 29, 1999 (filed as Exhibit (c)(4) to this Schedule
13E-3 as filed on April 19, 1999).
(a)(4) BankBoston, N.A. commitment letter to Trivest Furniture
Corporation dated April 27, 1999 (filed as Exhibit (a)(4) to
Amendment No. 1 to this Schedule 13E-3 as filed on June 4,
1999).
(a)(5) Trivest, Inc. commitment letter to Trivest Furniture Corporation
dated April 30, 1999 (filed as Exhibit (a)(5) to Amendment No. 1
to this Schedule 13E-3 as filed on June 4, 1999).
(a)(6) Trivest, Inc. commitment letter to Trivest Furniture Corporation
dated May 3, 1999 (filed as Exhibit (a)(6) to Amendment No. 1 to
this Schedule 13E-3 as filed on June 4, 1999).
(b)(1) Opinion of Mann, Armistead & Epperson, Ltd. dated April 7, 1999
(filed as Exhibit (b)(1) to Amendment No. 1 to this Schedule
13E-3 as filed on June 4, 1999).
(b)(2) Management's Budget Projections for fiscal years 1999 through
2002 provided to Mann, Armistead & Epperson, Ltd., that are
summarized in the Proxy Statement (filed as Exhibit (b)(2) to
this Schedule 13E-3 as filed on April 19, 1999).
(b)(3) Financial Analysis Presentation materials prepared by Mann,
Armistead & Epperson, Ltd. in connection with providing its
opinion dated April 7, 1999 to the Special Committee (filed as
Exhibit (b)(3) to Amendment No. 1 to this Schedule 13E-3 as
filed on June 4, 1999).
(b)(4) Opinion of Mann, Armistead & Epperson, Ltd. dated May 4, 1999
(included as Appendix B to the Proxy Statement, which is filed
herewith as Exhibit (d)(3)).
(b)(5) Financial Analysis Presentation materials prepared by Mann,
Armistead & Epperson, Ltd. in connection with providing its
opinion dated May 4, 1999 to the Special Committee (filed as
Exhibit (b)(5) to Amendment No. 1 to this Schedule 13E-3 as
filed on June 4, 1999).
(b)(6) Management's Best Case Projections for fiscal years 1999 through
2002 provided to Mann, Armistead & Epperson, Ltd. that are
summarized in the Proxy Statement (filed as Exhibit (b)(6) to
Amendment No. 2 to this Schedule 13E-3 as filed on July 14,
1999).
(b)(7) Confirmation of Mann, Armistead & Epperson, Ltd. dated July 8,
1999 (included as part of Appendix B to the Proxy Statement,
which is filed herewith as Exhibit (d)(3)).
(b)(8) Supplemental Financial Analysis Presentation materials prepared
by Mann, Armistead & Epperson, Ltd. in connection with providing
its confirmation dated July 8, 1999 to the Special Committee
(filed as Exhibit (b)(8) to Amendment No. 2 to this Schedule
13E-3 as filed on July 14, 1999).
(c)(1) Second Amended and Restated Agreement and Plan of Merger dated
as of May 4, 1999 among WinsLoew Furniture, Inc. and Trivest
Furniture Corporation (included as Appendix A to the Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
11
<PAGE> 12
(d)(1) Letter to Shareholders (included in the Proxy Statement, which
is filed herewith as Exhibit (d)(3)).
(d)(2) Notice of Special Meeting of Shareholders (included in the Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
(d)(3) Preliminary Proxy Statement.
(d)(4) Form of Proxy.
(d)(5) Press Release issued by WinsLoew Furniture, Inc. dated January
18, 1999 (filed as Exhibit (d)(5) to this Schedule 13E-3 as
filed on April 19, 1999).
(d)(6) Press Release issued by WinsLoew Furniture, Inc. dated January
25, 1999 (filed as Exhibit (d)(6) to this Schedule 13E-3 as
filed on April 19, 1999).
(d)(7) Press Release issued by WinsLoew Furniture, Inc. dated March 5,
1999 (filed as Exhibit (d)(7) to this Schedule 13E-3 as filed on
April 19, 1999).
(d)(8) Press Release issued by WinsLoew Furniture, Inc. dated March 31,
1999 (filed as Exhibit (d)(8) to this Schedule 13E-3 as filed on
April 19, 1999).
(d)(9) Press Release issued by WinsLoew Furniture, Inc. dated May 5,
1999 (incorporated by reference to the Current Report on Form
8-K filed by WinsLoew Furniture, Inc. on May 5, 1999).
(e) Not applicable.
(f) Not applicable.
12
<PAGE> 13
SIGNATURES
After due inquiry and to the best of our knowledge and belief, each of
the undersigned certifies that the information set forth in this Statement is
true, complete and correct.
WINSLOEW FURNITURE, INC.
Dated: July 29, 1999 By: /s/ Bobby Tesney
-----------------------------
Name: Bobby Tesney
Title: President and Chief Executive
Officer
TRIVEST FURNITURE CORPORATION
Dated: July 29, 1999 By: /s/ William F. Kaczynski, Jr.
-----------------------------
Name: William F. Kaczynski, Jr.
Title: Vice President
TRIVEST FURNITURE PARTNERS, LTD.
By: TFP, Ltd., its General Partner
By: Trivest II, Inc., Its
General Partner
Dated: July 29, 1999 By: /s/ William F. Kaczynski, Jr.
-----------------------------
Name: William F. Kaczynski, Jr.
Title: Managing Director
TRIVEST FUND II GROUP, LTD.
By: Trivest Equities, Inc., its
General Partner
Dated: July 29, 1999 By: /s/ William F. Kaczynski, Jr.
-----------------------------
Name: William F. Kaczynski, Jr.
Title: Managing Director
Dated: July 29, 1999 By: /s/ Earl W. Powell
-----------------------------
Earl W. Powell
Dated: July 29, 1999 By: /s/ Phillip T. George, M.D.
-----------------------------
Phillip T. George, M.D.
Dated: July 29, 1999 By: /s/ William F. Kaczynski, Jr.
-----------------------------
William F. Kaczynski, Jr.
Dated: July 29, 1999 By: /s/ Peter W. Klein
-----------------------------
Peter W. Klein
Dated: July 29, 1999 By: /s/ Bobby Tesney
-----------------------------
13
<PAGE> 14
Bobby Tesney
Dated: July 29, 1999 By: /s/ Stephen C. Hess
-----------------------------
Stephen C. Hess
Dated: July 29, 1999 By: /s/ Vincent A. Tortorici, Jr.
-----------------------------
Vincent A. Tortorici, Jr.
Dated: July 29, 1999 By: /s/ R. Craig Watts
-----------------------------
R. Craig Watts
Dated: July 29, 1999 By: /s/ Rick J. Stephens
-----------------------------
Rick J. Stephens
Dated: July 29, 1999 By: /s/ Jerry C. Camp
-----------------------------
Jerry C. Camp
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
(d)(3) Preliminary Proxy Statement.
(d)(4) Form of Proxy.
</TABLE>
15
<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary proxy statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
WINSLOEW FURNITURE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value per Share
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
7,181,908
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$34.75
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$249,571,303
------------------------------------------------------------------------
(5) Total fee paid:
$49,915
------------------------------------------------------------------------
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
$47,401; $2,514
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
Schedule 14A
------------------------------------------------------------------------
(3) Filing Party:
WinsLoew Furniture, Inc.
------------------------------------------------------------------------
(4) Date Filed:
April 19, 1999; June 4, 1999
------------------------------------------------------------------------
<PAGE> 2
WINSLOEW FURNITURE, INC.
160 VILLAGE STREET
BIRMINGHAM, ALABAMA 35242
July 29, 1999
To Our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of WinsLoew Furniture, Inc. (the "Company" or "WinsLoew") to
be held on Friday, August 27, 1999, at 9:00 a.m., local time, at the offices of
Trivest, Inc., located at 2665 South Bayshore Drive, Suite 800, Miami, Florida
33133. The purpose of the Special Meeting is to consider and vote upon a merger
(the "Merger") that, if approved and subsequently consummated, will result in
the public shareholders of WinsLoew receiving $34.75 in cash per share for their
stock and WinsLoew becoming a privately-owned company.
If approved by WinsLoew's shareholders, the Merger would be accomplished
pursuant to a Second Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement") as follows: Trivest Furniture Corporation, a newly-formed
Florida corporation (the "Purchaser"), would merge with and into WinsLoew, which
would be the surviving corporation in the Merger. If the Merger is consummated,
each outstanding share of common stock, $.01 par value, of WinsLoew (the "Common
Stock"), other than shares held by the Purchaser, will be canceled and converted
automatically into the right to receive $34.75 in cash, payable to the holder
thereof, without interest.
The Purchaser has been organized at the direction of two private investment
partnerships affiliated with certain WinsLoew directors, Trivest Furniture
Partners, Ltd. and Trivest Fund II Group, Ltd. (together, the "Trivest
Partnerships") for the purpose of acquiring all of WinsLoew's Common Stock. As a
result of the Merger, WinsLoew will become a privately held company that is
owned by the Trivest Partnerships, certain WinsLoew directors, certain members
of WinsLoew's management and certain WinsLoew employees.
A special committee of the Board of Directors of WinsLoew (the "Special
Committee"), consisting of five independent directors, was formed to
investigate, consider and evaluate the proposed Merger and possible strategic
alternatives to maximize shareholder value. The Special Committee has
recommended to WinsLoew's Board of Directors that the Merger and related
agreements be approved. In connection with its evaluation of the proposed Merger
and certain possible strategic alternatives, the Special Committee engaged Mann
Armistead & Epperson, Ltd. ("Mann Armistead") to act as its financial advisor.
Mann Armistead has rendered its opinion that, as of May 4, 1999, based upon and
subject to the assumptions, limitations and qualifications set forth in such
opinion, the cash merger consideration of $34.75 per share to be received in the
Merger is fair from a financial point of view to the public shareholders of the
Company. The written opinion of Mann Armistead, dated as of May 4, 1999, is
attached as Appendix B to the enclosed Proxy Statement and should be read
carefully and in its entirety by the shareholders.
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS BELIEVE THAT THE TERMS OF
THE MERGER ARE SUBSTANTIVELY AND PROCEDURALLY FAIR TO, AND IN THE BEST INTERESTS
OF, THE COMPANY'S SHAREHOLDERS AND RECOMMEND THAT THE SHAREHOLDERS APPROVE THE
MERGER.
<PAGE> 3
Approval of the Merger at the Special Meeting will require the affirmative
vote of holders of a majority of the outstanding shares of Common Stock entitled
to vote at the Special Meeting. Shareholders (including members of WinsLoew's
senior management, the members of the Special Committee and certain shareholders
affiliated or associated with the Trivest Partnerships) who, as of the record
date, hold of record approximately 35.8% of the outstanding shares of Common
Stock, have expressed their intention to vote their shares for approval of the
Merger. If the Merger is approved by the shareholders, the closing of the Merger
will occur as soon after the Special Meeting as all of the other conditions to
closing the Merger are satisfied.
The accompanying Proxy Statement provides you with a summary of the
proposed Merger and additional information about the parties involved and their
interests. Please give all this information your careful attention. Whether or
not you plan to attend, it is important that your shares are represented at the
Special Meeting. A failure to vote or a vote to abstain will count as a vote
against the Merger. Accordingly, you are requested to promptly complete, sign
and date the enclosed proxy and return it in the envelope provided.
/s/ Earl W. Powell
Earl W. Powell
Chairman of the Board
/s/ Bobby Tesney
Bobby Tesney
President and Chief Executive Officer
<PAGE> 4
WINSLOEW FURNITURE, INC.
160 VILLAGE STREET
BIRMINGHAM, ALABAMA 35242
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 27, 1999
To the Shareholders of
WinsLoew Furniture, Inc.
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of WinsLoew
Furniture, Inc., a Florida corporation (the "Company"), will be held at 9:00
a.m., local time, on Friday, August 27, 1999, at the offices of Trivest, Inc.,
located at 2665 South Bayshore Drive, Suite 800, Miami, Florida 33133, for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt a Second
Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement"), providing for the merger (the "Merger") of Trivest
Furniture Corporation, a Florida corporation (the "Purchaser"), with and
into the Company, with the Company being the surviving corporation. In
the Merger, each outstanding share of the Company's Common Stock, $.01
par value (other than shares held by the Purchaser), will be converted
into the right to receive $34.75 in cash, without interest. The Merger
Agreement is more fully described in the accompanying Proxy Statement
and is attached as Appendix A to the Proxy Statement.
2. To transact such other business as may properly come before the meeting
and any adjournments or postponements thereof.
The Board of Directors has determined that only shareholders of record at
the close of business on July 26, 1999 are entitled to notice of, and to vote
at, the meeting and any adjournments or postponements thereof. The stock
transfer books of the Company will not be closed prior to the meeting.
YOUR VOTE IS IMPORTANT
IN ORDER TO ENSURE THAT YOUR VOTE WILL BE COUNTED, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED PRE-ADDRESSED
ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT
IS VOTED, BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION, BY
SUBMITTING A PROXY BEARING A LATER DATE, OR BY ATTENDING AND VOTING IN PERSON AT
THE MEETING. PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
By Order of the Board of Directors
/s/ Bobby Tesney
Bobby Tesney
President and Chief Executive Officer
Birmingham, Alabama
July 29, 1999
<PAGE> 5
WINSLOEW FURNITURE, INC.
160 VILLAGE STREET
BIRMINGHAM, ALABAMA 35242
-------------------------
PROXY STATEMENT
-------------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 27, 1999
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of WinsLoew
Furniture, Inc., a Florida corporation (the "Company" or "WinsLoew"), in
connection with the solicitation by its Board of Directors (the "Board") of
proxies to be used at a Special Meeting of Shareholders (as it may be adjourned
or postponed, the "Special Meeting") to be held on Friday, August 27, 1999 at
9:00 a.m., local time, at the offices of Trivest, Inc., located at 2665 South
Bayshore Drive, Suite 800, Miami, Florida 33133, and at any adjournments or
postponements thereof. The date of this Proxy Statement is July 29, 1999, and
this Proxy Statement, the foregoing Notice of Special Meeting of Shareholders
and the enclosed proxy card are first being mailed to shareholders of WinsLoew
on or about July 29, 1999.
The Special Meeting has been called to consider and vote upon a proposal to
approve and adopt a Second Amended and Restated Agreement and Plan of Merger
(the "Merger Agreement" or the "Second Amended Merger Agreement"), which is
attached to this Proxy Statement as Appendix A. Pursuant to the Merger
Agreement, Trivest Furniture Corporation (the "Purchaser"), a newly-formed
Florida corporation, will be merged with and into WinsLoew (the "Merger"). In
the Merger, each outstanding share of common stock, $.01 par value (the "Common
Stock"), of WinsLoew (other than shares held by the Purchaser) will be canceled
and converted automatically into the right to receive $34.75 in cash, payable to
the holder thereof, without interest. The Purchaser has been organized at the
direction of two private investment partnerships, Trivest Furniture Partners,
Ltd. and Trivest Fund II Group, Ltd. (together, the "Trivest Partnerships")
controlled by Earl W. Powell, WinsLoew's Chairman of the Board. After the
Merger, WinsLoew will become a privately held company wholly-owned by the
Purchaser's shareholders, and the public shareholders will no longer own an
equity interest in WinsLoew.
Immediately prior to the Merger, all of the outstanding common stock of the
Purchaser will be acquired by the following parties, which will purchase such
shares for cash or contribute to the Purchaser shares of WinsLoew Common Stock
in exchange for shares of Purchaser common stock: (i) the Trivest Partnerships,
Mr. Powell, Phillip T. George, M.D., who is also a director of WinsLoew, and
three individuals affiliated or
-------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE> 6
associated with the Trivest Partnerships (collectively, the "Trivest
Investors"); (ii) Bobby Tesney, the President, Chief Executive Officer, and a
director of the Company (the "Management Director"), Stephen C. Hess, the
Company's Executive Vice President, Casual Furniture, R. Craig Watts, the
Company's Executive Vice President, Contract Seating, Vincent A. Tortorici, Jr.,
the Company's Vice President and Chief Financial Officer, Rick J. Stephens, the
Company's Vice President, Operations, and Jerry C. Camp, Vice President, Casual
Furniture Operations (together with the Management Director, the "Management
Group"); and (iii) approximately 35 other Company employees or sales
representatives who will be offered the opportunity to acquire shares of
Purchaser common stock or, alternatively, such persons will be offered the
opportunity to acquire shares of WinsLoew common stock following the
consummation of the Merger (the "Eligible Persons").
Trivest Fund I, Ltd., Trivest Equity Partners I, Ltd., Trivest Principals'
Fund 1988, Trivest Special Situations Fund 1985, L.P. and Trivest Annuity Fund,
Ltd. (collectively, the "Existing Trivest Shareholders"), which are private
investment partnerships controlled by Messrs. Powell and George, currently hold
of record approximately 23.7% of the outstanding WinsLoew Common Stock. The
Existing Trivest Shareholders will receive $34.75 per share in cash for all of
their shares on the same basis as other WinsLoew shareholders and will not be
shareholders of WinsLoew after the Merger.
The current executive officers of WinsLoew will retain their positions with
WinsLoew. Mr. Tesney will remain a director of the Company following the Merger.
Earl W. Powell, Phillip T. George, M.D., William F. Kaczynski, Jr. and Peter W.
Klein, the current WinsLoew directors affiliated with the Trivest Partnerships
(the "Trivest Directors"), will remain directors of WinsLoew. All of the Trivest
Directors are indirect investors in the Trivest Partnerships.
The aggregate consideration payable in the Merger, excluding fees and
expenses, is approximately $268.3 million. The amount to be paid in cash will be
reduced by the aggregate value of the Common Stock that the Management Group,
the Trivest Investors, and the Eligible Persons contribute to the Purchaser.
Because certain directors of WinsLoew will have a financial interest in the
Merger, the Board of Directors appointed a special committee of disinterested
directors to consider and make recommendations with respect to the Merger and
possible strategic alternatives to maximize shareholder value (the "Special
Committee"). The Special Committee and the Board believe that the terms of the
Merger are substantively and procedurally fair to, and in the best interests of,
the Company's shareholders and recommend that the shareholders approve the
Merger. See "SPECIAL FACTORS -- Conflicts of Interest -- The Special Committee's
and the Board's Recommendation."
Approval of the Merger at the Special Meeting will require the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
entitled to vote at the Special Meeting. Shareholders (including the members of
the Management Group, certain other members of management, the individual
Trivest Investors, the Existing Trivest Shareholders, the other members of the
Board and certain shareholders affiliated or associated with the Trivest
Partnerships) who, as of the record date, held of record approximately
2,570,218, or 35.8%, of the outstanding shares of Common Stock have expressed
their intention to vote their shares for approval of the Merger. Holders of
4,611,690, or approximately 64.2%, of the outstanding shares of Common Stock
remain uncommitted with respect to how they will vote on the Merger.
Accordingly, the affirmative vote by holders of Common Stock representing
approximately 1,020,737 (or
ii
<PAGE> 7
22.1%) of such uncommitted shares, or approximately 14.2% of the outstanding
shares, will be required to approve the Merger. The consummation of the Merger
is subject to a number of conditions, and, accordingly, even if shareholders
approve the Merger, there can be no assurance that the Merger will be
consummated.
WHAT YOU NEED TO DO NOW
Please promptly complete, sign and date the enclosed proxy card and return
it in the envelope provided. A failure to vote or a vote to abstain will have
the same legal effect as a vote against the Merger. If your shares are held in
"street name" by your broker, then you should instruct your broker how to vote
your shares. If you do not provide instructions to your broker, your shares will
not be voted and they will be counted as votes against the proposal to approve
and adopt the Merger Agreement. Please do not send in stock certificates now.
After the Merger is completed, we will send you written instructions for
exchanging your Common Stock certificates for the cash to which you are
entitled.
SHAREHOLDERS ARE URGED TO READ AND CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND TO CONSULT WITH THEIR PERSONAL FINANCIAL
AND TAX ADVISORS.
iii
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction................................................ i
Summary..................................................... 1
Date, Time and Place of the Special Meeting............... 1
Purpose of the Special Meeting............................ 1
Record Date and Quorum.................................... 1
Vote Required............................................. 1
Parties to the Merger..................................... 2
The Merger................................................ 3
Effective Time of the Merger and Payment for Shares....... 3
The Special Committee's and Board's Recommendation........ 3
Opinion of Financial Advisor.............................. 4
Purpose and Reasons of the Affiliates for the Merger...... 4
Position of the Affiliates as to Fairness of the Merger... 5
Conflicts of Interest..................................... 5
Certain Effects of the Merger............................. 6
Conditions to the Merger, Termination and Expenses........ 7
Federal Income Tax Consequences........................... 9
Rights of Dissenting Shareholders......................... 9
Accounting Treatment...................................... 9
Financing of the Merger................................... 9
Market Prices of Common Stock and Dividends............... 10
The Special Meeting......................................... 12
Proxy Solicitation........................................ 12
Record Date and Quorum Requirement........................ 12
Voting Procedures; Required Vote.......................... 12
Voting and Revocation of Proxies.......................... 13
Effective Time............................................ 13
Special Factors............................................. 14
Background of the Merger.................................. 14
The Special Committee's and the Board's Recommendation.... 40
Opinion of the Financial Advisor.......................... 48
Purpose and Reasons of the Affiliates for the Merger...... 55
Position of the Affiliates as to Fairness of the Merger... 57
Conflicts of Interest..................................... 57
Certain Effects of the Merger............................. 62
Conduct of WinsLoew's Business After the Merger........... 63
Certain Forward Looking Information....................... 63
</TABLE>
iv
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Merger.................................................. 64
Conversion of Securities.................................. 64
Cash-out of WinsLoew Stock Options........................ 65
Transfer of Shares........................................ 65
Conditions................................................ 65
Representations and Warranties............................ 67
Covenants................................................. 67
Nonsolicitation Covenant.................................. 70
Indemnification and Insurance............................. 71
Expenses.................................................. 71
Termination, Amendment and Waiver......................... 71
Termination Fee........................................... 73
Escrow Deposit............................................ 73
Financing................................................. 73
Expenses of the Transaction............................... 79
Regulatory Approvals...................................... 80
Accounting Treatment...................................... 80
Rights of Dissenting Shareholders........................... 80
Federal Income Tax Consequences............................. 80
Business of the Company..................................... 82
Background................................................ 82
Competitive Strengths..................................... 85
Growth Strategy........................................... 87
Industry Dynamics and Trends.............................. 88
Products and Markets...................................... 89
Product Design and Development............................ 91
Marketing and Sales....................................... 92
Manufacturing............................................. 93
Raw Materials............................................. 94
Backlog................................................... 95
Competition............................................... 95
Trademarks and Patents.................................... 96
Environmental Matters..................................... 96
Properties................................................ 97
Employees................................................. 98
Legal Proceedings......................................... 98
Selected Consolidated Financial Data........................ 100
</TABLE>
v
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 102
General................................................... 102
Results of Operations..................................... 102
Comparison of Six Months Ended June 25, 1999 and Six
Months Ended June 26, 1998............................. 103
Comparison of Years Ended December 31, 1998 and 1997...... 104
Comparison of Years Ended December 31, 1997 and 1996...... 105
Seasonality and Quarterly Information..................... 106
Liquidity and Capital Resources........................... 108
Foreign Exchange Fluctuations and Effects of Inflation.... 110
Year 2000................................................. 110
Certain Forward Looking Information......................... 112
Management.................................................. 115
Directors and Executive Officers of WinsLoew.............. 115
Executive and Director Compensation....................... 118
Principal Shareholders and Stock Ownership of Management.... 122
Certain Information Concerning the Purchaser and Other
Affiliates................................................ 126
Certain Transactions........................................ 128
Market Prices of Common Stock and Dividends................. 129
Disclosure Regarding Forward-Looking Statements............. 130
Independent Public Accountants.............................. 131
Information Concerning Shareholder Proposals................ 131
Other Business.............................................. 131
Documents Incorporated by Reference......................... 131
Available Information....................................... 132
Index to Consolidated Financial Statements.................. F-1
</TABLE>
APPENDICES
APPENDIX A -- Second Amended and Restated Agreement and Plan of Merger
APPENDIX B -- Opinion of Mann Armistead & Epperson, Ltd. and related
Confirmation Letter
vi
<PAGE> 11
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this Summary is qualified in its
entirety by, the more detailed information contained elsewhere or incorporated
by reference in this Proxy Statement. Shareholders are urged to read this Proxy
Statement and its appendices in their entirety before voting.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting of WinsLoew will be held on Friday, August 27, 1999, at
9:00 a.m., local time, at the offices of Trivest, Inc., located at 2665 South
Bayshore Drive, Suite 800, Miami, Florida 33133.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the shareholders of the Company will consider and
vote on a proposal to approve the Merger Agreement, which is attached to this
Proxy Statement as Appendix A, pursuant to which the Purchaser, a newly-formed
Florida corporation, would merge with and into WinsLoew, with WinsLoew as the
surviving corporation in the Merger, and each outstanding share of Common Stock
of WinsLoew, other than shares held by the Purchaser will be converted
automatically into the right to receive $34.75 in cash payable to the holders
thereof, without interest (the "Cash Merger Consideration"). See "THE MERGER."
RECORD DATE AND QUORUM
The Board of Directors of the Company has fixed the close of business on
July 26, 1999 as the Record Date for the determination of shareholders entitled
to notice of, and to vote at, the Special Meeting and any adjournments or
postponements thereof. Each holder of record of Common Stock at the close of
business on the Record Date is entitled to one vote for each share then held on
each matter submitted to a vote of shareholders. At the close of business on the
Record Date, there were 7,181,908 shares of Common Stock outstanding. The
holders of a majority of the outstanding shares of Common Stock entitled to vote
at the Special Meeting must be present in person or represented by proxy to
constitute a quorum for the transaction of business. See "THE SPECIAL MEETING."
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote at the Special Meeting is required to approve
the Merger Agreement. Thus, a failure to vote or a vote to abstain will have the
same legal effect as a vote cast against approval. In addition, brokers who hold
shares of Common Stock as nominees will not have discretionary authority to vote
such shares in the absence of instructions from the beneficial owners. A broker
non-vote will have the same effect as a vote against the Merger. See "THE
SPECIAL MEETING -- Voting Procedures; Required Vote."
Shareholders (including the Management Group, certain other members of
management, the individual Trivest Investors, the Existing Trivest Shareholders,
the other members of the Board and certain shareholders affiliated or associated
with the Trivest Partnerships) who as of the record date held of record
2,570,218, or approximately 35.8%, of the outstanding shares of Common Stock
have expressed their intention to vote their
1
<PAGE> 12
shares for approval of the Merger. Holders of 4,611,690 shares of Common Stock,
or approximately 64.2%, of the outstanding shares of Common Stock, remain
uncommitted with respect to how they will vote on the Merger. Accordingly, the
affirmative vote by holders of Common Stock representing approximately 1,020,737
(or 22.1%) of such uncommitted shares, or approximately 14.2% of the outstanding
shares, will be required to approve the Merger.
PARTIES TO THE MERGER
THE COMPANY.
WinsLoew is a leading designer, manufacturer and distributor of a broad
offering of casual outdoor furniture and seating products. WinsLoew also
manufactures certain ready-to-assemble furniture products. WinsLoew's casual
furniture includes chairs, chaise lounges, tables, umbrellas and related
accessories, which are generally constructed from aluminum, wrought iron, wood
or fiberglass. WinsLoew's seating products include wood, metal and upholstered
chairs, sofas and loveseats, which are offered in a wide variety of finish and
fabric options. All of WinsLoew's casual furniture and seating products are
manufactured pursuant to customer orders. WinsLoew sells its furniture products
to residential users (commonly referred to as the residential market) and to
commercial and institutional users (commonly referred to as the contract
market). WinsLoew believes that its success is attributable to its proven
ability to consistently deliver high quality, innovatively-styled products on a
timely basis with superior customer service.
The principal executive offices of the Company are located at 160 Village
Street, Birmingham, Alabama 35242. The Company's telephone number is (205)
408-7600. See "BUSINESS OF THE COMPANY."
THE PURCHASER.
The Purchaser is a newly-formed Florida corporation organized at the
direction of the Trivest Partnerships, each of which is a private investment
partnership. See "CERTAIN INFORMATION CONCERNING THE PURCHASER AND OTHER
AFFILIATES." Immediately prior to the consummation of the Merger, the Trivest
Investors, the members of the Management Group and the participating Eligible
Persons will purchase shares of Purchaser common stock for cash or contribute to
the Purchaser shares of WinsLoew Common Stock in exchange for shares of
Purchaser common stock as follows:
- The Trivest Investors. The Trivest Investors together will acquire an
aggregate of approximately 95.2% of the outstanding Purchaser common
stock. The Trivest Investors include the Trivest Partnerships, Messrs.
Powell and George and three individuals affiliated or associated with the
Trivest Partnerships. See "SPECIAL FACTORS -- Purpose and Reasons of the
Affiliates for the Merger" and "-- Conflicts of Interest."
- The Management Group. The members of the Management Group together will
acquire an aggregate of approximately 4.8% of the outstanding Purchaser
common stock. The members of the Management Group are the following
executive officers of WinsLoew: Bobby Tesney, President and Chief
Executive Officer, Stephen C. Hess, Executive Vice President, Casual
Furniture, R. Craig Watts, Executive Vice President, Contract Seating,
Vincent A. Tortorici, Jr., Vice President and Chief Financial Officer,
Rick J. Stephens, Vice President, Operations, and Jerry C. Camp, Vice
President, Casual Furniture Operations. See "SPECIAL FACTORS --
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<PAGE> 13
Purpose and Reasons of the Affiliates for the Merger" and "-- Conflicts
of Interest."
- The Eligible Persons. Approximately 35 Eligible Persons (not including
members of the Management Group) will individually be offered the
opportunity to purchase shares of common stock of the Purchaser and/or
contribute any or all of their shares of Common Stock to the Purchaser in
exchange for common stock of the Purchaser. Alternatively, the Eligible
Persons will be offered the opportunity to acquire shares of WinsLoew
common stock for cash following the consummation of the Merger.
After the Merger, the Trivest Directors and the Management Director will
continue to serve as directors of WinsLoew, and the six members of the
Management Group will continue to serve as executive officers of WinsLoew. See
"SPECIAL FACTORS -- Conflicts of Interest."
The executive offices of the Purchaser are located at 2665 South Bayshore
Drive, Suite 800, Miami, Florida 33133. The Purchaser's telephone number is
(305) 858-2200.
THE MERGER
The Merger Agreement provides that subject to satisfaction of certain
conditions, the Purchaser will be merged with and into WinsLoew, and that
following the Merger, the separate existence of the Purchaser will cease and
WinsLoew will continue as the surviving corporation owned by the shareholders of
the Purchaser. At the effective time of the Merger, which shall be the date and
time of filing of Articles of Merger with the Secretary of State of the State of
Florida (the "Effective Time"), and subject to the terms and conditions set
forth in the Merger Agreement, each share of issued and outstanding Common Stock
(other than shares held by the Purchaser) will, by virtue of the Merger, be
canceled and converted into the right to receive $34.75 in cash, without
interest. As a result of the Merger, WinsLoew's Common Stock will no longer be
publicly traded and will be 100% owned by the shareholders of the Purchaser. See
"THE MERGER."
EFFECTIVE TIME OF THE MERGER AND PAYMENT FOR SHARES
The Effective Time is currently expected to occur as soon as practicable
after the Special Meeting, subject to approval of the Merger Agreement at the
Special Meeting and satisfaction or waiver of the terms and conditions of the
Merger Agreement. See "-- Conditions to the Merger, Termination and Expenses"
and "THE MERGER -- Conditions." Detailed instructions with regard to the
surrender of share certificates, together with a letter of transmittal, will be
forwarded to shareholders by the Company's transfer agent, American Stock
Transfer & Trust Company (the "Disbursing Agent"), promptly following the
Effective Time. Shareholders should not submit their certificates to the
Disbursing Agent until they have received such materials. The Disbursing Agent
will send payment of the Cash Merger Consideration to shareholders as promptly
as practicable following receipt by the Disbursing Agent of their certificates
and other required documents. No interest will be paid or accrued on the cash
payable upon the surrender of certificates. See "THE MERGER -- Conversion of
Securities." Shareholders should not send any share certificates at this time.
THE SPECIAL COMMITTEE'S AND BOARD'S RECOMMENDATION
The Trivest Directors and the Management Director will have financial
interests in the Purchaser and are therefore subject to conflicts of interest in
evaluating the Merger.
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<PAGE> 14
Accordingly, in January 1999, the Board appointed the Special Committee,
comprised of all five disinterested directors, to evaluate and make
recommendations with respect to the Merger and other strategic options. Based on
the factors set forth in this Proxy Statement (see "SPECIAL FACTORS -- The
Special Committee's and the Board's Recommendation" and "-- Conflicts of
Interest."), the Special Committee recommended to the Board that the Merger
Agreement be approved and that it be recommended to the shareholders of the
Company. Following the recommendation of the Special Committee, the Board
approved the Merger Agreement and recommended that the shareholders of the
Company approve the Merger Agreement. In connection with the foregoing, the
Special Committee and the Board determined that the Merger is substantively and
procedurally fair to, and in the best interests of, the shareholders of the
Company other than the Purchaser, the members of the Management Group, the
Trivest Investors and the Trivest Directors (the "Public Shareholders"). In
connection with their recommendations, the Special Committee and the Board each
adopted the analyses and findings of the Special Committee's financial advisor,
Mann Armistead & Epperson, Ltd. ("Mann Armistead"). See "SPECIAL
FACTORS -- Opinion of Financial Advisor."
THE SPECIAL COMMITTEE AND THE BOARD RECOMMEND THAT THE SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
Mann Armistead provided its opinion to the Special Committee that, as of
the date of such opinion, the Cash Merger Consideration was fair from a
financial point of view to the Public Shareholders of the Company.
The full text of the written opinion of Mann Armistead, dated as of May 4,
1999, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with such opinion, is attached hereto as
Appendix B and is incorporated herein by reference. The opinion of Mann
Armistead referred to herein does not constitute a recommendation as to how any
holder of such shares should vote with respect to the Merger. Holders of shares
of Common Stock are urged to, and should, read such opinion in its entirety. See
"SPECIAL FACTORS -- Opinion of Financial Advisor."
The Company has agreed to pay Mann Armistead aggregate fees of $1,877,783
in connection with its services as financial advisor to the Special Committee
and the Company and its rendering of such opinion. See "SPECIAL
FACTORS -- Opinion of Financial Advisor." The Company has agreed to reimburse
Mann Armistead for its reasonable out-of-pocket expenses, including attorneys'
fees, and to indemnify Mann Armistead against certain liabilities, including
certain liabilities under the federal securities laws.
PURPOSE AND REASONS OF THE AFFILIATES FOR THE MERGER
The purpose of the Purchaser, the members of the Management Group, the
Trivest Partnerships and the Trivest Directors (collectively, the "Affiliates")
for engaging in the transactions contemplated by the Merger Agreement is to
acquire, together with any participating Eligible Persons, 100% of the ownership
of the Company. As a result of the Merger, the Trivest Partnerships and the
Trivest Directors together will increase their beneficial interest in WinsLoew's
Common Stock from approximately 30.1% to approximately 94.8% (less the interest
acquired by the Eligible Persons), and the members of the Management Group
together will decrease their beneficial interest in WinsLoew from approximately
6.9% to approximately 4.8%. The Affiliates believe that as a private
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<PAGE> 15
company WinsLoew will have greater flexibility to focus on enhancing value by
emphasizing growth and operating cash flow without the constraint of the public
market's emphasis on quarterly earnings. See "SPECIAL FACTORS -- Purpose and
Reasons of the Affiliates for the Merger."
POSITION OF THE AFFILIATES AS TO FAIRNESS OF THE MERGER
Each of the Affiliates has considered the analyses and findings of the
Special Committee and the Board (described in detail in "SPECIAL FACTORS -- The
Special Committee's and the Board's Recommendation") with respect to the
fairness of the Merger to the Public Shareholders of the Company. As of the date
of this Proxy Statement, each of the Affiliates adopts the analyses and findings
of the Special Committee and the Board with respect to the fairness of the
Merger and believes that the Merger is both procedurally and substantively fair
to, and in the best interests of, the Company's Public Shareholders; provided
that no opinion is expressed as to the fairness to any shareholder making an
investment in the Purchaser. See "SPECIAL FACTORS -- Position of the Affiliates
as to Fairness of the Merger." The Trivest Directors have financial interests in
the Merger and the members of the Management Group have financial and employment
interests in the Merger. See "SPECIAL FACTORS -- Conflicts of Interest."
CONFLICTS OF INTEREST
In considering the recommendation of the Board with respect to the Merger,
shareholders should be aware that certain officers and directors of WinsLoew and
affiliates and associates of these officers and directors have interests in
connection with the Merger which may present them with actual or potential
conflicts of interest, which are described in more detail under "SPECIAL
FACTORS -- Conflicts of Interest."
The Trivest Directors. Upon consummation of the Merger, the Trivest
Directors will receive an aggregate of approximately $71.5 million in respect of
(i) Cash Merger Consideration on the same terms as other shareholders for shares
of Common Stock not contributed to the Purchaser and (ii) outstanding options to
purchase shares of Common Stock (including approximately $59.2 million of Cash
Merger Consideration for the shares of Common Stock held by the Existing Trivest
Shareholders). See "SPECIAL FACTORS -- Conflicts of Interest -- Cash Payments to
the Trivest Directors and Members of the Management Group." In addition, after
the Merger, the Trivest Directors together will beneficially own an
approximately 94.8% interest in WinsLoew (including the 89.8% interest to be
acquired by the Trivest Partnerships). In addition, each Trivest Director is an
indirect investor in the Trivest Partnerships. See "SPECIAL FACTORS -- Conflicts
of Interest -- Post-Merger Ownership and Control of WinsLoew." After the Merger,
WinsLoew's Board will be comprised of Messrs. Powell, George, Kaczynski, Klein
and Tesney. In addition, the Trivest Partnerships and Messrs. Powell and George
will enter into a shareholders' agreement with the Purchaser and the member of
the Management Group that will restrict such shareholders' ability to transfer
the shares of WinsLoew Common Stock to be owned by them after the Merger and
will create certain other rights and obligations in respect of such shares.
Payments to Trivest. Upon consummation of the Merger, the Company will pay
a financial advisory fee to Trivest II, Inc., an investment adviser affiliated
with the Trivest Partnerships and related funds ("Trivest"), of $3.0 million for
services rendered in connection with the financing of the Merger and related
transactions. In addition, after
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<PAGE> 16
consummation of the Merger, WinsLoew will pay Trivest an annual management fee
of $350,000, subject to increase under certain circumstances, for ongoing
financial advisory services and specified fees in connection with certain
acquisitions, dispositions and other transactions. See "CERTAIN TRANSACTIONS."
The Management Group. Upon consummation of the Merger, the members of the
Management Group will receive an aggregate of approximately $15.1 million in
respect of (i) Cash Merger Consideration on the same terms as other shareholders
for shares of Common Stock not contributed to the Purchaser and (ii) outstanding
options to purchase shares of Common Stock. See "SPECIAL FACTORS -- Conflicts of
Interest -- Cash Payments to the Trivest Directors and Members of the Management
Group." In addition, after the Merger, the members of the Management Group
together will beneficially own an approximately 4.8% interest in WinsLoew. See
"SPECIAL FACTORS -- Conflicts of Interest -- Post-Merger Ownership and Control
of WinsLoew." Each member of the Management Group will remain an executive
officer of the Company and Bobby Tesney, the President and Chief Executive
Officer, will continue to serve on the Board of the Company immediately
following the Merger. As stated above, each member of the Management Group will
enter into a shareholders' agreement with the Purchaser, the Trivest
Partnerships and Messrs. Powell and George that will restrict the executives'
ability to transfer the shares of WinsLoew Common Stock to be owned by him after
the Merger and will create certain other rights and obligations in respect of
such shares. Certain members of the Management Group will, prior to the Merger,
enter into new employment agreements with WinsLoew replacing their existing
employment agreements. The new employment agreements will provide for
substantially the same base salaries and annual cash bonuses as their existing
employment agreements.
The Special Committee. Upon consummation of the Merger, the members of the
Special Committee will receive an aggregate of approximately $9.4 million in
respect of (i) the Cash Merger Consideration for their shares of Common Stock
and (ii) outstanding options to purchase Common Stock. As compensation for
serving on the Special Committee, which met approximately 30 times from January
1999 through the date of this Proxy Statement, the Chairman of the Special
Committee will receive a fee in the amount of $30,000, and the other members of
the Special Committee will each receive $22,500. Members of the Special
Committee will be entitled to certain indemnification rights granted under the
Merger Agreement to the current and former directors and officers of the
Company. See "SPECIAL FACTORS -- Conflicts of Interest."
Indemnification and Insurance. The Merger Agreement provides that all
rights to indemnification for acts or omissions occurring prior to the Effective
Time now existing in favor of the current or former directors or officers of the
Company and its subsidiaries (including the members of the Special Committee)
shall survive the Merger and shall continue in accordance with their terms. In
addition, the directors and executive officers of the Company will be provided
with continuing directors' and officers' liability insurance coverage following
the Merger, subject to certain limitations. See "SPECIAL FACTORS -- Conflicts of
Interest."
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest in the Company will
be owned by the Trivest Investors, the Management Group and by the participating
Eligible Persons. The Public Shareholders will no longer have any interest in,
and will not be shareholders of, WinsLoew, and therefore will not participate in
WinsLoew's future earnings and
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<PAGE> 17
potential growth. Instead, the Public Shareholders will have the right to
receive $34.75 in cash, without interest, for each share held. An equity
investment in the Company following the Merger involves substantial risk
resulting from the limited liquidity of any such investment and the leverage
resulting from the borrowings that will be required to fund the payment of the
Cash Merger Consideration as well as any future borrowings necessary to support
the Company's business strategy. Nonetheless, if the Company successfully
executes its business strategy, the value of such an equity investment is
expected to be considerably greater than the original cost thereof. See "SPECIAL
FACTORS -- Conflicts of Interest" and "CERTAIN FORWARD LOOKING INFORMATION."
In addition, the Common Stock will no longer be traded on the Nasdaq
National Market and price quotations with respect to sales of shares in the
public market will no longer be available. The registration of the Common Stock
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), will
terminate, and this termination will eliminate the Company's obligation to file
periodic financial and other information with the Securities and Exchange
Commission (the "Commission") and will make most other provisions of the
Exchange Act inapplicable. See "SPECIAL FACTORS -- Certain Effects of the
Merger."
CONDITIONS TO THE MERGER, TERMINATION AND EXPENSES
Each party's obligation to effect the Merger is subject to satisfaction of
a number of conditions, including with respect to one or both parties: (i) the
Merger Agreement shall have been approved by holders of a majority of the
outstanding shares of Common Stock, (ii) all required consents and approvals
shall have been obtained, and (iii) the representations and warranties of the
parties shall be true and correct in all material respects as of the Effective
Time except as contemplated by the Merger Agreement. Any or all of the
conditions that have not been satisfied may be waived (other than the condition
that the Merger Agreement shall have been approved by holders of a majority of
the outstanding shares of Common Stock). After approval of the Merger Agreement
by the shareholders of WinsLoew, however, no condition may be waived which
reduces the amount or changes the form of the Cash Merger Consideration to be
received by the shareholders or that by law would require further approval of
the shareholders of WinsLoew unless a waiver of such condition is approved by
the shareholders. See "THE MERGER -- Conditions." Even if the shareholders
approve the Merger Agreement, there can be no assurance that the Merger will be
consummated.
At any time prior to the Effective Time, the Merger Agreement may be
terminated by the mutual written consent of WinsLoew and the Purchaser. In
addition, either WinsLoew or the Purchaser may terminate the Merger Agreement
prior to the Effective Time if (i) a court or other governmental entity
permanently enjoins, restrains or prohibits the Merger and such action is final
and non-appealable or (ii) the Effective Time shall not have occurred on or
before August 31, 1999, unless extended by agreement of the Purchaser and the
Company. See "THE MERGER -- Termination, Amendment and Waiver."
The Merger Agreement may be terminated by the Purchaser prior to the
Effective Time if: (i)(A) the representations and warranties of the Company as
to its capitalization shall not have been true and correct in all material
respects when made, or (B) any other representation or warranty of the Company
shall not have been true and correct in all material respects when made, except
in any case where such failure to be true and correct would not, in the
aggregate, (x) have a material adverse effect on the Company, or
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<PAGE> 18
(y) prevent or delay the consummation of the Merger; (ii) the Company shall have
failed to comply in any material respect with any of its material obligations or
covenants contained in the Merger Agreement, except in any case where such
failure would not, in the aggregate, (A) have a material adverse effect on the
Company, or (B) prevent or materially delay consummation of the Merger; (iii)
there shall have been a material adverse change with respect to the Company,
provided that the Company shall, if curable, have a reasonable period in which
to cure any failure described in clause (i), (ii) or (iii) of this paragraph; or
(iv)(A) the Board or the Special Committee fails to approve and recommend or
withdraws or modifies in a manner adverse to the Purchaser its approval or
recommendation of the Merger or the Merger Agreement, or approves or recommends
any Acquisition Proposal, (B) the Company enters into any agreement with respect
to any Superior Proposal following written notice to the Purchaser and payment
of the Termination Fee discussed below, or (C) the Board or the Special
Committee resolves to take any such action in clauses (iv)(A) or (B).
An "Acquisition Proposal" is defined under the Merger Agreement to include
any inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or purchase of 20% or more of the assets of the Company and
its subsidiaries or 20% or more of any class of equity securities of the Company
or any of its subsidiaries, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 20% or more of any
class of equity securities of the Company or any of its subsidiaries, any
merger, consolidation, business combination, sale of all or substantially all
the assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries (other than the transactions
between the parties to the Merger Agreement contemplated by the Merger
Agreement), or any other transaction the consummation of which could reasonably
be expected to impede, interfere with, prevent or materially delay the Merger or
which could reasonably be expected to dilute materially the benefits to the
Purchaser of the transactions contemplated by the Merger Agreement.
A "Superior Proposal" is defined under the Merger Agreement to include any
bona fide proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the shares
of Common Stock then outstanding or all or substantially all the assets of the
Company and otherwise on terms which the Board reasonably determines in its good
faith judgment (based on the advice of Mann Armistead) to be more favorable to
the Company's shareholders than the Merger.
WinsLoew may terminate the Merger Agreement (i) in connection with entering
into a definitive agreement with respect to a Superior Proposal following
written notice to the Purchaser and the payment of the Termination Fee discussed
below, and provided that the Company complies with its covenant against
soliciting, discussing or negotiating any Acquisition Proposal (except as
required by the Board's fiduciary duties), (ii) if any representation or
warranty of the Purchaser was not true and correct in all material respects when
made or has ceased to be true and correct in all material respects as if made on
such later date, (iii) if the Purchaser fails to comply in any material respect
with any of its material obligations or covenants in the Merger Agreement, or
(iv) if the Purchaser fails to pay the Cash Merger Consideration to the
Disbursing Agent not later than the tenth business day following the
satisfaction or waiver of the conditions to the obligations of the Purchaser to
consummate the Merger, provided that the Purchaser shall, if curable, have a
reasonable period in which to cure any failure described in clause (ii) or (iii)
of this paragraph. See "THE MERGER -- Nonsolicitation Covenant" and
"-- Termination, Amendment and Waiver."
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WinsLoew has agreed to pay to the Purchaser a termination fee (the
"Termination Fee") in the amount of $10.0 million, plus up to $1.5 million of
expenses of the Purchaser in the event the Merger Agreement is terminated (i) by
the Purchaser due to (A) the breach by the Company of any of its
representations, warranties or covenants, or a material adverse change with
respect to WinsLoew, each as described above, or (B)(1) the Board or the Special
Committee failing to approve and recommend or withdrawing or modifying in a
manner adverse to the Purchaser its approval or recommendation of the Merger or
the Merger Agreement, or approving or recommending any Acquisition Proposal, (2)
the Company entering into any agreement with respect to any Superior Proposal or
(3) the Board or the Special Committee resolving to take any such action in
clauses (1) or (2), or (ii) by the Company due to entering into a definitive
agreement in connection with a Superior Proposal. See "THE MERGER -- Termination
Fee."
The Purchaser has delivered a cash escrow deposit in the amount of $3.0
million to an escrow agent pending the consummation of the Merger or the
termination of the Merger Agreement. In the event that WinsLoew terminates the
Merger Agreement due to (i) any uncured material breach by the Purchaser of any
of its representations or material obligations in the Merger Agreement or (ii)
the Purchaser's failure to pay the Cash Merger Consideration to the Disbursing
Agent not later than the tenth business day following the satisfaction or waiver
of the conditions to the obligations of the Purchaser to consummate the Merger,
then, in addition, to any other remedies WinsLoew may have in respect of such
termination, the escrow deposit shall be paid to WinsLoew. Upon the consummation
of the Merger or the termination of the Merger Agreement for any other reason,
the escrow deposit shall be paid to the Purchaser. See "THE MERGER -- Escrow
Deposit."
Except as provided above, each of the parties has agreed to pay its own
costs and expenses in connection with the Merger, provided that the Purchaser
will pay any filing fees required under the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976, as amended (the "HSR Act"). See "THE
MERGER -- Termination Fee" and "-- Expenses of the Transaction."
FEDERAL INCOME TAX CONSEQUENCES
The receipt of the Cash Merger Consideration by holders of Common Stock
pursuant to the Merger will be a taxable transaction for federal income tax
purposes. All holders of Common Stock are urged to consult their tax advisors to
determine the effect of the Merger on such holders under federal, state, local
and foreign tax laws. See "FEDERAL INCOME TAX CONSEQUENCES."
RIGHTS OF DISSENTING SHAREHOLDERS
Under Florida law, WinsLoew shareholders have no right to an appraisal of
the value of their shares in connection with the Merger.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase business combination for
accounting purposes.
FINANCING OF THE MERGER
It is estimated that approximately $281.9 million will be required to
consummate the Merger and pay related fees and expenses. This sum is expected to
be provided by the
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following: (i) approximately $78.0 million in equity contributions to the
Purchaser by the Trivest Investors (reduced by an amount equal to the sum of the
aggregate value (at $34.75 per share) of the shares of Common Stock contributed
to the Purchaser by the Eligible Persons and the cash contributed to the
Purchaser or, following the consummation of the Merger, WinsLoew by the Eligible
Persons) and the Management Group; (ii) borrowings of approximately $66.6
million under a $145.0 million senior secured credit facility to be obtained by
the Purchaser, WinsLoew and its subsidiaries pursuant to a commitment letter,
dated as of April 27, 1999, from BankBoston, N.A. ("BankBoston"); (iii) the
issuance by WinsLoew of approximately $125.0 million aggregate principal amount
of senior subordinated notes that the Purchaser expects to issue based upon a
letter from Bear, Stearns & Co. Inc. ("Bear Stearns") to the effect that, as of
May 12, 1999 and subject to certain conditions, it was highly confident that it
could arrange for the sale of such notes in connection with the Merger; and (iv)
approximately $12.3 million of WinsLoew's expected cash on hand. The bank
financing commitment includes $75.0 million in term loans, a $30.0 million
revolver and a $40.0 million acquisition line for subsequent acquisitions by
WinsLoew, all to be secured by first-fee mortgages on owned real estate and
first priority security interests in substantially all of WinsLoew's assets. The
BankBoston commitment letter is subject to customary conditions, and the Bear
Stearns highly confident letter does not constitute a commitment or undertaking
by Bear Stearns to place or purchase the senior subordinated notes and does not
ensure the successful placement or completion of the offering of such notes;
moreover, the Bear Stearns letter sets forth only its expectation as of May 12,
1999 with respect to its ability to arrange a sale of the notes in connection
with the Merger. Except for the BankBoston and Trivest commitment letters, there
are no firm commitments from any person to provide equity, provide senior
financing, purchase the Company's senior subordinated notes or provide any other
financing for the Merger, and there can be no assurance that any such financing
will be obtained. See "THE MERGER -- Financing."
MARKET PRICES OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "WLFI" since December 19, 1994. The following table sets forth,
for the periods indicated, the high and low sales price per share of Common
Stock as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter............................................. $11 7/8 $ 8 1/8
Second Quarter............................................ $11 $ 8 3/8
Third Quarter............................................. $15 $10 15/16
Fourth Quarter............................................ $16 13/16 $13 5/16
1998
First Quarter............................................. $20 5/8 $13 3/4
Second Quarter............................................ $29 $20 11/16
Third Quarter............................................. $28 3/4 $15 1/2
Fourth Quarter............................................ $26 1/2 $17 7/8
1999
First Quarter............................................. $28 3/4 $23
Second Quarter............................................ $33 5/8 $27 5/8
Third Quarter (through July 27, 1999)..................... $34 1/16 $32 9/16
</TABLE>
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<PAGE> 21
On January 6, the last trading day prior to the Board meeting at which Mr.
Powell stated that he, together with the other Trivest Investors and the
Management Group, would be willing to submit a proposal to purchase the Company,
the closing price per share of the Common Stock as reported by Nasdaq was
$24 3/8. On January 15, 1999, the last trading day prior to the announcement of
the delivery of Mr. Powell's initial proposal to the Special Committee, the
closing price per share of the Common Stock as reported by Nasdaq was $27. On
January 25, the last trading day prior to the announcement of the execution of
the letter of intent relating to the Merger, the closing price per share of the
Common Stock as reported by Nasdaq was $28 1/2. On March 4, 1999, the last
trading day prior to announcement of the execution of the Merger Agreement, the
closing price per share of Common Stock as reported by Nasdaq was $26 3/4. On
March 30, 1999, the last trading day prior to the announcement of the First
Amended Merger Agreement (as hereinafter defined) increasing the per share
purchase price from $30.00 to $33.00, the closing price per share of the Common
Stock as reported by Nasdaq was $27 1/2. On May 4, 1999, the last trading day
prior to the announcement of the Second Amended Merger Agreement increasing the
per share purchase price from $33.00 to $34.75, the closing price per share of
the Common Stock as reported by Nasdaq was $32 1/4. On July 27, 1999, the last
trading day prior to the printing of this Proxy Statement, the closing price per
share of Common Stock as reported by Nasdaq was $33 1/2.
At the Record Date, there were approximately 103 holders of record of
Common Stock and approximately 2,300 persons or entities holding Common Stock in
nominee name.
The Company has not declared nor paid any cash dividends on its Common
Stock, does not anticipate that any dividends will be declared nor paid in the
foreseeable future, and intends to retain earnings to finance the development
and expansion of the Company's operations. Under the Merger Agreement, the
Company has agreed not to pay any dividends on the Common Stock prior to the
Effective Date. In addition, the Company's payment of dividends is also
restricted under the terms of its credit facilities (see Note 4 to the Company's
Consolidated Financial Statements).
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THE SPECIAL MEETING
PROXY SOLICITATION
This Proxy Statement is being delivered to WinsLoew's shareholders in
connection with the solicitation by the Board of proxies to be voted at the
Special Meeting to be held on Friday, August 27, 1999 at 9:00 a.m., local time,
at the offices of Trivest, Inc. located at 2665 South Bayshore Drive, Suite 800,
Miami, Florida 33133. All expenses incurred in connection with solicitation of
the enclosed proxy will be paid by the Company. Officers, directors and regular
employees of the Company, who will receive no additional compensation for their
services, may solicit proxies by telephone or personal call. In addition, the
Company has retained D.F. King & Co., Inc. to solicit proxies for a fee of
$6,500 plus expenses. The Company may request banks, brokers and other
custodians, nominees and fiduciaries to forward copies of the proxy material to
their principals and to request authority for the execution of proxies. The
Company may reimburse such persons for their expenses in doing so. This Proxy
Statement and the accompanying proxy card are being mailed to shareholders on or
about July 29, 1999.
RECORD DATE AND QUORUM REQUIREMENT
The Common Stock is the only outstanding voting security of the Company.
The Board has fixed the close of business on July 26, 1999 as the Record Date
for the determination of shareholders entitled to notice of, and to vote at, the
Special Meeting. Each holder of record of Common Stock at the close of business
on the Record Date is entitled to one vote for each share then held on each
matter submitted to a vote of shareholders. At the close of business on the
Record Date, there were 7,181,908 shares of Common Stock issued and outstanding
held by 103 holders of record and by approximately 2,300 persons or entities
holding in nominee name.
Prior to the Special Meeting, the Company will select one or more
inspectors of election for the meeting. Such inspectors shall determine the
number of shares of Common Stock represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive, count and
tabulate ballots and votes and determine the results thereof.
The holders of a majority of the outstanding shares entitled to vote at the
Special Meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions and shares referred to as
"broker or nominee non-votes" that are represented at the Special Meeting
(shares held by brokers or nominees as to which instructions have not been
received from the beneficial owners or other persons entitled to vote and the
broker or nominee does not have discretionary voting power on a particular
matter) are counted for purposes of determining the presence or absence of a
quorum for the transaction of business. If less than a majority of outstanding
shares of Common Stock are represented at the Special Meeting, holders of a
majority of the shares so represented may adjourn the Special Meeting to another
date, time or place, and notice need not be given of the new date, time or place
if the new date, time or place is announced at the Special Meeting before an
adjournment is taken.
VOTING PROCEDURES; REQUIRED VOTE
Approval of the Merger Agreement, which is attached as Appendix A hereto,
will require the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Special Meeting. A
failure to vote or a vote to
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abstain will have the same legal effect as a vote cast against approval. Brokers
and, in many cases, nominees will not have discretionary power to vote on the
proposal to be presented at the Special Meeting. Accordingly, beneficial owners
of shares should instruct their brokers or nominees how to vote. A broker or
nominee non-vote will have the same effect as a vote against the Merger.
Shareholders (including the Management Group, certain other members of
management, the Trivest Directors, the Existing Trivest Shareholders, the other
members of the Board and certain shareholders affiliated or associated with the
Trivest Partnerships) who as of the record date held of record 2,570,218, or
approximately 35.8%, of the outstanding shares of Common Stock have expressed
their intention to vote their shares for approval of the Merger. Holders of
4,611,690, or approximately 64.2%, of the outstanding shares of Common Stock
remain uncommitted with respect to how they will vote on the Merger.
Accordingly, the affirmative vote by holders of Common Stock representing
approximately 1,020,737 (or 22.1%) of such uncommitted shares, or approximately
14.2% of the outstanding shares, will be required to approve the Merger.
Under Florida law, WinsLoew shareholders have no right to an appraisal of
the value of their shares in connection with the Merger.
VOTING AND REVOCATION OF PROXIES
The giving of a proxy does not preclude the right to vote in person should
any shareholder giving the proxy so desire. Shareholders have an unconditional
right to revoke their proxy at any time prior to the exercise thereof, either in
person at the Special Meeting or by filing with the Company's Secretary at the
Company's headquarters a written revocation or duly executed proxy bearing a
later date; however, no such revocation will be effective until written notice
of the revocation is received by the Company at or prior to the Special Meeting.
Subject to such revocation, all shares represented by each properly executed
proxy received by the Secretary of WinsLoew will be voted in accordance with the
instructions indicated thereon, and if no instructions are indicated, will be
voted to approve the Merger and in such manner as the persons named on the
enclosed proxy card in their discretion determine upon such other business as
may properly come before the Special Meeting.
The shares represented by the accompanying proxy card and entitled to vote
will be voted if the proxy card is properly signed and received by the Secretary
of the Company prior to the Special Meeting.
EFFECTIVE TIME
The Merger will be effective as soon as practicable following shareholder
approval of the Merger Agreement and upon the filing of Articles of Merger with
the Secretary of State of the State of Florida. The Effective Time is currently
expected to occur as soon as practicable after the Special Meeting, subject to
approval of the Merger Agreement at the Special Meeting and satisfaction or
waiver of the terms and conditions set forth in the Merger Agreement. See "THE
MERGER -- Conditions."
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<PAGE> 24
SPECIAL FACTORS
BACKGROUND OF THE MERGER
PAST CONTACTS, TRANSACTIONS AND NEGOTIATIONS.
WinsLoew's growth strategies have, since inception, included the
acquisition of complementary product lines, and, as part of its efforts to
pursue appropriate acquisition opportunities, WinsLoew regularly engages in
discussions with industry participants regarding possible transactions. During
the period from February 1998 through February 1999, representatives of the
Company, including Messrs. Powell, Kaczynski and Tesney, contacted, or responded
to inquiries from, 26 direct competitors and 30 other furniture manufacturers
with respect to WinsLoew's interest in exploring potential acquisitions,
combinations or other transactions with such companies. During that period and
in response to such contacts, the Company entered into confidentiality
agreements or fee reimbursement agreements with nine direct competitors and
eight other manufacturers. The remaining companies contacted declined to pursue
discussions with the Company. Ultimately, WinsLoew entered into letters of
intent with three of the competitors with whom it had entered into
confidentiality agreements. Of these, WinsLoew acquired one, Villella, Inc.
d/b/a Tropic Craft Aluminum Furniture Manufacturers, and has entered into a
stock purchase agreement to acquire another, Miami Metal Products, Inc. d/b/a
Pompeii Furniture Industries and its affiliate, Industrial Mueblera Pompeii de
Mexico, S.A. de C.V. (together, "Pompeii"). See "BUSINESS OF THE COMPANY --
Background." Following initial due diligence, WinsLoew determined not to pursue
an acquisition of the third competitor. In addition, in May and June of 1998 and
February and March of 1999, WinsLoew and Trivest contacted and engaged in a
number of discussions with a publicly held manufacturer engaged primarily in the
contract seating markets of the furniture industry (the "Potential Transaction
Party"), with whom the Company had entered into a confidentiality agreement.
These discussions led to a general understanding of terms regarding a possible
business combination. Management and Trivest proposed the transaction to the
Special Committee at a March 18 Board meeting; however, the Special Committee
elected not to pursue such transaction at that time. Subsequently, at a March 30
Board meeting, the Chairman of the Board confirmed that the Board would not be
asked to make a final decision with respect to the proposed business combination
with the Potential Transaction Party until the completion of management's due
diligence investigation. The Potential Transaction Party terminated discussions
with the Company in April 1999, and, consequently, the Special Committee was not
requested to make such a final decision. WinsLoew is currently continuing to
evaluate acquisitions of three of the other companies that signed
confidentiality agreements. However, other than Pompeii, WinsLoew has not
reached any agreements in principle with, or made any formal proposals to, any
of the foregoing 56 companies, and WinsLoew is not currently in discussions with
any such company relating to a possible acquisition by WinsLoew.
In addition to pursuing WinsLoew's acquisition strategy, at various times
during 1997 and 1998, the Board considered certain limitations on the Company's
operating flexibility related to the public market's emphasis on quarterly
earnings. As a result, in April 1998, representatives of the Company, including
certain members of senior management and certain of the Trivest Directors, met
with representatives of Mann Armistead to discuss various strategic alternatives
that might enable the Company's shareholders to realize the inherent value of
their shares of Common Stock. As part of such discussions, Mann
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<PAGE> 25
Armistead and the WinsLoew representatives considered a number of publicly and
privately owned furniture manufacturers with whom a strategic combination might
be feasible. In May 1998, Mann Armistead contacted two publicly owned furniture
manufacturers regarding a potential sale of, or combination with, the Company.
See "-- Opinion of the Financial Advisor" for a description of the terms of Mann
Armistead's current and previous engagements with WinsLoew. Management of the
Company and Trivest selected these two furniture manufacturers from among those
identified by Mann Armistead based primarily on their belief that it would not
be in the best interests of the Company's shareholders to receive the stock of
any of the other proposed companies as consideration. Of the two competitors
contacted by Mann Armistead, one declined to pursue discussions with the
Company, and the other (the "Potential Acquiror") expressed an interest in
discussing a possible transaction. During the summer of 1998, representatives of
the Potential Acquiror and representatives of WinsLoew, including Messrs.
Kaczynski, Powell and Tesney, as well as representatives of Mann Armistead, met
several times to discuss a possible strategic transaction. These discussions
resulted in a July 1998 proposal by the Potential Acquiror to acquire the
Company in a transaction that would value WinsLoew's Common Stock at $25.00 per
share. WinsLoew declined such proposal and has had no further discussions with
the Potential Acquiror, except that Mann Armistead contacted the Potential
Acquiror as part of its solicitation process described below.
THE INITIAL MERGER AGREEMENT.
On January 7, 1999, at a regular meeting of the Board, the foregoing
exploratory efforts were reviewed by the Board. Certain members of the Board
also noted their belief that the low trading price of the Common Stock did not,
in their view, reflect the Company's financial and operating performance. Among
other items, directors noted that although the Company had announced its
expectation that 1998 earnings would be in excess of analysts' projections,
there had been no appreciable increase in the trading price of the Common Stock.
Members of the Board went on to discuss how the foregoing was exacerbated by the
Company's relatively small market capitalization and the relatively low level of
trading in the Common Stock on the Nasdaq National Market. Finally, members of
the Board expressed concern about how long it would take for the trading price
of the Common Stock to reflect its inherent value.
At the conclusion of that meeting, Mr. Powell suggested that he, on behalf
of certain partnerships affiliated with Mr. Powell or Trivest (not presently
holders of WinsLoew Common Stock), together with certain members of senior
management, would be willing to submit a proposal to purchase the Company in an
all-cash transaction. At that time, because of the potential conflicts of
interest, the Board appointed a Special Committee of outside directors to
consider whether a sale of the Company would be in the best interests of the
shareholders and to consider and make recommendations with respect to any formal
proposal that might be submitted, as well as other possible strategic
alternatives. The Special Committee consists of James S. Smith (the Chairman of
the Special Committee), William H. Allen, Jr., Henry C. Cheek, M. Miller Gorrie,
and Sherwood M. Weiser. At the January 7 meeting, the Board authorized the
Special Committee to establish such procedures, review such information and
engage such financial advisors and legal counsel as it deemed reasonable and
necessary to carry out its duties, and to conduct negotiations with respect to
any proposed transaction. For their services on the Special Committee, the
Company has agreed to pay the Chairman a fee of $30,000 and each other member a
fee of $22,500. See "SPECIAL FACTORS -- Conflicts of Interest."
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<PAGE> 26
The Special Committee members are the only members of the Board who are not
either employees of WinsLoew or participating as purchasers in the Merger,
except that Mr. Weiser and members of his family are indirect investors in
Trivest Fund II Group, Ltd., one of the Trivest Partnerships, which investment
is not a significant part of the assets of Mr. Weiser or his family or of
Trivest Fund II Group, Ltd. The Special Committee members discussed these
financial interests and determined that they would not impact Mr. Weiser's
independence or judgment and that his value to the Special Committee outweighed
any possible conflict of interest. All members of the Special Committee hold
shares of Common Stock and options to purchase shares of Common Stock. See
"SPECIAL FACTORS -- Conflicts of Interest." In addition, Mr. Smith and members
of his family are limited partners of two of the Existing Trivest Shareholders,
which investment is not a significant part of the assets of Mr. Smith or his
family or of such Existing Trivest Shareholders. All of the shares of Common
Stock held by the Existing Trivest Shareholders and the members of the Special
Committee will be converted into the right to receive the Cash Merger
Consideration, and all options held by the members of the Special Committee will
be canceled in exchange for cash, on the same terms as the Public Shareholders.
The Common Stock beneficially owned by the members of the Special Committee is
significant, which was viewed as a positive factor in their ability to determine
the best interests of the WinsLoew shareholders. See "PRINCIPAL SHAREHOLDERS AND
STOCK OWNERSHIP."
On January 11, the Special Committee contacted Mann Armistead regarding its
possible engagement by the Special Committee in connection with its appointment
to consider the possible proposal by Mr. Powell and other strategic
alternatives.
On January 15, 1999, Mr. Powell made a formal proposal to the Special
Committee on behalf of a corporation to be formed by the Trivest Partnerships
and certain members of senior management to acquire all of the outstanding
shares of Common Stock not owned at the time of the Merger by such persons,
subject to certain terms and conditions. The Trivest Partnerships are affiliated
with Mr. Powell but are not presently holders of Common Stock. Mr. Powell's
proposal was set forth in a letter of intent (the "Letter of Intent") that
provided that the proposed transaction would be structured as a cash merger in
which shareholders not investing in the Purchaser would receive $30.00 per share
(and each holder of outstanding options to purchase Common Stock would receive a
cash payment equal to the difference between $30.00 per share and the per share
exercise price of such options). The draft Letter of Intent also provided for a
termination fee of $6.0 million to be paid by the Company to the Purchaser in
certain circumstances. Mr. Powell also provided the Special Committee with a
draft merger agreement (the "Initial Merger Agreement") for review by the
Special Committee and its legal and financial advisors. Prior to the opening of
the market on Monday, January 18, the first trading day after the delivery of
the Merger proposal, the Company issued a press release announcing its receipt
of the Merger proposal and the establishment of the Special Committee.
On January 19, the Special Committee engaged Balch & Bingham LLP ("Balch &
Bingham") as its legal counsel. Also on January 19, the Special Committee
engaged Mann Armistead regarding the possible sale of all or part of the assets
or stock of the Company, evaluating the Merger, soliciting and evaluating other
potential buyers for the Company, participating in negotiations with the
Purchaser or another potential acquiror, and providing a fairness opinion
related to a definitive agreement and closing of a sale transaction.
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<PAGE> 27
The Special Committee engaged Mann Armistead based on its nationally
recognized experience in the furniture manufacturing industry and its expertise
in the evaluation of businesses in connection with transactions similar to the
Merger. The Special Committee considered Mann Armistead's specific knowledge of,
and familiarity with, WinsLoew's business, financial condition and results of
operations in connection with the Company's 1998 retainer of Mann Armistead to
evaluate a number of furniture manufacturers in connection with a possible
strategic transaction, as described above. The Special Committee also considered
that management's prior contacts with Mann Armistead had focused primarily on
the feasibility of a sale of the Company to an unaffiliated strategic buyer and,
therefore, did not create a conflict of interest with respect to the Special
Committee's engagement of Mann Armistead.
Neither the Board nor the Special Committee determined that it was
necessary to elect additional outside directors to act on behalf of the
Company's public shareholders for the purpose of negotiating the terms of the
Initial Merger Agreement based upon, among other factors, the engagement of
independent legal counsel to the Special Committee, the engagement of Mann
Armistead as its financial advisor and the absence of any affiliation on the
part of the members of the Special Committee with the Purchaser that was deemed
to be problematic.
In its January 19 meeting, the Special Committee discussed with
representatives of Mann Armistead and Balch & Bingham various issues raised by
the Merger proposal and Letter of Intent, including whether the sale of the
Company at this time was in the best interests of the shareholders, the
desirability of soliciting other offers, and whether entering into the Letter of
Intent would facilitate or inhibit the possible sale of the Company at a higher
price. The Special Committee also considered the size and effect of any
termination fee to the Purchaser, the process for obtaining a fairness opinion
and the procedure to identify other strategic alternatives, including the sale
of the Company in whole or in part. The Special Committee was concerned, and
discussed with Mann Armistead, that while the $30.00 price may be in the range
of fair, a higher price might be obtainable. The Special Committee instructed
Mann Armistead to commence solicitation of offers from other potential acquirors
and investigation and analysis of the value of the Company and the Merger
proposal.
On January 20, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham and Mann Armistead to discuss other potential
acquirors of the Company. The Special Committee approved a list of the ten most
likely possible acquirors identified by Mann Armistead, which included the
Potential Acquiror with which the Company held discussions in 1998. In addition,
Mr. Smith reported on his discussions with Mr. Powell in which Mr. Smith had
attempted to negotiate a reduction in the termination fee in the Letter of
Intent, which Mr. Powell declined to do.
On January 22, after consultation with Mr. Smith and representatives of
Mann Armistead, Balch & Bingham submitted comments on the Letter of Intent to
the Purchaser and its counsel, Greenberg Traurig, P.A. ("Greenberg Traurig"),
which the Purchaser accepted. Later the same day, the Special Committee held a
telephonic meeting with representatives of Mann Armistead and Balch & Bingham
during which they discussed the Special Committee's possible recommendation to
the Board of the revised Letter of Intent. The revised Letter of Intent
permitted the Company (i) for 90 days from execution, to solicit or participate
in discussions or negotiations regarding any acquisition proposal that could
reasonably be expected to result in a more favorable proposal, and (ii) to (A)
approve or recommend a more favorable proposal, (B) cause the Company to
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<PAGE> 28
enter into an agreement with respect to a more favorable proposal or (C)
terminate the Letter of Intent, but in each case only upon three days' written
notice and the payment of a termination payment of $6.0 million and
reimbursement of the Purchaser's expenses up to $1.2 million. The Letter of
Intent also provided that the parties would each pay their own costs and
expenses, except as provided above. The Special Committee believed that the
provisions of the Letter of Intent regarding the termination fee and expense
reimbursement obligations were not unreasonable and would not have the effect of
discouraging competing bids and that the Purchaser would not enter into the
Letter of Intent and incur various costs and expenses to secure financing for
the Merger without such provisions. During the same meeting, representatives of
Mann Armistead reported on its contacts with the possible acquirors that it had
identified and its preliminary views regarding the value of the Common Stock,
including that the $30.00 price per share price fell within the range of fair.
The Special Committee directed Mann Armistead to solicit interest from parties
in addition to the ten on the initial list. The Special Committee also directed
Mr. Smith to attempt to negotiate a higher price with the Purchaser. The Special
Committee agreed, however, that entering into the Letter of Intent would be
advisable in order to negotiate the terms of the Merger with the Purchaser while
continuing the solicitation process.
On January 22, Mr. Smith and Mr. Powell discussed by telephone an increase
in the $30.00 price per share, which Mr. Powell declined to do.
On January 25, at a special telephonic meeting of the Board of Directors at
which all of the directors participated except Messrs. Cheek and Gorrie, Mr.
Smith made a presentation to the Board to the effect that the Special Committee
had determined that the execution of the Letter of Intent in its revised form
dated January 22, 1999 containing the $30.00 per share Merger proposal was in
the best interest of the Company and its shareholders and that the Special
Committee had recommended that the execution of the Letter of Intent be approved
by the Board. The Board unanimously (except for Messrs. Cheek and Gorrie, who
did not participate) approved the execution of the Letter of Intent. Later that
same day, the Letter of Intent was executed, and the Company issued a press
release announcing the same.
Later the same day, the Special Committee held a telephonic meeting with
representatives of Mann Armistead and Balch & Bingham to discuss the Letter of
Intent and Mann Armistead's solicitation efforts. Mann Armistead reported that
its contacts included the Potential Acquiror, which had declined further
interest. Mann Armistead proposed, and the Special Committee authorized
communication with, an expanded list of potential acquirors with the anticipated
ability to finance a purchase of the Company. The Special Committee also
authorized Balch & Bingham to commence negotiation of the Initial Merger
Agreement.
On February 2, the Special Committee held a telephonic meeting with
representatives of Mann Armistead and Balch & Bingham. The Special Committee
discussed the descriptive memorandum prepared by Mann Armistead to be sent to
potential acquirors. The Special Committee also discussed the status of the
contemplated Pompeii acquisition and any effect it might have on the Merger
proposal or any other strategic transaction. Representatives of Mann Armistead
also reported on its ongoing solicitation process. They reported that 13
possible strategic and financial acquirors had been contacted to date and that
confidentiality agreements in substantially the same form had been executed by 5
of them. Upon execution of a confidentiality agreement, the Special Committee
provided each potential acquiror with summary financial information.
Representatives of Mann
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<PAGE> 29
Armistead also discussed with the Special Committee specific potential acquirors
and Mann Armistead's communications with them. In addition, the Special
Committee discussed a tentative timetable for negotiating the Initial Merger
Agreement and the expected time required for the Purchaser to arrange the
necessary financing. In this regard, representatives of Mann Armistead explained
that the delivery of Mann Armistead's fairness opinion was contingent upon the
Purchaser's demonstration of its ability to obtain financing for the Merger. The
Special Committee determined to provide Mann Armistead an adequate opportunity
to carry out its solicitation process prior to the execution of the Initial
Merger Agreement with the Purchaser. The Special Committee also approved the
compensation for its Chairman and other members, which was subsequently approved
by the Board of Directors.
During the remainder of February, 19 additional potential acquirors were
contacted, of which six executed confidentiality agreements and engaged in due
diligence reviews of the Company.
On February 13, Balch & Bingham sent to Greenberg Traurig the Special
Committee's comments to the Initial Merger Agreement. On February 16 and 17,
Balch & Bingham and Greenberg Traurig negotiated various terms of the Initial
Merger Agreement. The principal points of negotiation included (i) the scope of
certain representations and warranties of the Purchaser as to its financing for
the Merger, (ii) the restrictions on the Company's solicitation of alternative
proposals or offers to acquire the Company and the requirement of a "fiduciary"
determination, and (iii) a "drop dead" date after which the Initial Merger
Agreement would terminate if the Merger had not been consummated. The Special
Committee insisted on the right to solicit Superior Proposals following the
execution of the Initial Merger Agreement. In addition, the Special Committee
insisted that the Special Committee have the right to terminate the Initial
Merger Agreement if the Merger was not consummated by a specified date. On
February 18, Greenberg Traurig distributed a revised draft of the Initial Merger
Agreement to the Special Committee and Balch & Bingham which was revised to
provide, among other things, that (i) the Special Committee could solicit
Superior Proposals for 30 days following the execution of the Initial Merger
Agreement and, in addition, thereafter participate in discussions or
negotiations regarding unsolicited Superior Proposals and/or Superior Proposals
solicited prior to the expiration of such 30 days and (ii) either party could
terminate the Initial Merger Agreement if the Merger had not been consummated
within 90 days of execution. The Special Committee found such terms acceptable
because they believed that any potential acquirors would be informed of the
opportunity to submit a bid by virtue of Mann Armistead's solicitation process
and the public announcement of the Merger proposal.
On February 17, the Special Committee held a telephonic meeting with
representatives of Mann Armistead and Balch & Bingham regarding the status of,
and issues raised in, the negotiation of the Initial Merger Agreement, as well
as Mann Armistead's fairness opinion and solicitation process. At this meeting,
representatives of Mann Armistead described the two most serious potential
acquirors that had been contacted to date. One was a strategic acquiror that
stated that it had been considering WinsLoew as an acquisition target prior to
the announcement of the Merger proposal on January 15. The Special Committee
believed that a strategic transaction with such acquiror would have provided
substantial synergies. This strategic acquiror had initially declined interest
due to its perception that management would not be receptive to another
purchaser. Although representatives of the Special Committee corrected this
impression, this strategic acquiror
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<PAGE> 30
stated it would not participate in an auction process and that it was not
prepared to act quickly.
The other potential acquiror was Hancock Park Associates ("Hancock Park"),
a financial buyer that representatives of Mann Armistead believed would likely
structure a transaction similar to the Merger proposal. In 1995, Hancock Park
had acquired Brown Jordan Company, a competitor of WinsLoew that sells casual
outdoor furniture at a higher price point, and its subsidiary, Casual Living
Worldwide, which produces lower-priced casual furniture. Hancock Park also owns
Leslie's Poolmart, Inc. and Busy Body, Inc., which together with Brown Jordan
Company and Casual Living Worldwide, have annual net revenues in excess of $400
million.
Representatives of Mann Armistead also informed the Special Committee
regarding other potential purchasers that had declined further interest and
summarized their due diligence and other work related to issuing a fairness
opinion.
The Special Committee discussed with Mann Armistead the likely timing of
any formal expression of interest from any other potential acquiror in order to
determine the schedule for finalizing the Initial Merger Agreement. In
particular, the Special Committee considered the Purchaser's request to execute
the Initial Merger Agreement prior to the Purchaser's receipt of committed
financing, as well as its request to execute the Initial Merger Agreement prior
to the Special Committee's receipt of Mann Armistead's fairness opinion. In
response to inquiries from the Special Committee, representatives of Mann
Armistead stated that they could not render a fairness opinion without
additional assurances, which were subsequently obtained, regarding the
Purchaser's ability to obtain financing. The Special Committee determined that
it would be consistent with its fiduciary duties to execute the Initial Merger
Agreement so long as the Purchaser's financing was sufficiently definite and
Mann Armistead rendered its oral fairness opinion prior to execution.
The Special Committee also discussed the Investment Services Agreement
between the Company and Trivest dated as of December 16, 1994 (the "Investment
Services Agreement"), which provided for (i) an annual fee of $500,000 to
Trivest for ten years, subject to increases for acquisitions, (ii) an investment
banking fee for certain transactions, and (iii) payment of Trivest's expenses.
At the time it negotiated the termination fee under the Initial Merger
Agreement, the Special Committee expected that Trivest would not receive
additional compensation pursuant to the Investment Services Agreement in
addition to the termination fee and expense reimbursement, because such a fee
would effectively increase the cost of the transaction to another purchaser.
Consequently, Balch & Bingham's comments to the Initial Merger Agreement
included a requested provision requiring the termination of the Investment
Services Agreement in the event the Company were sold to a third party. The
Purchaser did not initially agree to any aspect of such requested change.
The Special Committee also considered requiring as a condition in the
Initial Merger Agreement that a majority of the shares held by persons or
entities not affiliated with management or the Purchaser be voted in favor of
the Merger. The Purchaser did not agree to such a condition, and the Special
Committee determined not to require it, provided that (i) the Initial Merger
Agreement was not executed until the Special Committee had received Mann
Armistead's oral fairness opinion, (ii) the Purchaser had provided adequate
assurances of its ability to obtain the required financing, and (iii) the
Special Committee members voted unanimously to approve the Merger.
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During the period from January 25 through February 19, representatives of
the Purchaser, including the Trivest Directors and members of the Management
Group, pursued a variety of potential arrangements for financing the Merger. The
Purchaser received nine proposals for senior secured financing and six proposals
with respect to a possible unsecured debt financing. In addition,
representatives of the Purchaser also engaged in preliminary discussions with a
number of institutional investors regarding possible equity co-investments with
the Trivest Partnerships and the Management Group. On February 18, the Purchaser
selected BankBoston to provide its senior secured financing and Bear Stearns to
purchase and resell under Rule 144A $125.0 million aggregate principal amount of
senior subordinated notes. On February 22, the Purchaser received a draft
proposal letter from BankBoston for a $145.0 million senior secured credit
facility to provide a portion of the Cash Merger Consideration and provide
WinsLoew with working capital and an acquisition revolver after the Merger.
Following discussions concerning the terms and conditions set forth in the draft
proposal letter, representatives of BankBoston and the Purchaser executed a
revised proposal letter on February 26. The parties continued to negotiate the
terms of the proposed financing during the week of March 1. Representatives of
the Purchaser and Bear Stearns met on February 23 at the offices of WinsLoew for
an organizational meeting for the proposed Rule 144A offering of senior
subordinated notes. At that meeting, representatives of Bear Stearns provided
the Company and the Purchaser with a term sheet outlining the terms of the
proposed offering and commenced their due diligence review of the Company. See
"THE MERGER -- Financing."
On February 24, representatives of the Purchaser and Greenberg Traurig met
with representatives of Balch & Bingham at the offices of Balch & Bingham in
Birmingham, Alabama. At such meeting, representatives of Balch & Bingham related
the Special Committee's insistence that the Purchaser demonstrate its ability to
obtain financing for the Merger. In response, the Purchaser provided the Special
Committee with a draft proposal letter from BankBoston (followed by a copy of
the signed proposal letter dated February 26) for the $145.0 million credit
facility, as well as an indicative term sheet prepared by Bear Stearns with
respect to a senior subordinated note offering.
On February 26, Balch & Bingham provided to Greenberg Traurig a mark-up of
the February 18 draft of the Initial Merger Agreement reflecting negotiations
during the February 24 meeting. On March 1, Greenberg Traurig distributed a
revised draft of the Initial Merger Agreement which, among other changes,
included various representations and covenants as to the Purchaser's financing
arrangements.
During the weeks of February 22 and March 1, representatives of Mann
Armistead discussed the terms, conditions and status of the Purchaser's proposed
financing with representatives of each of BankBoston and Bear Stearns.
On March 1, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham and Mann Armistead to discuss the then
current draft of the Merger Agreement. Balch & Bingham reported that the
unresolved issues were the status of the Investment Services Agreement, the
timing of the fairness opinion and the status of the Purchaser's financing
commitments. Representatives of Mann Armistead described its discussions with
and review of the Purchaser's financing sources and stated that they were
becoming increasingly confident that the requisite financing could be obtained.
They also reviewed Mann Armistead's valuation methods of the purchase price and
stated that Mann Armistead believed that $30.00 was within the range of fair.
They stated that Mann Armistead was prepared to provide its oral fairness
opinion to this effect, with the delivery
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of the written fairness opinion subject to the Purchaser's receipt of a
commitment letter from BankBoston for the senior secured financing facility and
absent the Company's receipt of a proposal to acquire the Company for a higher
per share purchase price. In that regard, the Mann Armistead representatives
explained that such opinion as to the fairness of the $30.00 price per share
could be affected by the Special Committee's receipt of a proposal for a
competing merger transaction at a higher per share price than the Merger
proposal's $30.00 per share price. The Mann Armistead representatives also
reported that there were three potential acquirors that had signed
confidentiality agreements and had not yet declined further interest, one
strategic buyer and two financial buyers, one of which was not as far along in
its review process as the others.
A meeting of the Board was scheduled for March 4, and a meeting of the
Special Committee was scheduled for the same day prior to the Board meeting in
order to consider the Initial Merger Agreement.
On March 3 and March 4, Balch & Bingham and Greenberg Traurig substantially
completed negotiation of the Merger Agreement providing for a $30.00 per share
purchase price.
On the evening of March 3, Mann Armistead received a written, non-binding
proposal from Hancock Park to acquire the Company for $32.50 per share in cash
(the "March 3 Hancock Park Proposal").
On March 4, the Special Committee met to consider the Initial Merger
Agreement and the Hancock Park proposal, which included a due diligence
condition, as well as customary conditions similar to Mr. Powell's initial
Merger proposal in January 1999, including the execution of a mutually
acceptable agreement, receipt of regulatory and shareholder approvals, and
securing satisfactory financing. In addition, the proposal stated that Hancock
Park's representatives were prepared to complete their due diligence
investigation as soon as possible. Hancock Park's proposal included a financing
structure similar to the Merger proposal. The Special Committee considered that
the Purchaser might withdraw its offer if the Initial Merger Agreement were not
executed and that the Hancock Park proposal had not been analyzed. Following
discussions with representatives of Balch & Bingham and Mann Armistead regarding
its fiduciary duties and related issues, the Special Committee determined that
it was in the best interests of the Company's shareholders to execute the
Initial Merger Agreement and pursue the Hancock Park proposal, noting in
particular that (i) the termination fee in the Letter of Intent would apply if
the Company entered into an agreement with Hancock Park, whether or not the
Initial Merger Agreement was executed, and (ii) the Merger Agreement permitted
the Special Committee adequate opportunity to pursue the Hancock Park proposal
and consider other offers. The Special Committee also considered competitive
concerns regarding a due diligence investigation by Hancock Park of certain of
the Company's manufacturing operations, particularly the Winston facility, since
Hancock Park owns Brown Jordan Company, a competitor of WinsLoew, as well as the
fact that Hancock Park would be required to take into account other acquisition
costs, including the payment of the termination fee and expenses to the
Purchaser.
At the March 4 meeting of the Special Committee, Mann Armistead made a
presentation regarding its solicitation process, which included contacting and
providing a descriptive memorandum to 32 companies, 11 of which executed
confidentiality agreements and obtained additional information. Representatives
of Mann Armistead reported that they had made numerous follow-up calls, that
eight companies had declined further
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interest and that three companies still showed apparent interest in acquiring
the Company. Of those three, only Hancock Park had made a formal proposal. After
the execution of the Initial Merger Agreement, the remaining two companies that
had executed confidentiality agreements and received additional information
declined further interest in acquiring the Company. Representatives of Mann
Armistead also reviewed the analyses that they had performed to produce a range
of implied values for the Company's Common Stock. The Special Committee
discussed with Mann Armistead its investigation of WinsLoew and the assumptions
made in connection with its analyses and the facts upon which these analyses
were based. Mann Armistead explained the assumptions, methodologies and relative
limits of its analyses. Mann Armistead concluded its presentation by rendering
its oral opinion, subject to certain assumptions made, matters considered and
limits on the review undertaken in connection with such opinion and absent the
Company's receipt of a proposal to acquire the Company for a higher per share
purchase price, that the $30.00 per share was fair from a financial point of
view to the Public Shareholders, with the delivery of its written opinion and
accompanying materials being subject to the Purchaser's receipt of a commitment
letter with respect to the Purchaser's senior secured credit facility. The
Special Committee then discussed the terms and conditions of the transactions
contemplated by Initial Merger Agreement, which respect to which Balch & Bingham
made a detailed presentation. The Special Committee also discussed its strong
desire that the Investment Services Agreement be amended to provide that it be
terminated in connection with the Merger or the consummation of a Superior
Proposal. The Special Committee unanimously concluded that the Merger (including
the $30.00 per share to be paid to the Public Shareholders) was substantively
and procedurally fair to, and in the best interests of, the Public Shareholders
and determined to recommend the Initial Merger Agreement to the full Board and
that the Board recommend it to the Company's shareholders.
Following the Special Committee's March 4 vote to recommend the Initial
Merger Agreement to the Board, the Board met to accept the Special Committee's
recommendation, approve and adopt the Initial Merger Agreement and recommend it
to the shareholders of the Company. Mr. Smith reported on the Special
Committee's consideration of the Merger proposal and possible strategic
alternatives, including Mann Armistead's valuation and solicitation process.
Mann Armistead repeated its Special Committee presentation to the full Board,
including a description of the Hancock Park proposal and its oral fairness
opinion. The members of the Board discussed the conditions set forth in the
Hancock Park proposal, the probability of Hancock Park obtaining financing on a
timely basis, its expected timetable for conducting due diligence and related
competitive issues, as well as WinsLoew management's likely reaction to Hancock
Park. The members of the Special Committee further emphasized the terms of the
Initial Merger Agreement that would permit WinsLoew to continue to solicit
Superior Proposals and engage in negotiations subsequent to execution. The
members of the Board then discussed the terms and conditions of the Initial
Merger Agreement, as well as the relationship of the Investment Services
Agreement to the Initial Merger Agreement. Following such discussion, the
Trivest Directors agreed that the Investment Services Agreement would be amended
to provide that Trivest would not be entitled to a transaction fee or
reimbursement of expenses by reason of either the Merger or any Superior
Proposal. The Board also ratified the fees approved by the Special Committee for
their service on such committee ($20,000 for the Chairman and $15,000 for each
other member, which amounts were subsequently increased to $30,000 and $22,500,
respectively). All ten members of the Board unanimously approved and adopted the
Initial Merger Agreement, recommended it to the shareholders and determined that
the Merger
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provided for therein (including the $30.00 per share to be paid to the Public
Shareholders) was substantively and procedurally fair to, and in the best
interests of, the Public Shareholders. Prior to the opening of the market on
March 5, the parties executed the definitive Initial Merger Agreement and issued
a press release announcing its execution.
THE MARCH 3 HANCOCK PARK PROPOSAL
On March 9, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham and Mann Armistead to discuss the status of
the March 3 Hancock Park Proposal. The Special Committee discussed the timing
and scope of Hancock Park's due diligence investigation of WinsLoew, including
Hancock Park's requested site visits and management meetings. The Special
Committee also instructed its Chairman to confirm with representatives of
Hancock Park that the $32.50 offer was net to the shareholders and that Hancock
Park was aware of the termination fee and expense reimbursement provisions of
the Initial Merger Agreement and the terms of the Investment Services Agreement
as required to be amended by the Initial Merger Agreement. The Special Committee
also instructed Mann Armistead to obtain additional information regarding
Hancock Park's financing structure and whether the response of the Company's
management would have any impact on such offer. Representatives of Hancock Park
later confirmed that they were interested in purchasing the Company with or
without the continued employment of management. The Special Committee also
discussed the importance of providing Hancock Park with access to Company
information and personnel to enable it to negotiate a definitive agreement and
obtain financing commitments. The Chairman of the Special Committee communicated
the importance of such access to management and directed them to respond on a
priority basis and to consult with the Special Committee regarding any concerns
about providing potentially sensitive information.
On March 10, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham. Representatives of the Purchaser, including
Mr. Powell, also participated for part of the meeting to update the Special
Committee on the progress of the Purchaser's financing arrangements. Mr. Powell
also shared with the Special Committee his concerns regarding the ability of
Hancock Park to obtain financing (including for the Pompeii transaction) and
that Mann Armistead may have been influenced by its compensation arrangement to
pursue the higher March 3 Hancock Park Proposal prior to a demonstration by
Hancock Park of its ability to obtain financing. Mr. Powell was then excused
from the meeting, and representatives of Mann Armistead joined the meeting. The
Special Committee determined that Messrs. Smith and Gorrie, along with
representatives of Balch & Bingham, would meet the Hancock Park representatives
in Birmingham for its due diligence and management meetings, and that Mr. Smith
would check Hancock Park's financing references directly to enable the Special
Committee to better evaluate the March 3 Hancock Park Proposal. The Special
Committee also authorized the engagement of PricewaterhouseCoopers LLP
("PricewaterhouseCoopers") as independent financial consultants to investigate
the relative experience and financing capabilities of the Purchaser and Hancock
Park. The Special Committee agreed to pay PricewaterhouseCoopers customary fees,
which are not expected to exceed $200,000.
On March 12, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham and Mann Armistead. Mr. Smith reported his
conversations with representatives of three financial references which had
participated in previous debt or
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equity financings with Hancock Park as well as other parties familiar with
Hancock Park and its principal, Mr. Forticq. All of these representatives were
uniformly favorable in their opinion of Hancock Park and Mr. Forticq. The
Special Committee arranged for representatives of Hancock Park and its financing
sources to visit the Winston facility following a preliminary meeting at the
Company's offices in Birmingham scheduled for March 16. The Special Committee
also consulted with PricewaterhouseCoopers about providing additional
independent financial advice.
On March 16, Messrs. Smith and Gorrie met with members of management and
representatives of Hancock Park and its financing sources at the Company's
offices in Birmingham. After discussions between the Special Committee and
members of management regarding competitive concerns related to touring the
Company's manufacturing facilities, members of management accompanied
representatives of Hancock Park on the planned plant tours.
On March 18, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham and Mann Armistead to discuss the status of
the March 3 Hancock Park Proposal and to consider Hancock Park's request for
reimbursement of certain expenses.
On March 18, the Company's Board held a meeting to consider the Company's
possible acquisition of the Potential Transaction Party. Mr. Powell summarized
the various discussions with the Potential Transaction Party that had commenced
in May 1998 when representatives of the Company, including Messrs. Powell,
Kaczynski and Tesney, had contacted a number of direct competitors and other
furniture manufacturers regarding WinsLoew's interest in exploring potential
acquisitions, combinations or other transactions. Mr. Powell stated that these
initial discussions had not resulted in a desire to pursue a possible
transaction, but that discussions had resumed subsequent to Mr. Powell's initial
Merger proposal in January 1999. From early February through mid-March 1999,
representatives of WinsLoew and Trivest met with representatives of the
Potential Transaction Party regarding a possible business combination, which
culminated in a general understanding of terms regarding a business combination.
The members of the Board reviewed background materials pertaining to the
Potential Transaction Party, including a draft 1998 annual report and draft 1999
proxy statement, as well as valuation analyses prepared for the Company by
Trivest. Mr. Powell pointed out that management believed that the combination
with the Potential Transaction Party would be an attractive investment for
WinsLoew and that affiliates of Trivest might seek a transaction should WinsLoew
determine not to pursue the opportunity. In response to questions from the
Special Committee, Mr. Powell also stated that management and Trivest believed
that financing would be readily available to WinsLoew to effect a transaction.
The members of the Board also discussed that the practical effect of a decision
to proceed with a combination with the Potential Transaction Party would be for
the Company to remain publicly held for a long enough period of time to achieve
the expected financial and operating synergies. Mr. Powell then asked the
Special Committee to consider the proposed combination of the Company with the
Potential Transaction Party and make a recommendation as to whether or not
WinsLoew should further pursue a combination with the Potential Transaction
Party. After deliberation, the Special Committee determined to proceed with the
Merger or a comparable sale transaction and not to pursue a business combination
with the Potential Transaction Party at that time.
Mr. Smith then reported to the Board on the status of Hancock Park's
financing and due diligence investigation. Mr. Smith also reported on
PricewaterhouseCoopers' work
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related to the relative experience and financing capabilities of the Purchaser
and Hancock Park. The members of the Board unanimously determined to adjourn the
meeting until after the Special Committee's receipt of PricewaterhouseCoopers'
conclusions.
On March 19, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham and PricewaterhouseCoopers to discuss the
advice to be provided by PricewaterhouseCoopers to the Special Committee. The
Special Committee also discussed facilitating management's providing due
diligence information to Hancock Park and the Special Committee's advisors,
including PricewaterhouseCoopers.
On March 16, at Hancock Park's request, the Special Committee had directed
Balch & Bingham and Mann Armistead to commence discussions with representatives
of Hancock Park regarding an agreement to reimburse Hancock Park's expenses.
From March 16 through March 23, Balch & Bingham negotiated such an agreement
with representatives of Hancock Park, including Hancock Park's request that it
be reimbursed for up to $300,000 of its expenses. These negotiations resulted in
a proposed agreement to reimburse up to $100,000 of Hancock Park's expenses in
the event that (i) the Company received a written or oral fairness opinion that
Hancock Park had made an offer that constituted a Superior Proposal under the
Initial Merger Agreement, (ii) the Company entered into an agreement with
another party for the acquisition of the Company at a per share price higher
than $30.00 or (iii) the Company determined not to pursue a sale of the Company.
On March 24, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham and Mann Armistead to discuss the
negotiations with Hancock Park. The Special Committee authorized its Chairman to
enter into the foregoing agreement for reimbursement up to $100,000. Hancock
Park declined to execute such a reimbursement agreement. At the same meeting,
the Special Committee directed Balch & Bingham to continue discussions and
negotiations with Hancock Park for a possible merger transaction since the
members of the Special Committee expected that within a few days Hancock Park's
financing would be sufficiently developed to enable the Special Committee to
reach a decision regarding whether its $32.50 per share offer constituted a
Superior Proposal (as defined in "SUMMARY -- Conditions to the Merger,
Termination and Expenses") under the Initial Merger Agreement.
In mid-March, the Company's "best case" projections, prepared in connection
with the Purchaser's efforts to obtain financing, were forwarded to Hancock Park
at the request of the Special Committee. See "CERTAIN FORWARD LOOKING
INFORMATION."
During the period from March 5 through March 29, representatives of the
Purchaser, including the Trivest Directors and members of the Management Group,
continued to negotiate their financing arrangements with BankBoston and Bear
Stearns. These efforts resulted in the execution and delivery on March 29 of (i)
a letter from Bear Stearns to the Purchaser stating that Bear Stearns was highly
confident that, as of March 29 and subject to certain conditions, it could
arrange for the sale of up to $130.0 million aggregate principal amount of
senior subordinated notes of WinsLoew in connection with the Merger, (ii) a
commitment letter from BankBoston for a $145.0 million senior secured credit
facility to provide a portion of the Cash Merger Consideration and provide
WinsLoew with working capital and an acquisition revolver after the Merger, and
(iii) a commitment letter from affiliates of the Trivest Partnerships for up to
$75.0 million of equity financing. The Bear Stearns highly confident letter does
not constitute a commitment or undertaking by Bear Stearns to place or purchase
the senior subordinated notes and did not ensure the
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<PAGE> 37
successful placement or completion of the offering of such notes; moreover, the
Bear Stearns letter set forth only its expectation as of March 29, 1999 with
respect to its ability to arrange a sale of the notes in connection with the
Merger. See "THE MERGER -- Financing."
THE ALABAMA LITIGATION
On March 25, 1999, the Company and the members of the Board were named as
defendants in a lawsuit filed in the Circuit Court of Jefferson County, Alabama,
styled Craig Smith v. WinsLoew Furniture, Inc., et al (the "Alabama
Litigation"). The lawsuit purports to be brought as a class action on behalf of
all of the Company's shareholders except the defendants and was filed in
connection with the Initial Merger Agreement. As of the date of this Proxy
Statement, the complaint filed in the lawsuit has not been amended to reflect
the increase in the per share merger consideration from $30.00 to $34.75
subsequent to the filing of the complaint, as discussed below under "-- The
Second Amended Merger Agreement."
The principal substantive allegations set forth in the complaint are that
(i) the individual defendants breached fiduciary duties of care and loyalty owed
by them as directors to the shareholder plaintiffs, (ii) Mr. Powell and other
members of the Company's "management group" breached fiduciary duties owed by
them as allegedly controlling shareholders to the Company's other shareholders
by, among other things, attempting to acquire 100% equity ownership of the
Company for an allegedly "grossly inadequate price" at the alleged expense of
the Company's other shareholders, (iii) the Company's announcement of the
initial $30.00 per share bid by the Purchaser failed to disclose improving
growth prospects, (iv) by virtue of the equity holdings of the "management
group" and their alleged "overwhelming control" of the Board, third parties were
practically precluded from making competing bids, and (v) the initial per share
merger consideration of $30.00 per share is unconscionable, unfair and grossly
inadequate and the terms of the Initial Merger Agreement constituted an unfair
and illegal business practice upon the Company's minority shareholders. No other
per share amount is specified in the complaint.
The relief sought by the plaintiff is that (i) the court declare the
lawsuit to be a class action and certify the plaintiff as class representative
and his counsel as class counsel, (ii) the Merger be enjoined or, if not
enjoined, that the plaintiffs be granted rescission and rescissionary damages,
(iii) the plaintiff and the alleged class be awarded damages, (iv) the plaintiff
be awarded costs and disbursements of bringing the lawsuit, together with fees
and expenses of the plaintiff's counsel and experts, and (v) the plaintiff and
the alleged class be granted such other relief as the court shall deem just and
proper. The complaint does not specify the amount of any damages sought.
The Company has forwarded a claim with respect to this matter to its
directors' and officers' insurance carrier and, with the approval of such
carrier, has retained legal counsel to represent it and the members of the
Board. The Company believes that the claims set forth in the lawsuit are without
merit and intends to vigorously defend this lawsuit.
On June 14, 1999, WinsLoew and the members of the Board filed a motion to
dismiss the lawsuit or, in the alternative, to grant summary judgment in the
defendants' favor. A hearing has been set for August 6, 1999.
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THE MARCH 30 TRIVEST PROPOSAL
On the morning of March 30, the Purchaser delivered to the Special
Committee a letter stating that it was prepared to increase the purchase price
by 10% from $30.00 per share to $33.00 per share (the "March 30 Trivest
Proposal"). Such proposal was accompanied by copies of the Trivest equity
commitment letter, the BankBoston senior secured financing commitment letter and
the Bear Stearns highly confident letter with respect to the senior subordinated
notes, as well as a proposed amendment to the Initial Merger Agreement. The
proposed amendment provided for the following: (i) an increase in the per share
purchase price from $30.00 to $33.00; (ii) the deletion of the Purchaser's
financing condition; (iii) a revised non-solicitation provision prohibiting the
Special Committee's ongoing solicitations and negotiations with potential
acquirors unless the Board determined that it had a fiduciary obligation to do
so and that a Superior Proposal had been received; (iv) an increase in the
termination fee from $6.0 million to $10.0 million and an increase in the
maximum expense reimbursement from $1.2 million to $1.5 million; (v) the
Purchaser's right to terminate the Initial Merger Agreement and receive expense
reimbursement up to $1.5 million and liquidated damages of $1.0 million if the
Proxy Statement were not filed by April 12 (unless the delay resulted from the
Purchaser's non-cooperation or the unavailability of required financial
statements); (vi) the delivery of Mann Armistead's written fairness opinion by
April 7; and (vii) the extension to July 15 of the date after which either the
Company or the Purchaser could terminate the Initial Merger Agreement without
payment of the termination fee and expense reimbursement provided for therein.
The March 30 Trivest Proposal stated that it expired at 6:00 p.m. that evening.
On the morning of March 30, in connection with the March 3 Hancock Park
Proposal of $32.50 per share, Hancock Park delivered to the Special Committee
(i) a letter from Desai Capital Management Incorporated ("Desai") to Mann
Armistead dated March 30, 1999 stating their preparedness to provide the
required equity capital for Hancock Park's acquisition of the Company and (ii) a
letter from BT Alex. Brown Incorporated dated March 29, 1999 stating that BT
Alex. Brown Incorporated was very interested in pursuing a transaction in which
BT Commercial Corporation would underwrite, participate in and act as agent for
a senior secured credit facility and in which BT Alex. Brown Incorporated would
place senior subordinated debt and a preferred equity investment. Both letters
were subject to the completion of due diligence. Representatives of Hancock Park
discussed with representatives of Mann Armistead that Hancock Park would be
willing to increase its price to $33.50 per share but only if the Company agreed
to pay an inducement fee in the event that a merger agreement with Hancock Park
was not entered into.
In the early afternoon of March 30, the Special Committee held a telephonic
meeting with representatives of Balch & Bingham, Mann Armistead and
PricewaterhouseCoopers. Representatives of Mann Armistead reported on the status
of discussions with representatives of Hancock Park and the letters received
from the proposed financing sources of each of the Purchaser and Hancock Park.
Representatives of Balch & Bingham described the status of negotiations with
representatives of Hancock Park with respect to a merger agreement.
Representatives of Balch & Bingham reported that they had completed negotiating
such an agreement, except for the termination fee and expense reimbursement
related to the shareholder vote. With the assistance of PricewaterhouseCoopers,
the Special Committee discussed the March 30 Trivest Proposal of $33.00 per
share and the March 3 Hancock Park Proposal of $32.50 per share and compared
them on the basis of price and the ability to finance and consummate the
proposed transactions. Price-
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waterhouseCoopers advised the Special Committee that based upon its
investigation of the Purchaser and Hancock Park and its review of their revised
offers and financing commitments, the Purchaser had more committed financing
than Hancock Park. The Special Committee concluded that the March 30 Trivest
Proposal of $33.00 per share was more favorable than Hancock Park's proposal on
the basis of its higher per share purchase price and more committed financing
than Hancock Park. The Special Committee determined to negotiate with the
Purchaser regarding the termination fee and expense reimbursement provisions of
the proposed amendment to the Initial Merger Agreement. Members of the Special
Committee also recommended to the Board that it authorize the Company to enter
into an agreement to pay Hancock Park a fee if it submitted an offer higher than
$33.00 per share in the event such offer did not result in a transaction with
Hancock Park.
THE FIRST AMENDED MERGER AGREEMENT
On the afternoon of March 30, the Board reconvened its March 18 meeting
with all directors participating. As the first order of business, Mr. Smith
provided an update with respect to the Special Committee's activities. Mr. Smith
acknowledged receipt of Mr. Powell's letter dated March 29 setting forth the
March 30 Trivest Proposal increasing the purchase price from $30.00 per share to
$33.00 per share. He went on to express the Special Committee's desire that with
the exception of the increase in the per share purchase price and the removal of
the Purchaser's financing condition, the terms and conditions of the Initial
Merger Agreement remain unchanged. As the next order of business, Mr. Tesney
made a presentation to the Board with respect to management's ongoing due
diligence investigation of the Potential Transaction Party. The Chairman of the
Board also confirmed that the Board would not be asked to make a final decision
with respect to the proposed business combination with the Potential Transaction
Party until the completion of such due diligence investigation.
Next, the members of the Board asked the Special Committee for its
recommendation regarding the Purchaser's proposed amendment to the Initial
Merger Agreement. The Board meeting adjourned while the members of the Special
Committee further considered the proposed amendment. The members of the Special
Committee considered the reasonableness of providing for a higher termination
fee in exchange for a 10% increase in the per share purchase price. In addition,
the members of the Special Committee considered the Purchaser's expressed
concern that it not be used simply to elicit higher offers from other bidders
and its desire for increased certainty that the Company would consummate the
Merger. In addition, in the earlier meetings, Mann Armistead had rendered its
oral advice, later confirmed in its written opinion, subject to certain
assumptions made, matters considered and limits on the review undertaken in
connection with such opinion, that the $33.00 per share purchase price was fair
from a financial point of view to the Public Shareholders. Mann Armistead
expressly advised the Special Committee that its favorable opinion on the
fairness of the Purchaser's $33.00 per share offer did not imply a belief that
such price was the highest price available. Following its deliberations, the
Special Committee determined to recommend that the full Board approve the
proposed amendment, subject to the deletion of the provision permitting the
Purchaser to terminate the Initial Merger Agreement and receive expense
reimbursement up to $1.5 million and liquidated damages of $1.0 million if the
Proxy Statement were not filed by April 12. The Special Committee unanimously
concluded that the Initial Merger Agreement, as so amended (the "First Amended
Merger Agreement") (including the $33.00 per share purchase price to be paid to
the Public Shareholders), was substantively
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and procedurally fair to, and in the best interests of, the Public Shareholders
and determined to recommend approval of the First Amended Merger Agreement to
the full Board.
Immediately thereafter, the Board meeting reconvened. After the Special
Committee delivered its recommendation regarding the First Amended Merger
Agreement, all ten members of the Board unanimously approved and adopted the
First Amended Merger Agreement, recommended it to the shareholders and
determined that the Merger provided for therein was substantively and
procedurally fair to, and in the best interests of, the Public Shareholders. The
Board determined not to consider a fee arrangement with Hancock Park at that
time. Prior to the opening of the market on March 31, the parties executed the
First Amended Merger Agreement and issued a press release announcing its
execution.
On March 31, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham and Mann Armistead. Balch & Bingham
summarized the non-solicitation provisions of the First Amended Merger
Agreement, and the Special Committee directed Balch & Bingham and Mann Armistead
to cease all discussions and negotiations with Hancock Park.
THE APRIL 8 HANCOCK PARK PROPOSAL
On April 9, the Special Committee received from Hancock Park a written,
non-binding offer, dated April 8, to acquire the Company for a per share
purchase price of $33.50 (or $34.00 if the termination fee payable to the
Purchaser under the First Amended Merger Agreement was reduced from $10.0
million to $6.0 million) (the "April 8 Hancock Park Proposal"). The proposal
stated that it would expire on April 19, which date was subsequently extended as
discussed below. In addition, the proposal was accompanied by (i) a letter from
BT Alex. Brown Incorporated that, as of April 7, 1999 and subject to certain
conditions, BT Alex. Brown Incorporated was highly confident that it could
arrange for the sale of up to $150.0 million aggregate principal amount of
senior subordinated notes in connection with the proposed transaction, (ii) a
commitment letter dated April 7, 1999 from BT Commercial Corporation for a
senior secured credit facility of up to $100.0 million, subject to the
completion of due diligence, (iii) a letter from BT Alex. Brown Incorporated
that, as of April 7, 1999 and subject to certain conditions, it was willing to
use its best efforts to act as underwriter or placement agent for the sale or
placement of up to $20.0 million of pay-in-kind preferred stock, and (iv) a
commitment letter dated April 8, 1999 from Private Equity Investors III, L.P., a
private investment partnership managed by Desai, for up to $70.7 million of
common equity financing. The BT Alex. Brown Incorporated highly confident letter
did not constitute a commitment to place or purchase senior subordinated notes
or ensure the successful placement or completion of the offering of such notes;
moreover, such letter set forth only the expectation of BT Alex. Brown
Incorporated as of April 7, 1999 with respect to its ability to arrange a sale
of such notes. The proposed financing for the April 8 Hancock Park Proposal
contemplated, and was contingent upon, the simultaneous refinancing of
indebtedness of Brown Jordan International, Inc., ("Brown Jordan"), an affiliate
of Hancock Park. The proposal also included a revised draft of the form of
merger agreement previously negotiated with Hancock Park providing for, among
other things, an increase in the purchase price as described above, the deletion
of Hancock Park's financing condition and the addition of a provision that the
$6.0 million termination fee would be payable to Hancock Park in the event the
proposed transaction was not approved by WinsLoew's
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shareholders. Accompanying the April 8 Hancock Park Proposal was a letter
addressed to the Special Committee from Paul Hastings, Janofsky & Walker LLP
("Paul Hastings"), counsel to Hancock Park, alleging that the events leading up
to the execution of the First Amended Merger Agreement had unfairly favored the
Purchaser and asserting that Hancock Park had advised Mann Armistead on March 30
prior to the execution of the First Amended Merger Agreement that it was willing
to offer a higher price than $33.00 per share (the price contained in the First
Amended Merger Agreement) if it received a $2 million fee in the event such
higher offer was not ultimately accepted. The letter also asserted that Hancock
Park was entitled to reimbursement for its expenses.
On April 12, the Board held a meeting with all directors participating to
consider the April 8 Hancock Park Proposal. The Board authorized Mann Armistead
to advise the Board whether or not the April 8 Hancock Park Proposal constituted
a Superior Proposal under the First Amended Merger Agreement. Pursuant to the
First Amended Merger Agreement, the Company was not permitted to discuss or
negotiate with any third party regarding an Acquisition Proposal (as defined
under "SUMMARY -- Conditions to the Merger, Termination and Expenses") unless
the Board determined that (a) such Acquisition Proposal was a Superior Proposal
to the transaction contemplated by the First Amended Merger Agreement Proposal
and (b) such discussions or negotiations were necessary in order to comply with
its fiduciary duties under applicable law. Moreover, also pursuant to the terms
of the First Amended Merger Agreement, the Company could not enter into an
agreement with respect to a Superior Proposal for five business days after a
"Superior Proposal" determination had been made. At the same meeting, the Board
authorized the engagement of the law firm of Paul, Weiss, Rifkind, Wharton &
Garrison, New York, New York ("Paul Weiss"), to assist the Board in evaluating
its fiduciary duties in connection with the April 8 Hancock Park Proposal. Also
during the April 12 meeting, Mr. Tesney provided an update of management's
ongoing due diligence investigation of the Potential Transaction Party.
On April 16, Mann Armistead concluded that it required additional
information relating to the April 8 Hancock Park Proposal in order to evaluate
whether it constituted a Superior Proposal, including matters relating to the
financial condition of Brown Jordan and the structure of, and marketing plans
for, the proposed financing. On April 16, Paul Weiss orally advised Paul
Hastings of such information request, which Paul Weiss confirmed in writing on
April 17. On April 16, representatives of Hancock Park advised representatives
of the Special Committee that Hancock Park had agreed to extend the expiration
date of the April 8 Hancock Park Proposal from April 19 to April 23 in order to
provide the Board sufficient time to consider such proposal and that, if the
April 8 Hancock Park Proposal were determined to be a Superior Proposal under
the First Amended Merger Agreement, Hancock Park would further extend the
expiration date to April 30 in order to accommodate the five business day period
required by the First Amended Merger Agreement before the Company could enter
into a transaction agreement with Hancock Park.
On April 19, the Board held a telephonic meeting with representatives of
Paul Weiss and Balch & Bingham at which the directors discussed matters relating
to the April 8 Hancock Park Proposal. In view of the conflicts of certain of the
directors, the Board unanimously authorized the Special Committee, together with
its financial and legal advisors, to consider whether the April 8 Hancock Park
Proposal constituted a Superior Proposal under the First Amended Merger
Agreement and to make recommendations to the full Board as to such
determination, as well as to other matters relating to the April 8
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Hancock Park Proposal. Immediately thereafter, the Special Committee met with
its financial and legal advisors to discuss its evaluation of the proposal.
THE APRIL 21 HANCOCK PARK PROPOSAL
On April 21, Hancock Park delivered to the Special Committee a written,
non-binding offer to acquire the Company for a per share purchase price $.50
higher than the price contemplated by the April 8 Hancock Park Proposal, or
$34.00 ($34.50 if the termination fee payable to the Purchaser under the Initial
Merger Agreement was reduced from $10.0 million to $6.0 million) (the "April 21
Hancock Park Proposal"). Such proposal stated that it would expire April 23 but
would be extended to April 30 in order to permit the lapse of the notice period
required by the First Amended Merger Agreement if the Board determined that it
constituted a Superior Proposal under the First Amended Merger Agreement. The
proposal was accompanied by copies of revised versions of the letters previously
provided by BT Alex. Brown Incorporated, BT Commercial Corporation and Private
Equity Investors III, L.P. relating to the financing of the proposed transaction
on a stand-alone basis. In addition, the revised commitment letter from Private
Equity Investors III, L.P. included a stand-by commitment for up to $10.0
million of the $20.0 million pay-in-kind preferred stock to be sold as part of
the proposed financing. The April 21 Hancock Park Proposal included the
additional information that had been requested by Mann Armistead, other than
information relating to Brown Jordan, since the revised proposal contemplated
that the transaction would be financed on a stand-alone basis, rather than in
conjunction with the refinancing of Brown Jordan.
On April 22, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham, Paul Weiss, Mann Armistead and
PricewaterhouseCoopers present. After reviewing the terms of the April 21
Hancock Park Proposal and the proposed financing thereof, representatives of
Mann Armistead advised the Special Committee of their opinions that the April 21
Hancock Park Proposal constituted a Superior Proposal under the First Amended
Merger Agreement. Paul Weiss then advised the Special Committee as to its
fiduciary duties under applicable law in light of the financial advisors'
conclusion. The Special Committee then unanimously determined that the April 21
Hancock Park Proposal was a Superior Proposal and voted to recommend to the full
Board that its representatives commence discussions and negotiations with
Hancock Park. The Special Committee then reviewed the non-financial terms of the
April 21 Hancock Park Proposal with its advisors. At the meeting, several
directors expressed concern about the fact that the entity that would purchase
the Company under the proposal appeared to be a newly-formed corporation that
would have no assets to satisfy liabilities it may have to the Company
(including the termination fee and expense reimbursement payable to the
Purchaser under the First Amended Merger Agreement upon the execution of an
acquisition agreement with a third party) in the event that such newly-formed
corporation was unable to obtain financing and (because of the absence of a
financing condition) thereby breached its agreement to consummate the merger.
The Special Committee noted that the Purchaser was also a newly-formed
corporation with no assets to satisfy liabilities it may have to the Company in
the event of such a breach, although in the case of the Purchaser, such
liabilities would not include payment of the termination fee since there was no
existing agreement with Hancock Park to pay any such fee in the event of a
transaction with another party. The Special Committee instructed its
representatives to seek to address this issue in any future negotiations with
both Hancock Park and the Purchaser.
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Immediately following the April 22 Special Committee Meeting, a meeting of
the full Board was convened. At the meeting, the Board unanimously voted to
accept the Special Committee's recommendation.
Promptly following the April 22 Board Meeting, Paul Weiss advised Paul
Hastings of the Board's "Superior Proposal" determination and discussed matters
relating to the terms of the transaction contemplated by the April 21 Hancock
Park Proposal. Paul Weiss reviewed a number of issues raised by the proposed
merger agreement that had accompanied the earlier April 8 Hancock Park Proposal.
In particular, Paul Weiss suggested that Hancock Park provide security in the
form of a letter of credit or escrow deposit in favor of the Company to secure
Hancock Park's obligations to consummate the proposed merger and to compensate
the Company for its expenses in the event Hancock Park breached its obligation
to consummate that merger. Paul Weiss said that the Special Committee would be
open to alternative suggestions to address its concerns on this issue.
On April 22, the Company sent to the Purchaser by overnight mail the notice
that it had received a Superior Proposal as required by the First Amended Merger
Agreement.
On April 23, representatives of the Special Committee and representatives
of Hancock Park negotiated the terms of a proposed merger agreement, but did not
reach agreement on several issues, including Hancock Park's request for a
termination fee of $6.0 million in the event Hancock Park's proposed merger was
not approved by the Company's shareholders and the Special Committee's request
that Hancock Park post security to compensate the Company in the event it
breached its contractual obligation to consummate the merger.
On April 26, the Special Committee held a telephonic meeting with
representatives of Paul Weiss, Balch & Bingham, Mann Armistead and
PricewaterhouseCoopers present. Representatives of Mann Armistead and
PricewaterhouseCoopers reported to the Special Committee on their recent
discussions with Hancock Park and its sources of debt and equity financing
regarding the certainty of the financing for the April 21 Hancock Park Proposal.
Paul Weiss and Balch & Bingham then updated the Special Committee on
negotiations with Paul Hastings regarding the terms of the proposed Hancock Park
merger agreement. The Special Committee authorized its financial and legal
advisors to engage in further negotiations and discussions with both the
Purchaser and Hancock Park to seek more favorable offers from each party, and to
continue to investigate the certainty of their respective financing proposals.
Between April 26 and April 28, representatives of the Special Committee
continued to negotiate with representatives of both the Purchaser and Hancock
Park with a view towards improving the price and terms of their respective
proposed transactions. On April 28, the Purchaser informed representatives of
the Special Committee that it intended to submit a revised acquisition proposal
on April 30, the last day of the five business day period under the First
Amended Merger Agreement before the Company could enter into a transaction
agreement with Hancock Park.
On April 28, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham, Paul Weiss, Mann Armistead and
PricewaterhouseCoopers present. Mann Armistead and PricewaterhouseCoopers
reported to the Special Committee on their additional discussions with the
financing sources of both Hancock Park and the Purchaser. Mann Armistead and
PricewaterhouseCoopers each stated that, in their view, the Purchaser's
financing and Hancock Park's financing were substantially similar in terms of
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certainty and that both financing proposals were equally likely to be
consummated. The Special Committee then discussed matters relating to the
conduct of the sale process following the Special Committee's receipt of an
improved offer from the Purchaser, which was anticipated on April 30.
In accordance with the Special Committee's instructions, on the evening of
April 28, representatives of the Special Committee informed representatives of
Hancock Park that the Special Committee expected to receive a revised offer from
the Purchaser on April 30. The Special Committee's representatives asked that
representatives of Hancock Park be available on Friday, April 30 and at all
times over the ensuing weekend to respond to the Purchaser's revised offer
promptly and to participate in any resulting negotiations or further improved
offer so that WinsLoew could conclude the sale process and enter into a new
merger agreement with the party making the most favorable offer by the end of
the day on Monday, May 3. Representatives of Hancock Park did not object to the
procedure for the continuation and conclusion of negotiations as outlined by the
Special Committee representatives and agreed that they would be available over
the weekend and would act as quickly as practicable. The Special Committee's
representatives reiterated the Special Committee's request that Hancock Park
post security to secure Hancock Park's obligation to consummate the transaction.
The requested security, in the aggregate amount of $14.5 million, consisted of
$3.0 million for transaction expenses expected to be incurred by the Company,
the $10.0 million termination fee, and $1.5 million expense reimbursement
payable to the Purchaser under the First Amended Merger Agreement upon execution
of a definitive agreement with Hancock Park. On the evening of April 28, Paul
Hastings confirmed that Hancock Park had agreed to extend the April 21 Hancock
Park Proposal until May 3.
Also on April 28, representatives of the Special Committee reviewed the
timing of the conclusion of the sale process with representatives of the
Purchaser, who agreed that they would be available over the weekend to respond
promptly to any additional offers submitted by Hancock Park.
On April 29, Paul Weiss sent to Paul Hastings proposed changes to Hancock
Park's draft merger agreement providing for, among other things, (a) the posting
of a $14.5 million letter of credit by Hancock Park to secure its obligation to
consummate the transaction and (b) the deletion of a condition to Hancock Park's
obligation to close in the event of certain pending litigation.
THE APRIL 30 TRIVEST PROPOSAL
On April 30, the Purchaser delivered to the Special Committee a written,
non-binding offer to increase the purchase price under the First Amended Merger
Agreement from $33.00 to $34.00 per share (the "April 30 Trivest Proposal"). The
proposal was accompanied by revised versions of the Trivest equity commitment
letter, the BankBoston senior secured financing commitment letter and the Bear
Stearns "highly confident letter," as well as a proposed amendment to the First
Amended Merger Agreement. The proposed amendment provided for an increase in the
per share purchase price from $33.00 to $34.00 and a $3.0 million escrow deposit
by the Purchaser, to be paid to the Company in the event that the Company
terminated the Merger Agreement on the basis of certain breaches by the
Purchaser. The April 30 Trivest Proposal stated that it would expire on May 3.
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Promptly after receiving the April 30 Trivest Proposal, representatives of
the Special Committee advised representatives of Hancock Park of such proposal
and, in subsequent telephone conversations, the material terms thereof,
including the $34.00 per share purchase price and Purchaser's agreement to post
security in the amount of $3.0 million. In response to questions from the
Hancock Park representatives, representatives of the Special Committee explained
that they had requested the Purchaser to post security for a breach of its
obligation to consummate the Merger in the amount of $3.0 million rather than
the $14.5 million that had been requested from Hancock Park because, by entering
into an amended agreement with the Purchaser, the Company would not incur the
obligation to pay any termination fees or expenses (whereas, by entering into an
agreement with Hancock Park, the Company would incur an immediate obligation to
the Purchaser of $11.5 million, as a result of the termination fee and expense
reimbursement provision contained in the First Amended Merger Agreement). Later
on April 30, Paul Hastings informed Paul Weiss that Hancock Park was considering
its response to the April 30 Trivest Proposal, but with regard to open points on
the proposed Hancock Park merger agreement, Hancock Park (i) would only require
reimbursement of its expenses, rather than a termination fee of $6.0 million
that it had previously requested, in the event shareholder approval was not
obtained and the Existing Trivest Shareholders and the Trivest Directors
abstained or voted against the proposed merger, (ii) was not inclined to accept
the Special Committee's proposed deletion of the pending litigation closing
condition, but that it might be willing to accept a provision that excepted the
pending Alabama Litigation (which they said had only recently been disclosed to
them) after conducting further due diligence about such litigation (See
"-- Alabama Litigation" above), and (iii) was not inclined to agree to post any
security for Hancock Park's obligations to consummate the proposed transaction.
On April 30, Paul Weiss provided representatives of the Purchaser with a
draft escrow agreement (the "Escrow Agreement") and proposed changes to the
First Amended Merger Agreement relating to the escrow agreement and a deletion
of the closing condition relating to pending litigation.
On April 30, the Special Committee held a telephonic meeting. At that
meeting, the Special Committee's legal advisors advised it of the terms of the
April 30 Trivest Proposal. The Special Committee then discussed matters relating
to the Purchaser's and Hancock Park's proposals and scheduled a meeting for the
evening of May 2.
On May 1, representatives of the Special Committee contacted
representatives of Hancock Park several times regarding the status of Hancock
Park's consideration of an improved offer. Hancock Park's representatives stated
that they were actively considering making a new proposal but would not be in a
position to do so until May 2.
On May 1 and May 2, representatives of the Special Committee and
representatives of the Purchaser continued their negotiations of amendments to
the First Amended Merger Agreement. The Purchaser agreed to the Special
Committee's proposed changes relating to the Escrow Agreement and to the
deletion of the "pending litigation" closing condition.
THE MAY 2 HANCOCK PARK PROPOSAL AND THE MAY 2 TRIVEST PROPOSAL
On the afternoon of May 2, representatives of Hancock Park informed
representatives of the Special Committee that Hancock Park had increased its
offer to $34.75 per share (or $35.25 per share in the event that the $10.0
million termination fee payable to the Purchaser under the First Amended Merger
Agreement was reduced to $6.0 million) (the
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"May 2 Hancock Park Proposal"). The May 2 Hancock Park Proposal included the
following principal additional terms: (a) if such proposal was not approved by
the Company's shareholders, and the Existing Trivest Shareholders and the
Trivest Directors voted against or abstained from voting thereon, Hancock Park
would receive up to $1.2 million of expense reimbursement from the Company and
(b) Hancock Park's obligation to close would continue to be subject to the
absence of certain pending litigation, but Hancock Park would consider excluding
from such condition the Alabama Litigation following satisfactory completion of
due diligence regarding the lawsuit. Representatives of Hancock Park stated that
Hancock Park had declined the Special Committee's request to post security for
its obligation to close in the amount requested, or in any lesser amount. The
May 2 Hancock Park Proposal was to expire on May 3 and was extended as discussed
below.
After their discussions with representatives of Hancock Park,
representatives of the Special Committee promptly advised the Purchaser of the
May 2 Hancock Park Proposal, and the Purchaser increased its offer to $34.75 per
share (the "May 2 Trivest Proposal"). Representatives of the Special Committee
promptly informed representatives of Hancock Park of the May 2 Trivest Proposal.
Early on the evening of May 2, Paul Hastings orally informed Paul Weiss that the
May 2 Hancock Park Proposal was Hancock Park's best offer based on its current
state of knowledge about the Company, its management and prospects. Paul
Hastings advised that if Hancock Park had the opportunity to conduct additional
due diligence, including access to management and further review of financial
information, it might possibly raise its bid, but that there could be no
assurances it would do so.
On the evening of May 2, the Special Committee held a telephonic meeting
with representatives of Balch & Bingham, Paul Weiss, Mann Armistead and
PricewaterhouseCoopers present. The Special Committee's advisors advised it of
the terms of the May 2 Hancock Park Proposal and the May 2 Trivest Proposal. The
Special Committee discussed Hancock Park's comments regarding additional due
diligence, and confirmed that Hancock Park had not been denied access to
management or information regarding the Company after the April 22 "Superior
Proposal" determination. The Special Committee unanimously determined to defer
consideration of the two offers until the following day, May 3, which the
parties previously had been advised would be the date on which final offers
would be considered, in order to enable both parties additional time to consider
improving their offers. The Special Committee discussed the fact that the May 2
Hancock Park Proposal contained an alternative price of $35.25 per share in the
event the termination fee payable to the Purchaser pursuant to the First Amended
Merger Agreement were reduced from $10 million to $6 million, and instructed its
representatives to seek a reduction of such fee from the Purchaser.
Representatives of the Special Committee contacted representatives of Hancock
Park to advise them of the Special Committee's determinations. The Special
Committee's representatives stated that the Purchaser's agreement to post
security and to the deletion of the pending litigation condition were
significant to the Committee, and urged that Hancock Park reconsider its
positions on these issues.
On May 3, the Purchaser confirmed the May 2 Trivest Proposal in writing,
stating that it would expire on May 4. The proposal was accompanied by a revised
version of the Trivest equity commitment letter increasing Trivest's common
equity commitment from $75.0 million to $78.0 million to reflect the increased
purchase price.
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In addition, on May 3, representatives of the Special Committee requested
the Purchaser to agree to reduce the termination fee from $10.0 million to $6.0
million, or, in the alternative, to increase its offer to pay $35.25 per share.
The Purchaser declined to do so.
In a letter dated May 3, Paul Hastings confirmed Hancock Park's interest in
meeting with management and reviewing additional financial data, and stated that
Hancock Park was prepared to keep its current proposal open until May 14 if such
additional due diligence investigations proceeded. The letter stated that
Hancock Park had received oral commitments from its financing sources to finance
up to an additional $.50 per share upon satisfactory completion of additional
due diligence. The letter also asserted that Hancock Park had not "received an
adequate explanation" of the Special Committee's decision to agree to the
termination fees payable to the Purchaser under the Initial Merger Agreement and
the First Amended Merger Agreement. The letter reasserted Hancock Park's earlier
claim for reimbursement of expenses.
In addition, on May 3, the Special Committee held a telephonic meeting with
representatives of Balch & Bingham, Paul Weiss, Mann Armistead and
PricewaterhouseCoopers present. The Special Committee and its advisors discussed
and compared the terms and conditions of the May 2 Trivest Proposal and the May
2 Hancock Park Proposal. The Special Committee determined that because the May 2
Trivest Proposal did not expire until May 4, it would again defer taking action
on the two proposals in order to enable Hancock Park to conduct additional due
diligence prior to the expiration of the May 2 Trivest Proposal. The Special
Committee also instructed its representatives to seek a further extension of the
May 2 Trivest Proposal to accommodate additional due diligence by Hancock Park.
Later that evening, at the request of Hancock Park, representatives of the
Special Committee arranged for four senior members of the Company's management
to meet with representatives of Hancock Park at Hancock Park's offices in New
York City the following day and for the Company to provide certain financial
information that had been requested by Hancock Park. Paul Weiss also contacted
the Purchaser and asked the Purchaser to extend the May 2 Trivest Proposal. The
Purchaser declined to extend such proposal beyond May 4.
On the morning of May 4, the Purchaser, the Company and the escrow agent
executed and delivered the Escrow Agreement, and the Purchaser funded the $3.0
million escrow, contingent upon the execution of an amended First Amended Merger
Agreement.
On May 4, representatives of Hancock Park met with members of WinsLoew's
senior management in New York City and reviewed additional financial
information. Following such meetings, representatives of Hancock Park advised
representatives of the Special Committee that while the meetings had been
productive, Hancock Park was not in a position to submit an improved proposal,
and that it required an additional week of due diligence in order to determine
if a higher offer would be feasible. Hancock Park also confirmed that it
continued to be unwilling to provide a letter of credit or an escrow deposit in
any amount as security for the Company's expenses.
THE SECOND AMENDED MERGER AGREEMENT
Early on the evening of May 4, the Special Committee held a meeting with
representatives of Balch & Bingham, Paul Weiss, Mann Armistead and
PricewaterhouseCoopers present to consider the May 2 Hancock Park Proposal and
the May 2 Trivest Proposal. Representatives of Mann Armistead made a
presentation
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reviewing the analyses they had performed to produce a range of implied values
for the Company's Common Stock, including the assumptions made, the facts upon
which these analyses were based, the methodologies utilized and the relative
limits of their analyses. See "-- Opinion of the Financial Advisor." Mann
Armistead concluded its presentation by rendering its oral opinion, subsequently
confirmed in writing, that based on its analyses, the $34.75 per share Cash
Merger Consideration was fair from a financial point of view to the Public
Shareholders. In addition, representatives of Mann Armistead and
PricewaterhouseCoopers confirmed to the Special Committee that the financing
arrangements for the two proposals were substantially equivalent. The Special
Committee then discussed the terms of the two proposals. During the meeting,
representatives of Hancock Park contacted representatives of the Special
Committee to request that, in the event the Company accepted the May 2 Trivest
Proposal, the amended First Amended Merger Agreement permit Hancock Park to
conduct additional due diligence without the need for a "Superior Proposal"
determination. The Special Committee's representatives made such a request to
the Purchaser, who did not agree to such change. After extensive discussion, and
for the reasons described below under "THE SPECIAL COMMITTEE'S AND THE BOARD'S
RECOMMENDATION," the Special Committee determined that the May 2 Trivest
Proposal was more favorable to the Company's Public Shareholders than the May 2
Hancock Park Proposal. The Special Committee concluded that the Merger
(including the May 2 Trivest Proposal's $34.75 per share Cash Merger
Consideration to be paid to the Public Shareholders) was substantively and
procedurally fair to, and in the best interests of, the Public Shareholders and
determined to recommend the amended First Amended Merger Agreement incorporating
the changes previously agreed to (the "Second Amended Merger Agreement" or the
"Merger Agreement") to the full Board. All members of the Special Committee
voted in favor of such recommendation, except Mr. Smith, who was absent from the
meeting.
The Second Amended Merger Agreement incorporated the following changes from
the First Amended Merger Agreement: (i) an increase in the per share purchase
price from $33.00 to $34.75; (ii) a $3.0 million escrow deposit to be paid to
the Company if the Merger Agreement were terminated on the basis of the
Purchaser's material breach of representations or material covenants; (iii) a
deletion of the closing condition relating to pending litigation; (iv) the
extension to August 31 of the date after which either the Company or the
Purchaser could terminate the Merger Agreement; and (v) permitting the Company
to terminate the Merger Agreement in the event the Purchaser breaches its
covenant to pay the Cash Merger Consideration to the Disbursing Agent not later
than the tenth business day following the satisfaction or waiver of the
conditions to the Purchaser's obligation to consummate the Merger.
On May 4, subsequent to the meeting of the Special Committee, the full
Board met to consider the Special Committee's recommendation, the approval and
adoption of the Second Amended Merger Agreement and the recommendation to the
shareholders of the Company. The Special Committee reported on its consideration
of the May 2 Hancock Park Proposal and the May 2 Trivest Proposal, including
Mann Armistead's solicitation process, its presentation to the Special Committee
and the views of Mann Armistead and PricewaterhouseCoopers as to the financing
arrangements underlying the two proposals. Mann Armistead confirmed to the full
Board its oral fairness opinion. The Board approved and adopted the Second
Amended Merger Agreement, recommended it to the shareholders and determined that
the Merger (including the $34.75 per share Cash Merger Consideration to be paid
to the Public Shareholders) was substantively and procedurally fair to, and in
the best interests of, the Public Shareholders. The parties executed the
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Second Amended Merger Agreement on the evening of May 4, and issued a press
release on May 5 prior to the opening of the market announcing its execution.
All members of the Board voted in favor of such recommendation, except Messrs.
Tesney and Smith, who were absent from the meeting.
At meetings held on June 23, June 28 and July 8, the Special Committee
discussed matters relating to the preparation of preliminary proxy materials,
the Company's recent financial results and certain Company projections which had
been used by Mann Armistead in a discounted cash flow valuation analysis
included in the materials supporting its fairness opinions delivered to the
Special Committee and the Board of Directors as of March 4, March 30 and May 4,
respectively. These projections, which had been developed by the Company as part
of its annual budgeting process in October through December 1998, estimated that
the Company's earnings per share would be $2.60, $2.90, $3.20 and $3.50 in 1999,
2000, 2001 and 2002, respectively (the "Budget Projections").
In connection with these Special Committee meetings, Mann Armistead advised
the Special Committee that Mann Armistead had, prior to the delivery of its May
4 fairness opinion, considered the possibility that, in light of the Company's
financial results for the first quarter of 1999, the Budget Projections might be
exceeded. Consequently, in connection with its May 4 fairness opinion, Mann
Armistead had also performed a discounted cash flow valuation analysis utilizing
higher projections that had been prepared by the Company on the basis of a "best
case" scenario in February 1999 in connection with the Purchaser's efforts to
obtain financing for the Merger (the "Best Case Projections"). These projections
estimated that the Company's earnings per share would be $2.80, $3.20, $3.50 and
$3.85 in 1999, 2000, 2001 and 2002, respectively. Both the Budget Projections
and the Best Case Projections had been supplied to Hancock Park in March 1999.
In mid-June, in response to inquiries from representatives of the Special
Committee, representatives of the Company stated that in light of the financial
results achieved by the Company to date, the Company's actual financial
performance was likely to exceed the Budget Projections for 1999 and subsequent
years, and that the Best Case Projections now appeared more indicative of the
Company's future performance than the Budget Projections. The Best Case
Projections are included herein under "CERTAIN FORWARD LOOKING INFORMATION."
The Special Committee determined that it would be advisable to request Mann
Armistead to confirm the work that it had performed in connection with the
delivery of its May 4 opinion. On July 8, Mann Armistead delivered to the
Special Committee a written confirmation that (a) its use of the Budget
Projections was, in light of the circumstances existing as of May 4, reasonable,
(b) its May 4 fairness opinion had also taken into account the actual financial
performance of the Company for the first quarter of 1999, as well as the Best
Case Projections and (c) its discounted cash flow analysis utilizing the Best
Case Projections supported its conclusion as of the date of such opinion that
the Merger is fair to the Public Shareholders from a financial point of view.
Mann Armistead also provided the Special Committee with supplementary written
materials reflecting the use of the Best Case Projections in the discounted cash
flow analysis. See "-- Opinion of Financial Advisor"
A copy of Mann Armistead's written fairness opinion to the Special
Committee, dated May 4, 1999, together with the accompanying valuation analyses
and other materials (including its July 8, 1999 confirmation letter referred to
above) has been filed as an
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exhibit to the Schedule 13E-3 filed with the Commission in connection with the
Merger and is available for inspection and copying at the principal executive
offices of the Company during its regular business hours by any shareholder or
any representative of a shareholder who has been so designated in writing. A
copy of such materials will be provided by the Company to any shareholder or any
representative of a shareholder who has been so designated in writing upon
written request and at the expense of the requesting shareholder or such
representative. See "Available Information."
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION
GENERAL
THE SPECIAL COMMITTEE AND THE BOARD HAVE EACH DETERMINED THAT THE MERGER IS
SUBSTANTIVELY AND PROCEDURALLY FAIR TO, AND IN THE BEST INTERESTS OF, THE PUBLIC
SHAREHOLDERS. UPON THE SPECIAL COMMITTEE'S RECOMMENDATION, THE BOARD HAS
APPROVED AND ADOPTED THE MERGER AGREEMENT AND RECOMMENDED IT TO THE
SHAREHOLDERS. CERTAIN MEMBERS OF THE BOARD WILL HAVE A FINANCIAL INTEREST IN THE
MERGER THAT MAY PRESENT THEM WITH ACTUAL OR POTENTIAL CONFLICTS OF INTEREST AS
DISCUSSED UNDER "-- CONFLICTS OF INTEREST."
The Special Committee met in person or by telephone conference on
approximately 30 occasions between January 7, 1999 and the date of this Proxy
Statement to consider and make recommendations with respect to the Merger and
other possible strategic alternatives for the Company. The Special Committee was
assisted in its deliberations by (i) Mann Armistead, the financial advisor to
the Special Committee, (ii) Balch & Bingham, legal counsel to the Special
Committee, (iii) Paul Weiss, special counsel to the Board, and (iv)
PricewaterhouseCoopers, which was retained to assist the Special Committee in
its evaluation of the financings proposed by the Purchaser and Hancock Park in
connection with their respective merger proposals. At a meeting held on May 4,
1999, the Special Committee determined that the Merger, including the Cash
Merger Consideration to be paid to the Public Shareholders, is substantively and
procedurally fair to, and in the best interests of, the Public Shareholders and
recommended that the full Board approve the Second Amended Merger Agreement.
PRINCIPAL FACTORS
The material factors the Special Committee evaluated in determining that
the Merger is substantively and procedurally fair to, and in the best interests
of, the Public Shareholders are described below. Except as noted below, the
Special Committee considered the following factors to be positive factors
supporting its determination that the Merger is substantively and procedurally
fair to, and in the best interests of, the Public Shareholders:
(i) Mann Armistead's opinion delivered to the Special Committee on May
4, 1999, which Mann Armistead confirmed in writing, that the $34.75 per
share to be received by the Public Shareholders was fair to such holders
from a financial point of view. The full text of the written opinion of
Mann Armistead, which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with its opinion, is
attached hereto as Appendix B and is incorporated herein by reference. The
Company's shareholders are urged to and should read such opinion in its
entirety. The Special Committee also considered the fact that Mann
Armistead had previously rendered opinions stating its view that prices of
$30.00 and $33.00 per share in connection with the Initial Merger Agreement
and the First
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Amended Merger Agreement, respectively, were fair to the Public
Shareholders from a financial point of view, as of the date of such
opinions. The Special Committee considered Mann Armistead's presentations
to the Special Committee and its solicitation of more favorable proposals.
See "-- Opinion of the Financial Advisor." The Special Committee and the
Board expressly adopted the conclusions of Mann Armistead in its
determination that the Merger is fair to the Public Shareholders. In its
review of the analyses performed by Mann Armistead, the Special Committee
did not place greater weight on any one of the separate analyses prepared
by Mann Armistead, but rather relied upon the summary and conclusions of
Mann Armistead that the analyses, taken as a whole, supported the
conclusion that the Merger is fair to the Public Shareholders from a
financial point of view. Based on Mann Armistead's nationally recognized
expertise in the furniture manufacturing industry, its expertise and
experience in the evaluation of businesses in connection with transactions
similar to the Merger, its familiarity with WinsLoew's business, financial
condition, results of operations and prospects, its solicitation process
and negotiations with other potential acquirors, and its analyses and
presentations related to the fairness opinion, the Special Committee and
the Board believe that Mann Armistead's opinion as to the fairness of the
Cash Merger Consideration to be received by the Public Shareholders was
well supported and sound. The Board and the Special Committee believe that
the Mann Armistead oral presentations and its oral and written opinion
supported the Special Committee's and Board's fairness determination.
(ii) The premium (35.4%) by which the Cash Merger Consideration of
$34.75 per share exceeds the closing price ($24 3/8 per share) of the
Common Stock on the day prior to the Board meeting at which Mr. Powell
stated that he, together with the other Trivest Investors and the
Management Group, would be willing to submit a proposal to purchase the
Company, the premium (28.7%) by which the Cash Merger Consideration exceeds
the closing price ($27 per share) of the Common Stock on the last trading
day prior to the January 15 announcement of the Merger proposal, and the
premium (87.8%) by which the Cash Merger Consideration exceeds the closing
price ($18 1/2 per share) of the Common Stock on the date three months
prior to such announcement. The Special Committee also considered the fact
that the Cash Merger Consideration is substantially in excess of the
Company's fully diluted book value per share of $9.45 at March 26, 1999, or
approximately 3.7 times such book value per share. See "-- Opinion of
Financial Advisor." The Special Committee did not consider as significant
the premium (12.1%) by which the Cash Merger Consideration exceeded the
closing price of the Common Stock on the last trading day prior to the
announcement of the execution of the Second Amended Merger Agreement in
light of the prior announcements relating to the proposed transactions.
(iii) The terms and conditions of the Merger Agreement, including
those that were designed to ensure that the Board could fulfill its
fiduciary duties to obtain the best value reasonably available for the
Public Shareholders. In particular, the Special Committee considered that:
(a) from the execution of the Initial Merger Agreement on March 5 until the
execution of the First Amended Merger Agreement on March 30, the Initial
Merger Agreement permitted the Special Committee to continue to solicit
Superior Proposals and to engage in negotiations regarding Superior
Proposals; (b) after such date, the First Amended Merger Agreement
permitted (and the Second Amended Merger Agreement continues to permit) the
Board to consider unsolicited Superior Proposals from other parties and,
subject to certain conditions, to engage in negotiations relating thereto;
(c) the Purchaser's obligation to consummate
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the Merger is not subject to any due diligence or financing contingency;
(d) the termination fee and expense reimbursement obligations, which were
intended not to have (and, in fact, did not have) the effect of
discouraging competing bids, in particular the Hancock Park proposals; and
(e) the provision in the Second Amended Merger Agreement that, subject to
the satisfaction of certain conditions, the Board may withdraw or modify
its recommendation to the shareholders regarding the Merger and enter into
an agreement with respect to a Superior Proposal, if such a transaction
becomes available prior to the consummation of the Merger and the Board
determines that it is necessary to do so in order to comply with its
fiduciary duties. See "-- The Merger."
(iv) The improved terms and conditions of the Second Amended Merger
Agreement that were not contained in the Initial Merger Agreement or the
First Amended Merger Agreement, including (a) the increase in the Cash
Merger Consideration from $30.00 to $34.75 per share, (b) the provision by
the Purchaser of the escrow deposit pursuant to the Escrow Agreement to
secure its obligations to consummate the Merger and to compensate the
Company in the event the Purchaser breaches such obligation and (c) the
elimination of a provision contained in the Initial Merger Agreement and
the First Amended Merger Agreement that would have enabled the Purchaser
not to consummate the Merger in the event of certain pending litigation.
See "-- The Merger."
(v) The financial ability of the Purchaser to consummate the Merger.
As noted above, the Purchaser's obligation to consummate the Merger
Agreement is not conditioned upon the Purchaser's having obtained financing
for the Merger, and such obligation is secured by the Escrow Agreement. In
addition, the Special Committee, through its advisors, conducted inquiries
into the certainty of consummation of the proposed equity and debt
financing with representatives of the Purchaser, BankBoston and Bear
Stearns.
(vi) The relatively low level of trading of the Common Stock on the
Nasdaq National Market and the small number of shareholders of record and
persons or entities holding in nominee name (approximately 103 and 2,300,
respectively, as of the Record Date), which the Special Committee believed
would limit the ability of the Public Shareholders to sell their Common
Stock at the current market price. The Merger would provide each
shareholder other than the Purchaser with cash for his or her shares.
(vii) The fact that subsequent to the announcement on January 15 of
the initial Merger proposal (a) Mann Armistead conducted an extensive
solicitation of third parties who might be interested in pursuing a
transaction involving the Company, (b) since such date, the Special
Committee and its representatives received formal proposals for the
acquisition of the Company from a single other potential
purchaser -- Hancock Park, (c) Hancock Park had conducted an extensive due
diligence investigation over more than two months, including review of both
the Budget Projections and the Best Case Projections and (d) extensive
discussions and negotiations between representatives of the Special
Committee and representatives of Hancock Park occurred over more than two
months regarding an alternative transaction resulting in the May 2 Hancock
Park Proposal, which the Special Committee determined was not as favorable
to the Public Shareholders as the Merger.
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(viii) The fact that the furniture industry is cyclical and sensitive
to changes in general economic conditions, consumer confidence and
discretionary income, interest rate levels and credit availability and the
effect of such factors on the market price of the Common Stock and
management's ability to execute the Company's business strategy. In this
connection, the Special Committee considered that the Company is subject to
pressures from public shareholders and market professionals to maintain and
increase earnings per share. The Special Committee believes that as a
public company WinsLoew may not have adequate flexibility to consider
business strategies that have long-term benefits but that may adversely
impact earnings per share and the market price of the Common Stock in the
short term.
(ix) Actual or potential conflicts of interest to which certain
officers and directors of the Company and their affiliates are subject in
connection with the Merger, including the fact that, after the Merger (a)
the Trivest Directors will beneficially own approximately 94.8% of the
Company and the members of the Management Group will beneficially own
approximately 4.8% of the Company and (b) certain members of the Management
Group will enter into new employment agreements with WinsLoew replacing
their existing employment agreements with the Company, and that such new
employment agreements will provide for the payment of substantially the
same base salaries and annual cash bonuses as their existing employment
agreements. The Special Committee considered these conflicts of interest to
be negative factors in its determination that the Merger is fair to the
Public Shareholders. The Special Committee believed, however, that such
conflicts were mitigated in part by the following:
- The establishment of the Special Committee to seek other offers and
make an independent determination as to the fairness of the Merger and
to negotiate the terms of the Initial Merger Agreement, the First
Amended Merger Agreement and the Second Amended Merger Agreement with
representatives of the Purchaser, as well as the terms of alternative
transactions proposed by third parties.
- The Special Committee considered that the Trivest Directors, who
together with the Existing Trivest Shareholders, beneficially own
approximately 30.1% of the outstanding shares of Common Stock, have
expressed their intention to vote all shares they hold in favor of the
Merger and further noted that only approximately 5.3% of the total
value of the Common Stock and options they hold (including all of the
shares held by the Existing Trivest Shareholders) would be invested in
the Purchaser. Moreover, none of the Existing Trivest Shareholders
will have a direct or indirect interest in WinsLoew after the Merger.
The Special Committee viewed this high degree of "sell-side"
participation by affiliates of Trivest, with respect to whom Mr.
Powell and other Trivest affiliates also had fiduciary obligations, as
a positive factor in its determination that the Merger is fair to the
Public Shareholders.
- Similarly, the Special Committee considered that the members of the
Management Group, who together beneficially own approximately 6.9% of
the outstanding shares of Common Stock, have expressed their intention
to vote all shares they hold in favor of the Merger and further noted
that only 20.7% of the total value of the Common Stock and options
they hold would be invested in the Purchaser. The Special Committee
considered that a larger investment in the Purchaser by the Management
Group would indicate a level of
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confidence in the Company's prospects that might be inconsistent with
the Special Committee's assessment of the Company's prospects.
(x) The adequacy of the information regarding the Company which the
Special Committee and its financial and legal advisors had been provided.
(xi) The fact that under Florida law, WinsLoew shareholders have no
right to an appraisal of the value of their shares in connection with the
Merger. The Special Committee considered this to be a negative factor in
its determination that the Merger is fair to the Public Shareholders.
(xii) The likelihood that the Purchaser, as an affiliate of the
Company, would continue to operate the business in a similar manner
following the transaction, and that consequently the Merger was not likely
to result in disruption to employees, suppliers, customers and the
communities in which the Company operates.
ADDITIONAL FACTORS
In addition to the factors set forth in paragraphs (i) to (xii) above, the
Special Committee also considered a number of factors relating to its
determination that the Merger was more favorable than the May 2 Hancock Park
Proposal. As noted above, representatives of Hancock Park indicated on May 4
that, with an additional week of due diligence investigation, it was possible
that Hancock Park might be able to submit a proposal providing for a price
greater than that contained in the May 2 Hancock Park Proposal. Hancock Park did
not indicate the amount of such a possible price increase, but stated that its
lenders had orally stated that they would be prepared to lend additional amounts
necessary to finance a $.50 per share increase. The Special Committee instructed
its representatives to request the Purchaser to agree that the Second Amended
Merger Agreement permit Hancock Park to conduct additional due diligence without
the need for an additional "Superior Proposal" determination. The Purchaser
declined to agree to such a change in the Second Amended Merger Agreement.
The Special Committee determined to recommend on May 4 that the Board of
Directors approve the May 2 Trivest Proposal despite the possibility that a
higher Hancock Park offer might be forthcoming after taking into account the
following factors: (i) the fact that the May 2 Trivest Proposal was to expire
later that evening, that the Purchaser had declined a request for an additional
extension, and the uncertainty as to whether the May 2 Trivest Proposal would
continue to be available after such date, (ii) the uncertain likelihood of a
price increase, particularly in light of the absence of any statement by Hancock
Park representatives that such a price increase was probable, (iii) its view
that the procedures for, and timing of, the bidding process that had been
established following the Board's "Superior Proposal" determination on April 22
(which had been reviewed with Hancock Park representatives without objection)
had been fair and had provided each of the Purchaser and Hancock Park with the
opportunity to put forth its best proposal within a reasonable period of time
and (iv) the fact that the Company and Hancock Park had been unable to reach an
agreement regarding certain terms of the proposed merger, including the security
for expenses and the closing condition regarding litigation. The Special
Committee also considered the fact that (a) Hancock Park had conducted extensive
due diligence in February and March and (b) from April 22, when the Board made
its "Superior Proposal" determination (and thus due diligence inquiries were
permitted) until May 2, Hancock Park had not suggested that it required
additional due
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diligence in order to submit a revised offer and, in fact, had submitted three
revised proposals without any such due diligence.
The Special Committee also considered the fact that the May 2 Hancock Park
Proposal provided for a price of $34.75 per share (or $35.25 per share if the
Purchaser's $10.0 million termination fee contained in the First Amended Merger
Agreement was reduced to $6.0 million). Consequently, under the latter price
formulation, the May 2 Hancock Park Proposal would have provided a higher price
than the $34.75 per share price contained in the Second Amended Merger
Agreement. However, the First Amended Merger Agreement obligated the Company to
pay the $10 million termination fee to the Purchaser in the event the Company
entered into an agreement with Hancock Park and, having unsuccessfully requested
the Purchaser to agree to reduce such fee to $6.0 million, the Special Committee
did not believe that it could unilaterally effect such reduction without
breaching the First Amended Merger Agreement. As a result of these contractual
obligations of the Company, the Special Committee did not believe the
alternative price of $35.25 per share contained in the May 2 Hancock Park
Proposal to be available. Moreover, although no determination on the $35.25
pricing proposal was made, some members of the Special Committee stated that,
even at such a higher price, the May 2 Hancock Park Proposal might be less
favorable to the Public Stockholders because, unlike the May 2 Trivest Proposal,
(a) it did not provide any security for the Company and its stockholders in the
event of a breach of the obligation to consummate the transaction and (b) it
contained a broad "no pending litigation" closing condition, from which Hancock
Park would not except the Alabama Litigation without further due diligence.
DISCUSSION
In view of the wide variety of factors considered in connection with their
evaluation of the Merger Agreement, neither the Special Committee nor the Board
found it practicable to, and did not, quantify or otherwise assign relative
weights to the individual factors considered in reaching their respective
determinations. In considering each such factor, the Special Committee and the
Board specifically took note of the following points:
With respect to factor (i) above, the Special Committee and the Board
considered the fact that Mann Armistead reviewed the projections prepared by
management with respect to net sales, operating income, net income, earnings per
share and other items. See "CERTAIN FORWARD LOOKING INFORMATION." In addition,
at the February 17, March 4 and May 4 meetings of the Special Committee, members
of the Special Committee asked representatives of Mann Armistead to elaborate
generally upon the methodologies on which their analyses were based. As
discussed above, Mann Armistead's May 4 fairness opinion took into account
discounted cash flow valuation analyses utilizing both the Budget Projections
and the Best Case Projections. In comparison to earnings estimates issued by
Wall Street analysts, the Budget Projections were significantly less than Zack's
per share consensus earnings estimate for the Company of $2.67 for 1999 and
$3.33 for 2000, and exceeded First Call's consensus estimate of $2.55 for 1999.
The Company's actual results for the first quarter of 1999 of $.56 per share
significantly exceeded the Budget Projections of $.50, as well as Zack's
consensus estimate of $.47 and First Call's consensus estimate of $.41. The Best
Case Projections that were also used by Mann Armistead in connection with its
May 4 fairness opinion were, however, more consistent with both the highest
consensus estimate and the Company's first quarter earnings. As noted above, the
Best Case Projections estimated the Company's earnings per share would be $2.80,
$3.20, $3.50 and $3.85 in 1999, 2000, 2001 and 2002, respectively,
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and $.54, $.98, $.68 and $.60 for the first, second, third and fourth quarters
of 1999. On July 8, Mann Armistead delivered to the Special Committee written
confirmation that (a) its use of the Budget Projections was, in light of the
circumstances existing as of May 4, reasonable, (b) its May 4 fairness opinion
had taken into account the actual financial performance of the Company for the
first quarter of 1999, as well as the Best Case projections and (c) its
discounted cash flow analysis utilizing the Best Case Projections supported its
conclusion as of the date of such opinion that the Merger is fair to the Public
Stockholders from a financial point of view.
With respect to factors (ii) and (vi) above, although the Special
Committee, the Board and Mann Armistead took note of the market price of the
Common Stock, none of such persons relied exclusively upon the current or
historical market prices of the Common Stock in making its determination with
respect to the fairness of the Cash Merger Consideration, given the fact that
the Common Stock has been and continues to be relatively thinly traded. The
Special Committee concluded that the Merger would give the Public Shareholders,
particularly those holding a large number of shares of Common Stock, an
opportunity to realize immediate value for their Common Stock at a substantial
premium. The Special Committee recognized that while consummation of the Merger
would result in the shareholders being entitled to receive $34.75 in cash per
share, it also would eliminate the opportunity for the Public Shareholders
(other than the Eligible Persons) to participate in the future growth, if any,
of the business of WinsLoew and potential market appreciation in the Common
Stock. The Special Committee concluded that, based on the discount historically
applied by the market to the Common Stock, it was unlikely that future trading
value would compare favorably with the $34.75 per share payable in the Merger.
Thus, on balance and considering WinsLoew's future prospects, as well as its
historical results of operations, the Special Committee concluded that the
uncertain prospect for future appreciation did not justify depriving WinsLoew's
shareholders of the opportunity to obtain an immediate cash premium for their
Common Stock. In light of these conclusions and the other matters discussed
below, the Special Committee determined that the $34.75 Cash Merger
Consideration was fair and presented the shareholders with an attractive
opportunity and potentially greater benefit than maintaining their ownership
interest in WinsLoew.
The Special Committee considered the fact that the obligation of the
Company to consummate the Merger is not conditioned upon the favorable vote of a
majority of the Public Shareholders, even though the Merger may not be
considered to be at "arm's length" because the Trivest Directors and the members
of the Management Group are both affiliates of the Company and parties to the
Merger Agreement with different interests than the Company. Notwithstanding the
absence of such a voting requirement, the Special Committee believes that the
procedure that was followed in determining the purchase price to be paid to the
shareholders of the Company was fair to the Public Shareholders. As described
above, the ten-person Board of Directors of the Company (one of whom is the
Management Director and four of whom are the Trivest Directors) appointed as the
only members of the Special Committee the five non-employee directors who were
independent of the Management Group and the Trivest Partnerships. The terms of
the Merger Agreement were determined through arm's-length negotiations between
the Special Committee and its legal and financial advisors, on the one hand, and
representatives of the Purchaser, on the other. Moreover, from its initial
execution on March 5 until its amendment on March 30, the Initial Merger
Agreement permitted WinsLoew to (x) solicit Superior Proposals and (y) negotiate
on behalf of the Company with third parties with respect to Superior Proposals.
The First Amended Merger
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Agreement permitted, and the Merger Agreement permits, WinsLoew to (i) withdraw
or modify its recommendation to the shareholders regarding the Merger, (ii)
enter into an agreement with respect to, or approve, a Superior Proposal or
(iii) terminate the Merger Agreement, so long as the Board determines in each
case (i), (ii) or (iii) that it is necessary to do so in order to comply with
its fiduciary duties and notifies the Purchaser that it has received a Superior
Proposal. In addition, the Merger Agreement contains provisions (without which
the Special Committee believes the Purchaser would not have entered into the
Merger Agreement) imposing upon the Company the Termination Fee and expense
reimbursement obligations that, in the view of the Special Committee, are
reasonable and would not have the effect of discouraging competing bids. (See
"THE MERGER -- Nonsolicitation Covenant). Thus, although the Merger is not
structured to require approval of a majority of the unaffiliated shareholders
(which the Special Committee considered to be a negative factor), the Special
Committee nevertheless believes, as of the date of this Proxy Statement and for
the reasons set forth above, that the Merger is procedurally fair to the Public
Shareholders.
The Special Committee also noted that approximately 35.8% of the
outstanding shares of Common Stock are held of record by persons who have
expressed their intention to vote their shares of Common Stock in favor of the
Merger, including members of the Management Group, certain other members of
management, members of the Board, the Existing Trivest Shareholders and other
individuals associated or affiliated with the Trivest Partnerships. The Special
Committee further noted that approximately 87% of such shares would not be
rolled over into shares of Purchaser common stock, but rather would be converted
into the Cash Merger Consideration pursuant to the Merger on the same terms as
the Public Shareholders. The Special Committee viewed this as a significant
positive factor in its determination that the Merger is fair to the Public
Shareholders.
In connection with its evaluation of the fairness of the Merger, neither
the Board nor the Special Committee considered (i) valuations of WinsLoew based
on liquidation value or (ii) the prices at which WinsLoew repurchased Common
Stock during the period from May 1998 through February 1999 to be material and
therefore did not consider such valuations or prices, because the Board
considered the valuation methodologies undertaken by Mann Armistead, after
discussion with the Special Committee and the Board, to be the most relevant to
the values that would be realistically available to shareholders.
The Special Committee and the Board both expressly adopted the conclusion
of Mann Armistead that the Cash Merger Consideration to be received by the
Public Shareholders in the Merger is fair to such shareholders from a financial
point of view.
Based on the foregoing, on May 4, 1999, the Special Committee determined
that the Merger is substantively and procedurally fair to, and in the best
interest of, the Public Shareholders and recommended to the Board approval of
the Merger Agreement and that it be recommended to the shareholders of the
Company.
The Board approved the Merger on May 4, 1999 and determined that the Merger
is substantively and procedurally fair to, and in the best interest of, the
Public Shareholders and resolved to recommend it to the Company's shareholders.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS
APPROVE THE MERGER.
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CERTAIN MEMBERS OF THE BOARD WILL HAVE A FINANCIAL INTEREST IN THE MERGER
THAT MAY PRESENT THEM WITH ACTUAL OR POTENTIAL CONFLICTS OF INTEREST AS
DISCUSSED UNDER "-- CONFLICTS OF INTEREST."
OPINION OF THE FINANCIAL ADVISOR
MANN ARMISTEAD DELIVERED ITS WRITTEN OPINION TO THE SPECIAL COMMITTEE TO
THE EFFECT THAT THE CASH MERGER CONSIDERATION TO BE RECEIVED BY THE PUBLIC
SHAREHOLDERS IN THE MERGER IS FAIR TO SUCH SHAREHOLDERS FROM A FINANCIAL POINT
OF VIEW.
Mann Armistead is a recognized investment banking firm regularly engaged in
the valuation of private and public businesses and their securities in
connection with mergers and acquisitions, competitive biddings and valuations
for estate, corporate and other purposes and acting as financial advisor in
connection with other forms of strategic corporate transactions. Mann Armistead
is actively involved in securities research on the furniture industry. The
Special Committee selected Mann Armistead as its financial advisor because it is
a nationally known investment banking firm with expertise in the furniture
industry, because it has experience in transactions similar to the Merger and
because it is familiar with WinsLoew and its business.
MARCH 4 OPINION
As part of its role as financial advisor to the Special Committee, Mann
Armistead was asked by the Special Committee to render an opinion to the Special
Committee as to whether the consideration to be received by the Public
Shareholders is fair to the Public Shareholders from a financial point of view.
In addition, Mann Armistead was instructed by the Special Committee to solicit
superior proposals from both strategic and financial buyers. On March 4, 1999,
Mann Armistead rendered to the Special Committee an oral opinion, which was to
be subsequently confirmed by a written opinion that the $30.00 per share
consideration described in the Initial Merger Agreement was fair, from a
financial point of view, to the Public Shareholders of WinsLoew.
APRIL 7 OPINION
On March 30, the Special Committee received the March 30 Trivest Proposal
and a proposed amendment to the Initial Merger Agreement from the Purchaser.
Among other things, the amendment increased the consideration to WinsLoew
shareholders to $33.00 per share, removed the financing contingency and required
the immediate termination of any discussions and negotiations with other
potential buyers, subject to the Board's fiduciary duties. On March 30, the
Special Committee and the Board each approved the First Amended Merger
Agreement. Mann Armistead issued its written opinion, dated April 7, 1999,
stating that as of such date, and based upon and subject to certain matters
stated therein, the $33.00 per share merger consideration was fair, from a
financial point of view, to the Public Shareholders of WinsLoew. Pursuant to the
requirements of the First Amended Merger Agreement, on March 31, the Special
Committee instructed Mann Armistead to discontinue its process to solicit
superior offers from third parties.
MAY 4 OPINION
On April 9, the Special Committee received the April 8 Hancock Park
Proposal to acquire the Company for a per share purchase price of $33.50 (or
$34.00 if the
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termination fee under the First Amended Merger Agreement was reduced from $10.0
million to $6.0 million). On April 21, Hancock Park increased the per share
purchase price of this offer to $34.00 ($34.50 if the termination fee under the
Merger Agreement with the Purchaser was reduced from $10.0 million to $6.0
million). On April 22, the Board determined that the April 21 Hancock Park
Proposal constituted a Superior Proposal under the First Amended Merger
Agreement, and the Company provided the Purchaser with the requisite notice
thereunder. On April 30, the Special Committee received the April 30 Trivest
Proposal from the Purchaser to increase the purchase price under the First
Amended Merger Agreement to $34.00 per share. On May 2, the Special Committee
received the May 2 Hancock Park Proposal increasing the per share purchase price
to $34.75 (or $35.25 if the termination fee under the First Amended Merger
Agreement was reduced from $10.0 million to $6.0 million). The same day, the
Special Committee received a proposed amendment to the First Amended Merger
Agreement and the May 2 Trivest Proposal from the Purchaser to increase the
purchase price to $34.75 per share. On May 4, the Special Committee and the
Board each approved the Second Amended Merger Agreement providing for, among
other things, an increase in the purchase price to $34.75 per share. The Special
Committee's and the Board's approvals were based, in part, upon the oral opinion
of Mann Armistead, later confirmed in writing, that as of May 4, 1999 and based
upon and subject to certain matters stated therein, the $34.75 per share Cash
Merger Consideration described in this Proxy Statement was fair, from a
financial point of view, to the Public Shareholders of WinsLoew. On May 4, the
Special Committee directed Mann Armistead to cease all discussions and
negotiations with Hancock Park.
The full text of Mann Armistead's written opinion dated May 4, 1999, which
sets forth certain assumptions made, matters considered and limitations on
review undertaken, and the July 8, 1999 confirmation, are attached as Appendix B
to this Proxy Statement and are incorporated herein by reference, and the
Company's shareholders are urged to carefully read such opinion in its entirety.
The summary of the opinion of Mann Armistead set forth in this Proxy Statement
is qualified in its entirety by reference to the full text of the opinion
attached. Mann Armistead's opinion is directed only to the fairness, from a
financial point of view, of the $34.75 Cash Merger Consideration as described
herein, to the Public Shareholders of WinsLoew.
Mann Armistead's opinion is addressed to the Special Committee of the Board
of Directors of WinsLoew and does not constitute a recommendation as to how any
shareholder of WinsLoew should vote with respect to the Merger. The opinion of
Mann Armistead does not address (i) the relative merits of the Merger or any
other business strategies or transactions with third parties considered by the
Board of Directors or the effect of any such other transaction, (ii) the Board's
decision to proceed with the Merger to the exclusion of other transactions, or
(iii) the value of the shares of WinsLoew's common stock held by the Purchaser
or fairness of any consideration being received by the Purchaser in the Merger.
Mann Armistead was not requested by the Special Committee to make, nor did
Mann Armistead make, any recommendation as to the amount of the consideration to
be received by the Public Shareholders. With the exception of the instructions
on March 31 and May 4 to cease discussions with other interested third parties,
no limitations were imposed by the Special Committee with respect to procedures
followed or the investigations made by Mann Armistead in rendering its opinions.
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Mann Armistead reviewed certain financial, businesses and other information
that was publicly available or furnished to Mann Armistead by WinsLoew,
including: (i) WinsLoew's Annual Reports to Shareholders, Annual Reports on Form
10-K and related financial information for the years ended December 31, 1994
through December 31, 1998 and its actual financial results for the quarter ended
March 26, 1999; (ii) certain publicly available information with respect to
historical market prices and trading activities for WinsLoew's Common Stock and
for certain publicly traded furniture industry companies which Mann Armistead
deemed relevant; (iii) certain mergers and acquisitions in the furniture
industry; (iv) other financial information concerning the business and
operations of WinsLoew including certain financial analyses and forecasts for
WinsLoew prepared by senior management, including both the Budget Projections
and the Best Case Projections; and (v) such other financial studies, analyses,
securities research, inquiries and other matters as Mann Armistead deemed
necessary. In addition, Mann Armistead discussed the business and prospects of
WinsLoew with members of senior management and visited several of the Company's
operating facilities.
In connection with its review, Mann Armistead relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
publicly available, including the representations and warranties of WinsLoew
included in the Merger Agreement, and Mann Armistead has not assumed any
responsibility for independent verification of such information. Mann Armistead
relied upon the senior management of WinsLoew as to the reasonableness and
achievability of its financial and operational forecasts and projections,
including both the Budget Projections and the Best Case Projections, and the
assumptions and bases therefore, provided to Mann Armistead, and assumed that
such forecasts and projections reflect the best currently available estimates
and judgments of WinsLoew's senior management and that such forecasts and
projections will be realized in the amounts and in the time periods currently
estimated by such senior management. Mann Armistead did not undertake any
independent valuation or appraisal of the real estate owned by WinsLoew.
In rendering its opinion, Mann Armistead conducted a solicitation process
and performed a variety of financial analyses. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. Moreover, the evaluation
of the fairness of the Cash Merger Consideration, from a financial point of
view, to holders of the WinsLoew common stock was to some extent a subjective
one based on the experience and judgment of Mann Armistead and not merely or
only the result of mathematical analysis of financial data. Accordingly, not
withstanding the separate factors summarized below, Mann Armistead believes that
its analyses must be considered as a whole and that selecting certain portions
of its analyses and of the factors contained therein, without considering all
analyses and factors, could create an incomplete view of the evaluation process
underlying its opinion. The Mann Armistead opinion is based on market, economic
and other conditions as they existed and should be evaluated as of the date of
the Mann Armistead opinion.
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<PAGE> 61
ANALYSES PERFORMED
The following is a summary of the material analyses performed by Mann
Armistead in connection with its opinion expressed herein:
(A) Offer Valuation: Using publicly available information, Mann
Armistead analyzed, among other things, the market value and trading
multiples of the Company and the following selected publicly traded
companies in the furniture industry: Falcon Products, Inc.; Kimball
International, Inc.; LADD Furniture, Inc.; Meadowcraft, Inc.; Pulaski
Furniture Corp.; and Shelby Williams Industries, Inc. (collectively the
"Selected Companies"). Mann Armistead compared market values of, among
other things, current equity value and adjusted market value (equity value,
plus total debt, less cash and cash equivalents) as multiples of the latest
12 months net income, earnings before interest and taxes (EBIT) and
shareholders' equity. Based on the above described analysis, Mann Armistead
determined the Selected Companies (based on a closing stock price date of
April 28, 1999) rendered on average a multiple range of 10.2 times net
income, 7.4 times EBIT and 1.5 times shareholders' equity.
When compared to the merger consideration value of $34.75 per share,
Mann Armistead determined, based on WinsLoew's financial results for the
trailing 12 months ended March 26, 1999, the offer to equate to 14.1 times
net income, 8.6 times EBIT and 4.1 times shareholders' equity. Based on
this information, Mann Armistead determined the Cash Merger Consideration
to represent a premium value when compared to the Selected Companies.
Mann Armistead reviewed the terms of the Merger Agreement, based on a
Cash Merger Consideration value of $34.75 per share for WinsLoew's Common
Stock, and determined such offer to represent a premium, based on market
closing stock prices for WinsLoew for the following dates noted: of 28.7%
as of January 15, 1999 (based on $27 per share), the last trading date
immediately preceding the announcement of the original offer from the
Purchaser; of 36.3% as of January 8, 1999 (based on $25 1/2 per share), the
date one week prior to such announcement; and of 87.8% as of October 15,
1998 (based on $18 1/2 per share), the date three months prior to the
announcement.
(B) Solicitation Process: After being retained by the Special
Committee, Mann Armistead prepared a descriptive memorandum on WinsLoew,
suggested a list of potential acquirors which was approved by the Special
Committee and began the solicitation process to determine if there were
other potential buyers who might pay more than the Purchaser's original
offer of $30.00 per share.
March 3 Hancock Park Proposal. Mann Armistead contacted 32 potential
acquirors of whom 11 indicated an interest in receiving additional
information. From that group, only one, Hancock Park, submitted to the
Special Committee formal proposals. The other ten declined interest. The
initial March 3 Hancock Park Proposal provided for an all cash offer of
$32.50 per share, subject to, among other things, the successful completion
of its financing efforts. The Special Committee instructed Mann Armistead
to investigate Hancock Park's financing sources in order to determine the
probability of closing a transaction with Hancock Park. Mann Armistead
accompanied Hancock Park on its due diligence visits to WinsLoew's
headquarters in Birmingham, Alabama and to the Loewenstein operation in
Pompano Beach, Florida. During these
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<PAGE> 62
visits, Mann Armistead had the opportunity to discuss financing with
Hancock Park and its advisor, BT Alex. Brown Incorporated, as well as its
equity partner, Desai. On March 30, Mann Armistead received letters from BT
Alex. Brown and Desai indicating their level of support for financing the
March 30 Hancock Park Proposal.
March 30 Trivest Proposal. Also on March 30, the Special Committee
received the March 30 Trivest Proposal and a proposed amendment to the
Initial Merger Agreement from the Purchaser which, among other things,
increased its offer from $30.00 to $33.00 per share, removed the financing
contingency and required the Company and its advisors to immediately cease
discussions and negotiations with other potential acquirors, including
Hancock Park, subject to the Board's fiduciary duties. On that same day,
the Special Committee recommended the amendment to the Board, which the
Board approved, and the First Amended Merger Agreement was executed. Mann
Armistead, in accordance with the Special Committee's instructions and the
First Amended Merger Agreement, ceased discussions with Hancock Park and
other potential acquirors as of that date.
April 8 Hancock Park Proposal. On April 9, the Special Committee
received the April 8 Hancock Park Proposal for an all cash offer to acquire
the Company for a per share purchase price of $33.50 (or $34.00 if the
termination fee under the First Amended Merger Agreement with the Purchaser
was reduced from $10.0 million to $6.0 million). Such offer expressly
stated that it would expire April 19, which date was subsequently extended.
In addition, the proposal was accompanied by copies of letters from BT
Alex. Brown Incorporated and an affiliate of Desai indicating their level
of support for financing the proposal. On April 12, the Board authorized
its representatives to direct Mann Armistead to advise the Board whether or
not the April 8 Hancock Park Proposal constituted a Superior Proposal under
the First Amended Merger Agreement.
April 21 Hancock Park Proposal. On April 21, Hancock Park increased
the per share purchase price of this offer to $34.00 (or $34.50 if the
termination fee under the First Amended Merger Agreement was reduced from
$10.0 million to $6.0 million). The increase was accompanied by copies of
revised versions of the letters previously provided by BT Alex. Brown
Incorporated and Private Equity Investors III, L.P. relating to financing
the proposed transaction. On April 22, the Board determined that the April
21 Hancock Park Proposal constituted a Superior Proposal under the First
Amended Merger Agreement, and the Company provided the Purchaser with the
requisite notice thereunder.
April 30 Trivest Proposal. On April 30, the Special Committee
received the April 30 Trivest Proposal from the Purchaser to increase the
purchase price under the First Amended Merger Agreement to $34.00 per
share, accompanied by revised versions of the Trivest equity commitment
letter, the BankBoston senior secured financing commitment letter and the
Bear Stearns "highly confident letter."
May 2 Proposals. On May 2, the Special Committee received the May 2
Hancock Park Proposal increasing the per share purchase price to $34.75 (or
$35.25 if the termination fee under the First Amended Merger Agreement was
reduced from $10.0 million to $6.0 million), contingent upon an agreement
by the Company to reimburse Hancock Park for expenses up to a maximum of
$1.2 million under certain circumstances. The same day, the Special
Committee received a proposed amendment to the First Amended Merger
Agreement from the Purchaser and the May 2 Trivest
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<PAGE> 63
Proposal to increase the purchase price to $34.75 per share. In addition,
on May 4, representatives of Hancock Park conducted additional due
diligence, including reviews of updated financial information and
interviews with members of WinsLoew's senior management. The same day, Paul
Weiss advised Hancock Park of the $34.75 May 2 Trivest Proposal.
Representatives of Hancock Park confirmed that Hancock Park was not
prepared to increase its offer at that time and that Hancock Park was
unwilling to provide an escrow deposit.
Merger Agreement. On May 4, the Purchaser provided the Company with a
$3.0 million escrow deposit to secure its obligations under the Merger
Agreement, and the Special Committee and the Board each approved the Merger
Agreement providing for, among other things, an increase in the purchase
price to $34.75 per share. The Special Committee's and the Board's
approvals were based, in part, upon the oral opinion of Mann Armistead,
later confirmed in writing, that as of May 4, 1999 and based upon and
subject to certain matters stated therein, the $34.75 per share Cash Merger
Consideration described in this Proxy Statement was fair, from a financial
point of view, to the Public Shareholders of WinsLoew. On May 4, the
Special Committee directed Mann Armistead to cease all discussions and
negotiations with Hancock Park.
(C) Discounted Cash Flow Analysis: Using a discounted cash flow
analysis, Mann Armistead estimated the net present value of the future
streams of after-tax cash flow that WinsLoew could produce on a stand alone
basis for the fiscal year end periods 1999-2002 and a terminal multiple
value was utilized to determine value. For this analysis, Mann Armistead
considered various scenarios for the performance of the WinsLoew Common
Stock using (i) the sales revenue, net income and cash flow projections set
forth in the Budget Projections as supplied by WinsLoew's senior management
(see "CERTAIN FORWARD LOOKING INFORMATION -- Budget Projections"), (ii) a
range of 9.2 times to 11.2 times earnings as the terminal value of
WinsLoew's Common Stock (a range determined by using the midpoint of the
Selected Companies net income multiple analysis), and (iii) a range of
discount rates from 9.0% to 11.0%. The Company's Budget Projections
included projected earnings per share in fiscal years 1999 to 2002 of
$2.60, $2.90, $3.20 and $3.50, respectively. The ranges used in this
analysis were chosen based upon what Mann Armistead, in its judgment,
considered to be appropriate taking into account, among other things,
WinsLoew's past and current financial performance, the general level of
inflation, and rates of return generally required in the marketplace for
companies with similar risk profiles. Mann Armistead's discounted cash flow
analysis produced a range of per share values of from $28.83 to $35.44. In
addition to the above analysis, Mann Armistead prepared a discounted cash
flow analysis utilizing the higher Best Case Projections. See "CERTAIN
FORWARD LOOKING INFORMATION -- Best Case Projections." Under the Best Case
Projections, the Company's earnings per share would be $2.80, $3.20, $3.50
and $3.85 in 1999, 2000, 2001 and 2002, respectively. The range of earnings
for terminal value and discount rates were the same as described above.
This analysis produced a range of per share values of from $31.68 to
$38.95. In considering the foregoing ranges for both the Base Case
Projections and the Best Case Projections, the Cash Merger Consideration is
within the calculated present value of a share of WinsLoew Common Stock.
(D) Analysis of Selected Furniture Industry Acquisition
Transactions: Mann Armistead undertook a review of publicly available
information regarding selected
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<PAGE> 64
acquisitions in the furniture industry but did not find any transactions
which were in its opinion comparable to the Merger. Most of the
acquisitions occurring within the industry are those involving private
companies and complete financial information was not generally available.
The summary set forth does not purport to be a complete description of the
analysis or data utilized by Mann Armistead in the preparation of its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to summary description. Mann Armistead based its
analyses on assumptions that it deemed reasonable, including assumptions
concerning WinsLoew, general overall business and economic conditions and
industry related factors.
ENGAGEMENT OF MANN ARMISTEAD
Mann Armistead was retained by the Special Committee of the Board of
Directors of WinsLoew pursuant to an Engagement Letter executed on January 19,
1999 (the "Engagement Letter"). Pursuant to the Engagement Letter, the Company
retained Mann Armistead to assist the Special Committee by (i) evaluating the
Merger proposal, (ii) soliciting and evaluating other potential buyers for the
Company as instructed by the Special Committee, (iii) participating in
negotiations related to the possible sale of the Company and (iv) providing its
fairness opinion. Pursuant to the terms of the Engagement Letter, the Company
agreed to pay Mann Armistead a fee as follows: (i) if the Trivest Investors and
the Management Group purchased the Company for $30.00 per share, then the
Company would have paid Mann Armistead a fee of $350,000; and (ii) if (A) the
Trivest Investors and the Management Group purchased the Company for a per share
price in excess of $30.00 or (B) the Company was purchased by any buyer
contacted by Mann Armistead, then the Company would pay Mann Armistead a fee
equal to 0.7% of the purchase price for the Company (including cash payments in
respect of outstanding stock options). As of the date of this Proxy Statement,
the Company has paid Mann Armistead $105,000, plus expenses, and, upon
consummation of the Merger, has agreed to pay Mann Armistead an additional
$1,772,783 pursuant to the Engagement Letter. The Company has agreed to
reimburse Mann Armistead for its reasonable out-of-pocket expenses, including
attorneys' fees, and to indemnify Mann Armistead against certain liabilities,
including certain liabilities under the federal securities laws.
Prior to the Company's engagement of Mann Armistead under the Engagement
Letter, the Company had retained Mann Armistead in June 1997 in connection with
the possible sale of its Continental Engineering Group, Inc. subsidiary and in
May 1998 in connection with the possible sale of the Company to the Potential
Acquiror or another specified publicly held furniture manufacturer. Pursuant to
a letter dated June 30, 1997, as amended by a letter dated November 17, 1997,
the Company engaged Mann Armistead to act as the Company's investment banker in
connection with the possible sale of the stock of Continental Engineering Group,
Inc. The Company sold its Continental Engineering Group, Inc. subsidiary in June
1998 and paid Mann Armistead a fee of $193,000 in connection therewith. Pursuant
to a letter dated May 7, 1998, the Company engaged Mann Armistead to act as the
Company's investment banker in connection with the possible sale of the Company
to the Potential Acquiror or another specified publicly held furniture
manufacturer for a fee of 0.6% of the aggregate consideration, subject to a
minimum fee of $1.0 million. No agreement with respect to such a sale was ever
reached, and the Company has had no contact with either entity since July 1998,
except that Mann Armistead contacted the Potential Acquiror as part of its
solicitation process in connection
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<PAGE> 65
with the Merger. As a result of such engagement, the Company reimbursed Mann
Armistead for expenses, but did not pay Mann Armistead any fees. See
"-- Background of the Merger -- Past Contracts, Transactions and Negotiations."
In the ordinary course of business, Mann Armistead has provided securities
research coverage on WinsLoew. Mann Armistead has ceased such coverage since its
engagement by the Company in connection with the Merger.
Except as described herein, neither Mann Armistead nor any of its
affiliates has performed any investment banking or other financial services for,
or had any material financial relationship with, the Company during the two
years preceding the date hereof.
PURPOSE AND REASONS OF THE AFFILIATES FOR THE MERGER
The purpose of the Affiliates for engaging in the transactions contemplated
by the Merger Agreement is to acquire, together with any Eligible Persons, 100%
of the ownership of the Company. The Affiliates believe that as a private
company WinsLoew will have greater flexibility to focus on enhancing value by
emphasizing growth and operating cash flow without the constraint of the public
market's emphasis on quarterly earnings. In addition, the Affiliates regard the
acquisition of the Common Stock in the Merger as an attractive investment
opportunity because they believe that WinsLoew's future business prospects are
favorable and that the substantial increase in the debt to equity ratio of
WinsLoew after the Merger, although importing greater investment risks, will
create the potential for the shareholders' equity value of WinsLoew to increase
more rapidly on a percentage basis than the shareholders' equity value of an
identical corporation with a larger equity base and less debt. After the Merger,
the Trivest Investors and the Management Group could earn a substantial return
on their equity investment in WinsLoew. While the Trivest Investors and the
Management Group are looking to achieve substantial returns on their investment
in WinsLoew, they believe that such returns are available only to those
investors who are willing to bear the substantial risks associated with a highly
leveraged investment. Each believes that the discount on the potential future
value of WinsLoew that may be applied to reflect such risk from a point of view
of the Public Shareholders is necessarily different from the discount applied by
the members of the Trivest Investors and the Management Group who will own a
significant interest in a privately held company and who, accordingly, will be
able to closely and directly monitor and influence the performance of their
investment.
Immediately prior to the Merger, the Trivest Investors, the Management
Group and the participating Eligible Persons will acquire equity interests in
the Purchaser by purchasing shares of Purchaser common stock for cash or
contributing to the Purchaser shares of WinsLoew Common Stock in exchange for
shares of Purchaser common stock as follows:
The Trivest Investors. The Trivest Investors together beneficially own, in
the aggregate, approximately 30.0% of the outstanding Common Stock, including
23.7% that is held of record by the Existing Trivest Shareholders. The Trivest
Partnerships do not currently hold any Common Stock. See "PRINCIPAL SHAREHOLDERS
AND STOCK OWNERSHIP OF MANAGEMENT." The individual Trivest Investors will
contribute an aggregate of 122,765 shares of Common Stock (valued at $34.75 per
share with an aggregate value of approximately $4.3 million) in exchange for
shares of Purchaser common stock, the Trivest Partnerships will purchase
additional shares of Purchaser common stock for approximately $65.9 million in
cash, and the Trivest Partnerships will
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<PAGE> 66
contribute approximately 117,500 shares of Common Stock (valued at $34.75 per
share with an aggregate value of approximately $4.1 million) in exchange for
shares of Purchaser common stock, such that the total amount of the Trivest
Investors' contribution to the Purchaser will be approximately $74.3 million,
representing approximately 95.2% of the outstanding Purchaser common stock and,
after the Merger, outstanding WinsLoew Common Stock, provided that the cash
portion of such contribution from the Trivest Partnerships is subject to
reduction by an amount equal to the sum of the aggregate value (at $34.75 per
share) of the shares of Common Stock contributed to the Purchaser by the
Eligible Persons and the cash contributed to the Purchaser or, following the
consummation of the Merger, WinsLoew by the Eligible Persons. Since the Trivest
Partnerships do not currently hold any shares of Common Stock, the shares of
Common Stock contributed to the Purchaser by the Trivest Partnerships will be
from certain WinsLoew shareholders who will be limited partners of Trivest
Furniture Partners, Ltd. and who will make a capital contribution of a portion
of their shares of WinsLoew Common Stock to Trivest Furniture Partners, Ltd.,
which will then contribute such shares to the Purchaser in exchange for shares
of Purchaser common stock as described above. See "-- Conflicts of Interest --
Post-Merger Ownership and Control of the Purchaser" and "THE MERGER --
Financing."
The Management Group. The members of the Management Group beneficially
own, in the aggregate, approximately 6.9% of the outstanding Common Stock. See
"PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT." The members of the
Management Group will contribute to the Purchaser an aggregate of 84,547 shares
of Common Stock (valued at $34.75 per share with an aggregate value of
approximately $2.9 million) in exchange for shares of Purchaser common stock and
will purchase additional shares of Purchaser common stock for approximately
$789,000 in cash, such that the total amount of the Management Group's
contribution to the Purchaser will be approximately $3.7 million, representing
approximately 4.8% of the outstanding Purchaser common stock, and, after the
Merger, outstanding WinsLoew Common Stock. See "-- Conflicts of
Interest -- Post-Merger Ownership and Control of the Purchaser" and "THE
MERGER -- Financing."
The Eligible Persons. Approximately 35 Eligible Persons (not including
members of the Management Group) will individually be offered the opportunity to
purchase shares of common stock of the Purchaser and/or contribute any or all of
their shares of Common Stock to the Purchaser in exchange for Purchaser common
stock. Alternatively, the Eligible Persons will be offered the opportunity to
acquire shares of WinsLoew common stock for cash following the consummation of
the Merger.
As a result of the Merger, the following Affiliates are expected to change
their percentage beneficial ownership of the common equity of WinsLoew, on a
fully diluted basis, as follows: the Trivest Partnerships and the Trivest
Directors, from an aggregate of approximately 30.1% to 94.8% (less the interest
acquired by the Eligible Persons); and the Management Group, from an aggregate
of approximately 6.9% to 4.8%. Such post-Merger percentages for the Trivest
Partnerships and the Trivest Directors, include approximately 89.8% to be
acquired by the Trivest Partnerships in the Merger. Such Affiliates' interests
in WinsLoew's net book value and net earnings will increase correspondingly. See
"SELECTED CONSOLIDATED FINANCIAL DATA." Payments in connection with the Merger
and related financing will reduce substantially WinsLoew's net book value and
net earnings. See "THE MERGER -- Financing."
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In order to provide a prompt and orderly transfer of ownership of WinsLoew
from the current shareholders to the Trivest Investors and the members of the
Management Group, in light of relevant financial, legal, tax and other
considerations, and to facilitate the required financing for the transaction,
the acquisition has been structured as a merger pursuant to which, if the Merger
Agreement is adopted by the requisite vote of the shareholders, the Purchaser
will be merged with and into WinsLoew, and all of the outstanding shares of
Common Stock (other than shares held by the Purchaser) will be converted into
the right to receive the Cash Merger Consideration, without interest.
While the Trivest Investors and the members of the Management Group did not
consider any alternatives to the Merger with respect to the Company,
representatives of the Company, including members of the Management Group and
the Trivest Directors, have had discussions with third parties regarding
possible business combinations, sales or acquisitions of assets and other
transactions. See "SPECIAL FACTORS -- Background of the Merger -- Past
Contracts, Transactions and Negotiations" and "BUSINESS OF THE
COMPANY -- Background -- Recent Developments."
While the Trivest Investors and the members of the Management Group believe
that there will be significant opportunities associated with their investment in
WinsLoew, there are also substantial risks that such opportunities may not be
fully realized.
POSITION OF THE AFFILIATES AS TO FAIRNESS OF THE MERGER
Each of the Affiliates has considered the analyses and findings of the
Special Committee and the Board (described in detail in "SPECIAL FACTORS -- The
Special Committee's and the Board's Recommendation") with respect to the
fairness of the Merger to the Public Shareholders of the Company. As of the date
of this Proxy Statement, each of the Affiliates adopts the analyses and findings
of the Special Committee and the Board with respect to the fairness of the
Merger and believes that the Merger is both procedurally and substantively fair
to, and in the best interest of, the Company's Public Shareholders; provided
that no opinion is expressed as to the fairness to any shareholder making an
investment in the Purchaser. The Trivest Directors have financial interests in
the Merger and the members of the Management Group have financial and employment
interests in the Merger. See "SPECIAL FACTORS -- Conflicts of Interest."
CONFLICTS OF INTEREST
In considering the recommendations of the Board with respect to the Merger,
shareholders should be aware that certain officers and directors of WinsLoew and
affiliates and associates of these officers and directors are Trivest Directors
or members of the Management Group or otherwise have interests in connection
with the Merger which may present them with actual or potential conflicts of
interest as summarized below. The Special Committee and the Board were aware of
these interests and considered them among the other matters described under
"-- The Special Committee's and the Board's Recommendation." The Special
Committee considered the Management Group's conflicts of interest to be a
negative factor in its determination that the Merger is fair to the Public
Shareholders.
Post-Merger Ownership and Control of WinsLoew. It is anticipated that
immediately after the Merger the following individuals and entities will
beneficially own the number of shares of common stock of the Purchaser shown in
the following table, which are to be
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issued in exchange for cash or shares of WinsLoew Common Stock contributed prior
to the Merger. See "-- Purpose and Reasons of the Affiliates for the Merger."
The table does not reflect the beneficial ownership of any shares of common
stock of the Purchaser or WinsLoew by Eligible Persons. To the extent any of the
Eligible Persons accept the offer to issue to them shares of common stock of the
Purchaser in exchange for shares of Common Stock or for cash (or, after the
Merger, shares of WinsLoew common stock in exchange for cash), the share numbers
and percentages shown in the following table for the Trivest Partnerships will
decrease.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF PURCHASER
PURCHASER COMMON STOCK COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED
- ------------------------ ---------------------- -----------------------
<S> <C> <C>
Trivest Partnerships(2)............ 700,069 89.8%
Trivest Directors(3)
Earl W. Powell(4)................ 730,069 93.6%
Phillip T. George, M.D.(5)....... 709,864 91.0%
Other Trivest Investors............ 2,866 0.4%
------- -----
Trivest Investors Subtotal.... 742,730 95.2%
Management Group(3)
Bobby Tesney..................... 11,580 1.5%
Stephen C. Hess.................. 1,000 0.1%
R. Craig Watts................... 8,690 1.1%
Vincent A. Tortorici, Jr......... 7,000 0.9%
Rick J. Stephens................. 7,000 0.9%
Jerry C. Camp.................... 2,000 0.3%
Management Group Subtotal..... 37,270 4.8%
------- -----
Total....................... 780,000 100.0%
</TABLE>
- -------------------------
(1) Except as otherwise indicated below, all shares are owned directly and each
person has sole voting and investment power with respect to all shares.
(2) Includes 377,081 shares to be held of record by Trivest Furniture Partners,
Ltd. and 322,988 shares to be held of record by Trivest Fund II Group, Ltd.
Such entities do not currently own any shares of Common Stock. Trivest
Equities, Inc. serves as the sole general partner of Trivest Fund II Group,
Ltd., a privately-held investment partnership. Trivest serves as the sole
general partner of TFP, Ltd., which in turn is the sole general partner of
Trivest Furniture Partners, Ltd., a privately-held investment partnership.
Messrs. Powell and George are executive officers of each of Trivest
Equities, Inc. and Trivest. Messrs. Powell and George are the sole directors
of Trivest Equities, Inc., and Mr. Powell is the sole director of Trivest.
Mr. Powell is the controlling shareholder of both Trivest Equities, Inc. and
Trivest. Each Trivest Director is also an indirect investor in the Trivest
Partnerships. See "CERTAIN INFORMATION CONCERNING THE PURCHASER AND OTHER
AFFILIATES."
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<PAGE> 69
(3) See "PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT" for number of
shares of Common Stock and percentage of Common Stock beneficially owned
before the Merger by these persons.
(4) Includes 30,000 shares to be held of record directly, 377,081 shares to be
held of record by Trivest Furniture Partners, Ltd. and 322,988 shares held
of record by Trivest Fund II Group, Ltd. See note (2) above.
(5) Includes 9,795 shares to be held of record directly, 377,081 shares to be
held of record by Trivest Furniture Partners, Ltd. and 322,988 shares held
of record by Trivest Fund II Group, Ltd. See note (2) above.
Following the consummation of the Merger, the members of the Management
Group will continue as executive officers of the Company, and Mr. Tesney will
continue to serve on the Board of Directors of the Company.
The Board of Directors of the Company after the Merger will be comprised of
Messrs. Powell, George, Kaczynski, Klein and Tesney. The Trivest Investors are
expected to beneficially own approximately 95.2% of the shares of WinsLoew
Common Stock after the Merger and by virtue of such ownership will be able to
designate all members of its Board of Directors.
Cash Payments to the Trivest Directors and Members of the Management Group.
Shares of Common Stock held by the Trivest Directors and the members of the
Management Group that are not contributed to the Purchaser will be converted
into the right to receive the same Cash Merger Consideration as shares of Common
Stock held by other shareholders of the Company. See "-- Purpose and Reasons of
the Affiliates for the Merger." The Trivest Directors and the members of the
Management Group will also receive cash on the same basis as all other optionees
for the Aggregate Unrealized Gain on any stock options they hold. Prior to the
Effective Time, WinsLoew has agreed, pursuant to the terms of the Merger
Agreement, to take all necessary action to cancel all outstanding options to
purchase Common Stock, whether or not exercisable. See "THE MERGER -- Cash-out
of WinsLoew Stock Options" and "PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF
MANAGEMENT." Under the terms of the Merger Agreement, all outstanding options
will be terminated (whether or not exercisable) and each holder thereof will
receive an amount in cash equal to the Aggregate Unrealized Gain on such options
on the same basis as other holders of WinsLoew stock options. As of June 1,
1999, there were options outstanding to purchase an aggregate of 765,400 shares
of Common Stock at a weighted average exercise price of $10.34 per share, all of
which have an exercise price per share of less than $34.75.
The following table sets forth information as of June 1, 1999 as to the
shares of Common Stock and the options to purchase shares of Common Stock
(whether or not exercisable) held by members of the Management Group and the
Trivest Directors for which cash payments will be received upon consummation of
the Merger.
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<PAGE> 70
<TABLE>
<CAPTION>
AMOUNT OF CASH TOTAL AMOUNT OF
TO BE RECEIVED SHARES AMOUNT OF CASH CASH TO BE
TRIVEST DIRECTOR OR SHARES NOT FOR SHARES NOT UNDERLYING TO BE RECEIVED RECEIVED UPON
MANAGEMENT GROUP CONTRIBUTED CONTRIBUTED TO STOCK FOR STOCK CONSUMMATION OF
MEMBER TO PURCHASER PURCHASER OPTIONS(1) OPTIONS THE MERGER
- ------------------- ------------ -------------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Bobby Tesney......... 18,369 $ 638,322.75 125,000 $3,216,875.00 $ 3,855,197.75
Stephen C. Hess...... 28,724 998,159.00 85,000 2,140,000.00 3,138,159.00
R. Craig Watts....... 88,055 3,059,911.25 85,175 2,248,028.75 5,307,940.00
Vincent A. Tortorici,
Jr................. 8,317 289,015.75 60,000 1,556,250.00 1,845,265.75
Rick J. Stephens..... 2,028 70,473.00 25,000 642,812.50 713,285.50
Jerry C. Camp........ 7 243.25 8,500 202,187.50 202,430.75
--------- -------------- ------- -------------- --------------
MANAGEMENT GROUP
TOTAL.............. 145,500 $5,056,125.00 388,675 $10,006,153.75 $15,062,278.75
Earl W. Powell....... 1,876,231(2) $65,199,027.25 51,125 $1,188,728.75 $66,387,756.00
Phillip T. George,
M.D................ 1,811,881(2) 62,962,864.75 35,750 816,340.00 63,779,204.75
William F. Kaczynski,
Jr................. -- -- 7,500 98,593.75 98,593.75
Peter W. Klein....... -- -- 22,550 437,175.00 437,175.00
--------- -------------- ------- -------------- --------------
TRIVEST DIRECTORS
TOTAL.............. 3,688,112 $68,967,803.75 116,925 $2,540,837.50 $71,508,641.25
</TABLE>
- -------------------------
(1) Includes all options held, including both vested and unvested options.
(2) Includes 1,703,427 shares held of record by the Existing Trivest
Shareholders that will be converted into the right to receive the same Cash
Merger Consideration as shares of Common Stock held by other shareholders of
the Company.
Investment of Trivest Directors and Members of the Management Group in the
Purchaser. The following table sets forth the investment of the Trivest
Directors and each member of the Management Group in the Purchaser as a
percentage of the total value of the shares of Common Stock and the Aggregate
Unrealized Gain on any stock options held by such member.
60
<PAGE> 71
<TABLE>
<CAPTION>
VALUE OF
WINSLOEW VALUE OF
TRIVEST DIRECTOR OR COMMON STOCK INVESTMENT IN THE PERCENTAGE
MANAGEMENT GROUP MEMBER AND OPTIONS(1) PURCHASER INVESTMENT
- ----------------------- -------------- ----------------- ----------
<S> <C> <C> <C>
Trivest Directors
Earl W. Powell(2).................. $69,387,758.25 $3,000,000.00 4.3%
Phillip T. George, M.D.(2)......... 64,826,986.75 979,483.00 1.5%
Peter W. Klein..................... 437,175.00 -- --
William F. Kaczynski, Jr........... 98,593.75 -- --
-------------- ------------- ----
Trivest Directors Total(2)...... $75,556,425.50 $3,979,483.00 5.3%
Management Group Members
Bobby Tesney....................... $ 5,013,206.75 $1,158,000.00 23.1%
Stephen C. Hess.................... 3,238,169.50 100,000.00 3.1%
R. Craig Watts..................... 6,176,933.25 869,000.00 14.1%
Vincent A. Tortorici, Jr. ......... 2,145,262.50 700,000.00 32.6%
Rick J. Stephens................... 1,163,298.00 700,000.00 60.2%
Jerry C. Camp...................... 263,417.00 200,000.00 75.9%
-------------- ------------- ----
Management Group Total.......... $18,000,287.00 $3,727,000.00 20.7%
</TABLE>
- -------------------------
(1) Includes (i) the aggregate value of WinsLoew Common Stock (valued at $34.75
per share) and (ii) the Aggregate Unrealized Gain on all stock options.
(2) Includes 1,703,427 shares held of record by the Existing Trivest
Shareholders that will be converted into the right to receive the same Cash
Merger Consideration as shares of Common Stock held by other shareholders of
the Company.
Payments to Trivest. Upon consummation of the Merger, the Purchaser will
pay a financial advisory fee to Trivest of $3.0 million for services rendered in
connection with the financing of the Merger and related transactions. In
addition, WinsLoew will pay Trivest an annual fee of $350,000, subject to
increase under certain circumstances, for ongoing financial advisory services
and specified fees in connection with certain acquisitions, dispositions and
other transactions. See "CERTAIN TRANSACTIONS."
New Employment Agreements with the Management Group. Upon consummation of
the Merger, the employment agreements that Messrs. Tesney, Hess, Watts and
Tortorici currently have with the Company will terminate. At such time, such
members of the Management Group will enter into new employment agreements with
WinsLoew providing for the payment of substantially the same base salaries and
annual cash bonuses as their existing employment agreements.
Shareholders' Agreement. The Trivest Partnerships, each member of the
Management Group and Messrs. Powell and George will enter into a shareholders
agreement with the Purchaser that will restrict their ability to transfer the
shares of WinsLoew common stock to be owned by them after the Merger and create
certain other rights and obligations with respect to such shares.
The Special Committee. As compensation for serving on the Special
Committee, which met in person or by telephone conference on approximately 30
occasions between January 7, 1999 and the date of this Proxy Statement, the
Chairman of the Special
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<PAGE> 72
Committee will receive a fee of approximately $30,000, and the other members of
the Special Committee will each receive $22,500.
Each member of the Special Committee, as an outside director, typically
receives on the date of each meeting of the Board options to purchase 2,500
shares of Common Stock at the market price of the Common Stock on such date.
Each director received options to purchase 2,500 shares of Common Stock on
January 7, 1999, the date of the first Board meeting in 1999, none of which have
been exercised. Directors have not been granted any options since that date.
The following table sets forth information as of the Record Date as to the
shares of Common stock and options to purchase shares of Common Stock (whether
or not exercisable) held by members of the Special Committee and the cash
payments that they will receive upon consummation of the Merger.
<TABLE>
<CAPTION>
AMOUNT OF
CASH AMOUNT OF TOTAL AMOUNT
TO BE RECEIVED CASH OF CASH TO BE
SHARES OF FOR SHARES OF SHARES TO BE RECEIVED RECEIVED UPON
COMMON COMMON UNDERLYING FOR STOCK CONSUMMATION
SPECIAL COMMITTEE MEMBER STOCK STOCK OPTIONS(1) OPTIONS OF THE MERGER
- ------------------------ ------------ -------------- ---------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
William H. Allen,
Jr. .................. 1,050 $ 36,487.50 25,000 $561,093.75 $ 597,581.25
Henry C. Cheek.......... 6,000 $ 208,500.00 32,500 $722,812.50 $ 931,312.50
M. Miller Gorrie........ 141,450 $4,915,387.50 30,000 $678,437.50 $5,593,825.00
James S. Smith.......... 20,000 $ 695,000.00 32,500 $723,437.50 $1,418,437.50
Sherwood M. Weiser...... 7,675 $ 266,706.25 25,000 $561,093.95 $ 827,800.00
</TABLE>
- -------------------------
(1) Includes all options held, including both vested and unvested options.
Members of the Special Committee will also be entitled to certain
indemnification rights granted under the Merger Agreement to the current and
former directors and officers of the Company. See "-- Conflicts of
Interest -- Indemnification and Insurance."
Indemnification and Insurance. The Merger Agreement provides that all
rights to indemnification for acts or omissions occurring prior to the Effective
Time now existing in favor of the current or former directors or officers of the
Company and its subsidiaries (including the members of the Special Committee)
shall survive the Merger and shall continue in accordance with their terms. In
addition, WinsLoew is obligated for a period of two years from the Effective
Time to continue in effect directors' and officers' liability insurance with
respect to matters occurring prior to the Effective Time, which insurance must
contain terms and conditions no less advantageous than are contained in
WinsLoew's current directors' and officers' liability insurance policy; provided
that WinsLoew is not obligated to expend annually more than 200% of the current
cost of such coverage.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, other than the participating Eligible Persons,
the Public Shareholders will not have an opportunity to continue their equity
interest in WinsLoew as an ongoing corporation and therefore will not share in
the future earnings and potential growth of WinsLoew. Upon consummation of the
Merger, the Common Stock will no longer be traded on the Nasdaq National Market,
price quotations will no longer be available and the registration of the Common
Stock under the Exchange Act will be terminated. The termination of registration
of the Common Stock under the Exchange Act
62
<PAGE> 73
will eliminate the requirement to provide information to the Commission and will
make most of the provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b) and the requirement of furnishing a proxy
or information statement in connection with shareholders' meetings, no longer
applicable.
The members of the Management Group, the participating Eligible Persons and
two of the Trivest Directors (Messrs. Powell and George) will own direct equity
interests in WinsLoew after the Merger that will allow them directly to share in
its future earnings and potential growth. In addition, all of the Trivest
Directors are indirect investors in the Trivest Partnerships. An investment in
WinsLoew following the Merger involves substantial risk resulting from the
limited liquidity of any such investment and the increased leverage associated
with future borrowings that will be necessary to fund the substantial capital
expenditures required to execute the Company's business strategy. Nonetheless,
if the Company is able to successfully implement its business strategy, the
value of such an equity investment would be considerably greater than the
original cost thereof. See "CERTAIN FORWARD LOOKING INFORMATION."
The receipt of cash pursuant to the Merger will be a taxable transaction.
See "FEDERAL INCOME TAX CONSEQUENCES."
CONDUCT OF WINSLOEW'S BUSINESS AFTER THE MERGER
The Purchaser is continuing to evaluate WinsLoew's business, assets,
practices, operations, properties, corporate structure, capitalization,
management and personnel and discuss what changes, if any, will be desirable.
Subject to the foregoing, the Purchaser expects that the day-to-day business and
operations of WinsLoew will be conducted substantially as they are currently
being conducted by WinsLoew. The Purchaser does not currently intend to dispose
of any assets of WinsLoew, other than in the ordinary course of business.
Additionally, the Purchaser does not currently contemplate any material change
in the composition of WinsLoew's current management, although after the Merger,
the Board will be comprised of Messrs. Powell, George, Kaczynski, Klein and
Tesney.
CERTAIN FORWARD LOOKING INFORMATION
Certain projections prepared by management of WinsLoew are included
elsewhere in this Proxy Statement under the heading "CERTAIN FORWARD LOOKING
INFORMATION."
63
<PAGE> 74
THE MERGER
The Merger Agreement provides that the Purchaser, a newly-formed Florida
corporation, will be merged with and into WinsLoew, and that following the
Merger, the separate existence of the Purchaser will cease and WinsLoew will
continue as the surviving corporation.
The terms of and conditions to the Merger are contained in the Merger
Agreement which is included in full as Appendix A to this Proxy Statement and is
incorporated herein by reference. The discussion in this Proxy Statement of the
Merger and the summary description of the principal terms of the Merger
Agreement are subject to and qualified in their entirety by reference to the
more complete information set forth in the Merger Agreement.
CONVERSION OF SECURITIES
At the Effective Time, subject to the terms, conditions and procedures set
forth in the Merger Agreement, each share of Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares held by the
Purchaser) will, by virtue of the Merger, be converted into the right to receive
the Cash Merger Consideration. Except for the right to receive the Cash Merger
Consideration, from and after the Effective Time, all shares (other than shares
held by the Purchaser), by virtue of the Merger and without any action on the
part of the holders, will no longer be outstanding and will be canceled and
retired and will cease to exist. Each holder of a certificate formerly
representing any shares (other than shares held by the Purchaser) will after the
Effective Time cease to have any rights with respect to such shares other than
the right to receive the Cash Merger Consideration for such shares upon
surrender of the certificate.
No interest will be paid or accrued on the amount payable upon the
surrender of any certificate. Payment to be made to a person other than the
registered holder of the certificate surrendered is conditioned upon the
certificate so surrendered being properly endorsed and otherwise in proper form
for transfer, as determined by the Disbursing Agent. Further, the person
requesting such payment will be required to pay any transfer or other taxes
required by reason of the payment to a person other than the registered holder
of the certificate surrendered or establish to the satisfaction of the
Disbursing Agent that such tax has been paid or is not payable. Six months
following the Effective Time, WinsLoew will be entitled to cause the Disbursing
Agent to deliver to it any funds (including any interest received with respect
thereto) made available to the Disbursing Agent which have not been disbursed to
holders of certificates formerly representing shares outstanding prior to the
Effective Time, and thereafter such holders will be entitled to look to WinsLoew
only as general creditors with respect to cash payable upon due surrender of
their certificates. Notwithstanding the foregoing, neither the Disbursing Agent
nor any party to the Merger Agreement will be liable to any holder of
certificates formerly representing shares for any cash paid to a public official
pursuant to any applicable abandoned property, escheat or similar law. Except as
described in this paragraph, WinsLoew will pay all charges and expenses,
including those of the Disbursing Agent, in connection with the exchange of
shares for the Cash Merger Consideration.
Each share of the Purchaser's common stock that is issued and outstanding
immediately prior to the Merger will be converted at the Effective Time into one
share of Common Stock of WinsLoew.
64
<PAGE> 75
CASH-OUT OF WINSLOEW STOCK OPTIONS
In general, outstanding stock options to purchase shares of WinsLoew Common
Stock shall be canceled or terminated as of the Effective Time. Holders of such
options shall receive a cash payment equal to the difference between $34.75 per
share and the exercise prices of their WinsLoew stock options times the number
of shares issuable upon exercise of such options (the "Aggregate Unrealized
Gain").
TRANSFER OF SHARES
No transfers of shares of Common Stock will be made on the stock transfer
books at or after the Effective Time. If, after the Effective Time, certificates
representing such shares are presented to WinsLoew, such shares will be canceled
and exchanged for the Cash Merger Consideration.
CONDITIONS
Each party's respective obligation to effect the Merger is subject to the
satisfaction, at or prior to the Effective Time, of each of the following
conditions, any or all of which may be waived at the appropriate party's
discretion, to the extent permitted by applicable law:
(a) the Merger Agreement and the Merger shall have been approved and
adopted by the affirmative vote or consent of the holders of at least a
majority of the outstanding shares of Common Stock;
(b) all consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental authority or other regulatory body
required in connection with the execution, delivery and performance of the
Merger Agreement, the failure to obtain which would prevent the
consummation of the Merger or have a material adverse effect on the
Company, shall have been obtained without the imposition of any condition
having a material adverse effect on the Company;
(c) early termination shall have been granted or applicable waiting
periods shall have expired under the HSR Act, if applicable;
(d) no governmental authority or other regulatory body (including any
court of competent jurisdiction) shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making illegal, materially
restricting or in any way preventing or prohibiting the Merger or the
transactions contemplated by the Merger Agreement; and
(e) all authorizations, consents, waivers and approvals from parties
to contracts or other agreements to which any of the Company or its
subsidiaries is a party, or by which any of them is bound, as may be
required to be obtained by them in connection with the performance of the
Merger Agreement, the failure to obtain which would prevent the
consummation of the Merger or have, individually or in the aggregate, a
material adverse effect on Company, shall have been obtained.
65
<PAGE> 76
The obligations of the Purchaser to effect the Merger are further subject
to satisfaction or waiver at or prior to the Effective Time of the following
conditions:
(a) there shall not have occurred any change, condition, event or
development that has resulted in, or could reasonably be expected to result
in, a material adverse effect on the Company;
(b) the representations and warranties of the Company in the Merger
Agreement that are qualified by materiality shall be true and correct in
all respects as of the date of the Merger Agreement and as of the Effective
Time;
(c) the representations and warranties of the Company in the Merger
Agreement that are not qualified by materiality shall be true and correct
in all material respects as of the date of the Merger Agreement and as of
the Effective Time;
(d) the Company shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement;
(e) an officer of the Company shall have delivered to the Purchaser a
certificate to the effect that each of the conditions specified in the
preceding clauses (b), (c) and (d) is satisfied in all respects; and
(f) the Purchaser shall have received an opinion, dated the Effective
Time, of Balch & Bingham in form and substance reasonably satisfactory to
the Purchaser, with respect to the matters set forth in Sections 3.01,
3.02, 3.03, 3.04 and 3.05 of the Merger Agreement (relating to
organization, subsidiaries, capitalization, authority and consents,
approvals and the absence of violations, respectively).
The obligations of the Company to effect the Merger are further subject to
satisfaction or waiver at or prior to the Effective Time of the following
conditions:
(a) the representations and warranties of the Purchaser in the Merger
Agreement that are qualified by materiality shall be true and correct in
all respects as of the date of the Merger Agreement and as of the Effective
Time;
(b) the representations and warranties of the Purchaser in the Merger
Agreement that are not qualified by materiality shall be true and correct
in all material respects as of the date of the Merger Agreement and as of
the Effective Time;
(c) the Purchaser shall have performed in all material respects all
obligations required to be performed by them under the Merger Agreement;
(d) the Purchaser shall have delivered to the Company a certificate to
the effect that each of the conditions specified in the preceding clauses
(a), (b) and (c) is satisfied in all respects;
(e) the Company shall have received an opinion, dated the Effective
Time, of Greenberg Traurig in form reasonably satisfactory to the Company,
with respect to the matters set forth in Sections 4.01, 4.02 and 4.03 of
the Merger Agreement; and
(f) the Purchaser shall have executed definitive documentation in
connection with their financing of the aggregate Cash Merger Consideration
and shall have sufficient funds available to consummate the Merger, to pay
all related expenses and to refinance the Company's existing indebtedness
under its credit facility.
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<PAGE> 77
After approval of the Merger Agreement by the shareholders of WinsLoew, no
condition may be waived that reduces the amount or changes the form of the Cash
Merger Consideration to be received by the shareholders or that by law requires
further shareholder approval unless a waiver of such condition is approved by
the shareholders.
REPRESENTATIONS AND WARRANTIES
WinsLoew has made representations and warranties in the Merger Agreement
regarding, among other things, organization and good standing, subsidiaries,
capitalization, authority to enter into the Merger Agreement, requisite
governmental and other consents and approvals, content and submission of forms
and reports required to be filed by WinsLoew with the Commission, financial
statements, absence of certain changes in the business of WinsLoew since
December 31, 1998, absence of undisclosed liabilities, employee benefits,
absence of litigation to which WinsLoew is a party, possession of necessary
permits and compliance with applicable law, requisite tax filings, brokers and
finders, labor matters, title to property, environmental matters, accounts
receivable, customers, interested party transactions, insurance, product
liability and inventory.
The Purchaser has made representations and warranties in the Merger
Agreement regarding, among other things, its organization and good standing,
authority to enter into the transaction, requisite governmental and other
consents and approvals, accuracy of information supplied by the Purchaser for
submission in forms and reports required to be filed with the Commission, the
Purchaser's financing capability, WinsLoew's solvency after the Merger, brokers
and finders and absence of prior activities.
The representations and warranties of the parties in the Merger Agreement
will expire upon consummation of the Merger, and upon such expiration none of
such parties or their respective officers, directors or principals will have any
liability whatsoever with respect to any such representations or warranties.
COVENANTS
In the Merger Agreement, WinsLoew has agreed as to itself and its
subsidiaries that prior to the Effective Time, unless otherwise agreed to in
advance by the Purchaser or as otherwise contemplated by the Merger Agreement:
(a) The Company shall, and shall cause its subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course and
the Company shall, and shall cause its subsidiaries to, use all reasonable
efforts to preserve intact their present business organizations, keep
available the services of their present officers and employees and preserve
their relationships with customers, suppliers and others having business
dealings with the Company and its subsidiaries.
(b) The Company shall not, and shall not permit any of its
subsidiaries to, (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock, except for dividends
by a direct or indirect wholly-owned subsidiary of the Company to its
Purchaser, (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
or (iii) repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or its subsidiaries or any other securities thereof.
67
<PAGE> 78
(c) The Company shall not, and shall not permit any of its
subsidiaries to, issue, deliver, sell, pledge or encumber, or authorize or
propose the issuance, delivery, sale, pledge or encumbrance of, any shares
of its capital stock of any class or any securities convertible into, or
any rights, warrants, calls, subscriptions or options to acquire, any such
shares or convertible securities, or any other ownership interest
(including stock appreciation rights or phantom stock) other than (i) the
issuance of shares of Common Stock upon the exercise of Company stock
options outstanding on the date of the Merger Agreement and in accordance
with the terms of such Company stock options, or (ii) issuances by a
wholly-owned subsidiary of the Company of its capital stock to its
Purchaser.
(d) The Company shall not, and shall not permit any of its
subsidiaries to, amend or propose to amend its articles or certificate of
incorporation or bylaws (or similar organizational documents) in any way
which would be adverse to the Purchaser's rights under the Merger
Agreement.
(e) The Company shall not, and shall not permit any of its
subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or any substantial assets of
(other than inventory and equipment in the ordinary course consistent with
past practice, to the extent not otherwise prohibited by the Merger
Agreement), or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof.
(f) Other than dispositions in the ordinary course of business
consistent with past practice, the Company shall not, and shall not permit
any of its subsidiaries to, sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or otherwise dispose
of, any of its assets.
(g) The Company shall not, and shall not permit any of its
subsidiaries to, (i) incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or warrants or
rights to acquire any debt securities of the Company or any of its
subsidiaries, guarantee any debt securities of others, enter into any
"keep-well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for working capital
borrowings incurred in the ordinary course of business consistent with past
practice under the Company's credit facility existing and in effect on the
date of the Merger Agreement, or (ii) make any loans, advances or capital
contributions to, or investments in, any other person, other than, with
respect to both clause (i) and (ii) above, (A) to the Company or any direct
or indirect wholly owned subsidiary of the Company, or (B) any advances to
employees in accordance with past practice.
(h) The Company shall confer with the Purchaser on a regular and
frequent basis as reasonably requested by the Purchaser, report on
operational matters and promptly advise Purchaser orally and, if requested
by the Purchaser, in writing of any change or event to the best knowledge
of the Company having, or which, insofar as can reasonably be foreseen, is
likely to have, a material adverse effect on the Company. The Company shall
promptly provide to the Purchaser (or its counsel) copies of all filings
made by the Company with any governmental entity in connection with the
Merger Agreement and the transactions contemplated hereby.
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(i) The Company shall not make any material change, other than in the
ordinary course of business, consistent with past practice, or as required
by the Commission or law, with respect to any accounting methods,
principles or practices used by the Company (except insofar as may be
required by a change in generally accepted accounting principles).
(j) Except for fees and expenses related to the transactions
contemplated herein, the Company shall not, and shall not permit any of its
subsidiaries to, pay, discharge, settle or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of (i) liabilities recognized or disclosed in
the most recent financial statements contained in documents filed by the
Company with the Commission, or (ii) liabilities incurred since the date of
such financial statements in the ordinary course of business consistent
with past practice. The Company shall not, and shall not permit any of its
subsidiaries to, waive the benefits of, or agree to modify in any manner,
any confidentiality, standstill or similar agreement to which the Company
or any of its subsidiaries is a party.
(k) Except as provided in the Merger Agreement, the Company and its
subsidiaries will not, without the prior written consent of the Purchaser,
which shall not be unreasonably withheld, except as may be required by law,
(i) enter into, adopt, amend or terminate any Company benefit plan or other
employee benefit plan or any agreement, arrangement, plan or policy for the
benefit of any director, executive officer or current or former key
employee, (ii) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, executive officer or key employee,
except as required by any Company benefit plan or agreement with such
employees existing on the date of this Agreement, (iii) enter into, adopt,
amend or terminate any Company benefit plan or other benefit plan or
agreement, arrangement, plan or policy for the benefit of any employees who
are not directors, executive offices or current or former key employees of
the Company, other than increases in the compensation of employees made in
the ordinary course of business consistent with past practice, or (iv) pay
any benefit not required by any plan or arrangement as in effect as of the
date hereof (including the granting of, acceleration of exercisability of
or vesting of stock options, stock appreciation rights or restricted
stock).
(l) Except in the ordinary course of business consistent with past
practices, neither the Company nor any of its subsidiaries shall (i)
modify, amend or terminate any material contract or agreement to which the
Company or such subsidiary is a party, or (ii) waive, release or assign any
material rights or claims.
(m) The Company shall not authorize, recommend, propose or announce an
intention to adopt a plan of complete or partial liquidation of the Company
or any of its subsidiaries.
(n) Except as set forth in the Merger Agreement, the Company shall not
make any tax election or settle or compromise any material income tax
liability.
(o) The Company shall not nor will it permit any of its subsidiaries
to take or agree or commit to take any action that is reasonably likely to
result in any of the
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Company's representations or warranties hereunder being untrue in any
material respect at, or as of any time prior to, the Effective Time.
(p) The Company shall not, and shall not permit any of its
subsidiaries to, authorize any of, or commit or agree to take any of, the
foregoing actions described in clauses (a) through (o).
In addition, except as contemplated by the Merger Agreement, the Company
shall not, and shall not permit any of its subsidiaries to, take any action that
could reasonably be expected to result in (i) any of the representations and
warranties of the Company set forth in the Merger Agreement that are qualified
as to materiality becoming untrue, (ii) any of such representations and
warranties that are not so qualified becoming untrue in any material respect, or
(iii) any of the conditions to the Merger set forth above not being satisfied in
all material respects.
In addition, the Purchaser has agreed to pay the Cash Merger Consideration
to the Disbursing Agent not later than the tenth business day following the
satisfaction or waiver of the conditions to the Purchaser's obligation to
consummate the Merger.
NONSOLICITATION COVENANT
The Company has agreed that it and its officers, directors, employees,
representatives and agents shall immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to an Acquisition
Proposal that could not reasonably be considered a Superior Proposal. The
Company has agreed that it shall not, nor shall it permit any of its
subsidiaries to, authorize or permit any of its officers, directors or employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or knowingly encourage (including by way of
furnishing non-public information or assistance), or knowingly take any other
action to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal,
or (ii) participate in any discussions or negotiations regarding any Acquisition
Proposal; provided, however, that if, at any time the Board of Directors of the
Company determines in good faith, based upon the opinion of independent legal
counsel (who may be the Company's regularly engaged independent counsel), that
it is necessary to do so in order to comply with its fiduciary duties to the
Company's shareholders under applicable law, the Company may, in response to an
unsolicited Superior Proposal, (x) furnish information with respect to the
Company to the person making such unsolicited Superior Proposal pursuant to a
confidentiality agreement in a form approved by the Company and Purchaser (such
approval not to be unreasonably withheld or delayed), and (y) participate in
discussions or negotiations regarding such Superior Proposal. WinsLoew is
obligated to inform the Purchaser promptly of any request for information or any
Acquisition Proposal, the material terms and conditions of such request or
Acquisition Proposal and, unless the Company is contractually prohibited from
making such disclosure, the identity of the person making such request or
Acquisition Proposal.
Except as set forth above, neither the Board of Directors of the Company
nor any committee thereof may (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to the Purchaser, the approval or recommendation by
such Board of Directors or committee of the Merger Agreement or the Merger, (ii)
approve or recommend, or propose to approve or recommend, any Acquisition
Proposal, or (iii) cause the Company to enter into any agreement with respect to
any Acquisition Proposal.
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Notwithstanding the foregoing, in the event that the Board of Directors of the
Company determines in good faith, based upon the opinion of independent legal
counsel (who may be the Company's regularly engaged independent counsel), that
it is necessary to do so in order to comply with its fiduciary duties to the
Company's shareholders under applicable law, the Board of Directors of the
Company may withdraw or modify its approval or recommendation of the Merger
Agreement and the Merger, approve or recommend a Superior Proposal, cause the
Company to enter into an agreement with respect to a Superior Proposal or
terminate the Merger Agreement, but in each case only at a time that is after
the fifth business day following Purchaser's receipt of written notice (a
"Notice of Superior Proposal") advising the Purchaser that the Board of
Directors of the Company has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. In addition, if the Company proposes to
enter into an agreement with respect to any Acquisition Proposal, it must
concurrently with entering into such agreement pay, or cause to be paid, to the
Purchaser the Termination Fee.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that all rights to indemnification for acts
or omissions occurring prior to the Effective Time existing in favor of the
current or former directors or officers of the Company and its subsidiaries as
provided in their respective certificates or articles of incorporation or bylaws
(or similar organizational documents) or existing indemnification contracts
shall survive the Merger and shall continue in full force and effect in
accordance with their terms. In addition, the Purchaser will provide for a
period of not less than two years after the Effective Time, the Company's
current directors and officers an insurance and indemnification policy that
provides coverage for events occurring at or prior to the Effective Time that is
no less favorable than the Company's existing insurance and indemnification
policy or, if substantially equivalent insurance coverage is unavailable, the
best available coverage; provided, however, that the Company shall not be
required to pay an annual premium for the such insurance and indemnification
policy in excess of 200% of the annual premium currently paid by the Company for
such insurance, but in such case shall purchase as much such coverage as
possible for such amount.
EXPENSES
The parties have agreed to pay their own costs and expenses in connection
with the Merger Agreement and the transactions contemplated thereby, provided
that the Purchaser will pay any filing fees required under the HSR Act. WinsLoew
has agreed, however, to pay or reimburse the Purchaser for all expenses up to
$1.5 million incurred by the Purchaser in connection with the Merger Transaction
upon certain events. See "THE MERGER -- Termination Fee."
TERMINATION, AMENDMENT AND WAIVER
At any time prior to the Effective Time, the Merger Agreement may be
terminated by the mutual written consent of WinsLoew and the Purchaser. In
addition, either WinsLoew or the Purchaser may terminate the Merger Agreement
prior to the Effective Time if (i) any governmental entity shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the acceptance for payment of, or payment
for, shares of Common Stock pursuant to the Merger and such
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order, decree or ruling or other action shall have become final and
nonappealable, provided, however, that such right to terminate the Merger
Agreement is not available to any party that has failed to use its reasonable
efforts to comply promptly with legal requirements, cooperate with and furnish
information to the other party and obtain any required governmental or other
consents, authorizations, orders, approvals or exemptions or (ii) the Effective
Time shall not have occurred on or before August 31, 1999, unless extended by
agreement of the Purchaser and the Company.
The Merger Agreement may be terminated by the Purchaser prior to the
Effective Time if: (i)(A) the representations and warranties of the Company as
to its capitalization shall not have been true and correct in all material
respects when made, or (B) any other representation or warranty of the Company
shall not have been true and correct in all material respects when made, except
in any case where such failure to be true and correct would not, in the
aggregate, (x) have a material adverse effect on the Company, or (y) prevent or
delay the consummation of the Merger; (ii) the Company shall have failed to
comply in any material respect with any of its material obligations or covenants
contained in the Merger Agreement, except in any case where such failure would
not, in the aggregate, (x) have a material adverse effect on the Company, or (y)
prevent or materially delay consummation of the Merger; (iii) there shall have
been a material adverse change with respect to the Company, provided that the
Company shall, if curable, have a reasonable period in which to cure any failure
described in clause (i), (ii) or (iii) of this paragraph; or (iv)(A) the Board
or the Special Committee fails to approve and recommend or withdraws or modifies
in a manner adverse to the Purchaser its approval or recommendation of the
Merger or the Merger Agreement, or approves or recommends any Acquisition
Proposal, (B) the Company enters into any agreement with respect to any Superior
Proposal following written notice to the Purchaser and payment of the
Termination Fee discussed below, or (C) the Board or the Special Committee
resolves to take any such action in clauses (iv)(A) or (B).
WinsLoew may terminate the Merger Agreement (i) in connection with entering
into a definitive agreement with respect to a Superior Proposal following
written notice to the Board, a determination that the Company's failure to do so
would violate the Board's fiduciary duties and the payment of the termination
Fee described below and provided that the Company complies with its covenant
against soliciting, discussing or negotiating any Acquisition Proposal (except
as required by the Board's fiduciary duties), (ii) if any representation or
warranty of the Purchaser was not true and correct in all material respects when
made or has ceased to be true and correct in all material respects as if made on
such later date, (iii) if the Purchaser fails to comply in any material respect
with any of its material obligations or covenants in the Merger Agreement, or
(iv) if the Purchaser fails to pay the Cash Merger Consideration to the
Disbursing Agent not later than the tenth business day following the
satisfaction or waiver of the conditions to the obligations of the Purchaser to
consummate the Merger, provided that the Purchaser shall, if curable, have a
reasonable period in which to cure any failure described in clause (ii) or (iii)
of this paragraph.
Subject to the provisions of applicable law, the Merger Agreement may be
modified or amended, and provisions thereof waived, by written agreement of the
parties. However, after approval of the terms of the Merger Agreement by the
shareholders of WinsLoew, no amendment or waiver of a provision may be made
which reduces the amount or changes the form of the Cash Merger Consideration to
be received by the shareholders or that by law requires further shareholder
approval unless such amendment or waiver of a provision
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is approved by the shareholders. With respect to any material modification,
amendment or waiver of the Merger Agreement, the Board, in the exercise of its
fiduciary duty and in accordance with any applicable law or regulation, will
make a resolicitation of shareholders.
TERMINATION FEE
WinsLoew has agreed to pay to the Purchaser a Termination Fee in the amount
of $10.0 million plus up to $1.5 million of expenses of the Purchaser in the
event the Merger Agreement is terminated (i) by the Purchaser due to (A) the
breach by the Company of any of its representations, warranties or covenants, or
a material adverse change with respect to WinsLoew, each as described above (see
"THE MERGER -- Termination; Amendment and Waiver"), or (B) (1) the Board or the
Special Committee failing to approve and recommend or withdrawing or modifying
in a manner adverse to the Purchaser its approval or recommendation of the
Merger or the Merger Agreement, or approving or recommending any Acquisition
Proposal, (2) the Company entering into any agreement with respect to any
Superior Proposal or (3) the Board or the Special Committee resolving to take
any such action in clauses (1) or (2), or (ii) by the Company due to entering
into a definitive agreement in connection with a Superior Proposal.
ESCROW DEPOSIT
Pursuant to the Escrow Agreement, the Purchaser has delivered a cash escrow
deposit in the amount of $3.0 million to an escrow agent pending the
consummation of the Merger or the termination of the Merger Agreement. In the
event that WinsLoew terminates the Merger Agreement due to (i) any uncured
material breach by the Purchaser of any of its representations or material
obligations in the Merger Agreement or (ii) the Purchaser's failure to pay the
Cash Merger Consideration to the Disbursing Agent not later than the tenth
business day following the satisfaction or waiver of the conditions to the
obligations of the Purchaser to consummate the Merger, then, in addition to any
other remedies WinsLoew may have in respect of such termination, the escrow
deposit shall be paid to WinsLoew. Upon the consummation of the Merger or the
termination of the Merger Agreement for any other reason, the escrow deposit
shall be paid to the Purchaser.
FINANCING
It is estimated that approximately $281.9 million will be required to
consummate the Merger and pay related fees and expenses. This sum is expected to
be provided by the following: (i) approximately $78.0 million in equity
contributions to the Purchaser by the Trivest Investors (reduced by an amount
equal to the sum of the aggregate value (at $34.75 per share) of the shares of
Common Stock contributed to the Purchaser by the Eligible Persons and the cash
contributed to the Purchaser or, following the consummation of the Merger,
WinsLoew by the Eligible Persons) and the Management Group; (ii) borrowings of
approximately $66.6 million under a $145.0 million senior secured credit
facility to be obtained by the Purchaser, WinsLoew and its subsidiaries pursuant
to a commitment letter, dated as of April 27, 1999, from BankBoston; (iii) the
issuance by WinsLoew of approximately $125.0 million aggregate principal amount
of senior subordinated notes that the Purchaser expects to issue based upon a
letter from Bear Stearns to the effect that, as of May 12, 1999 and subject to
certain conditions, it was highly confident that it could arrange for the sale
of such notes in connection with the Merger; and (iv) approximately $12.3
million of WinsLoew's expected cash on hand. The
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bank financing commitment includes $75.0 million in term loans, a $30.0 million
revolver and a $40.0 million acquisition line for subsequent acquisitions by
WinsLoew, all to be secured by first-fee mortgages on owned real estate and
first priority security interests in substantially all of WinsLoew's assets. The
BankBoston commitment letter is subject to customary conditions, and the Bear
Stearns highly confident letter does not constitute a commitment or undertaking
by Bear Stearns to place or purchase the senior subordinated notes and does not
ensure the successful placement or completion of the offering of such notes;
moreover, the Bear Stearns letter sets forth only its expectation as of May 12,
1999 with respect to its ability to arrange a sale of the notes in connection
with the Merger. Except for the BankBoston and Trivest commitment letters, there
are no firm commitments from any person to provide equity, provide senior
financing, purchase the Company's senior subordinated notes or provide any other
financing for the Merger, and there can be no assurance that any such financing
will be obtained. See "SPECIAL FACTORS -- Purpose and Reasons of the Affiliates
for the Merger."
Cash Financing for the Merger. The cash financing for the Merger is
expected to be provided by as follows:
<TABLE>
<CAPTION>
SOURCE OF FUNDS AMOUNT
- --------------- ------------
<S> <C>
Cash contribution to the Purchaser by the Trivest
Partnerships(1)...................................... $ 65,924,000
Cash contribution to the Purchaser by the individual
Trivest Investors.................................... --
Cash contribution to the Purchaser by the members of
the Management Group................................. 789,000
Expected Cash on hand of WinsLoew...................... 12,300,000
Senior Secured Credit Facility......................... 66,600,000
Senior Subordinated notes.............................. 125,000,000
------------
Total........................................ $270,613,000
============
</TABLE>
- -------------------------
(1) The amount of the cash contribution of the Trivest Partnerships will be
reduced by an amount equal to the sum of the aggregate value (at $34.75 per
share) of any shares of Common Stock contributed to the Purchaser by the
Eligible Persons and the cash contributed to the Purchaser or, following the
consummation of the Merger, WinsLoew by the Eligible Persons.
Credit Facility. The BankBoston commitment letter provides, subject to
various conditions mentioned below, for a total of $145.0 million financing in
the form of (i) two groups of term loans, the Term A loans for $25.0 million and
the Term B loans for $50.0 million, (ii) revolving loans of up to $30.0 million,
including letters of credit, and (iii) acquisition loans of up to $40.0 million.
Subject to certain restrictions, WinsLoew will be able to use the senior credit
facility for its working capital and general corporate purposes.
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The different loans under the senior credit facility are expected to be
repayable as follows:
- The revolving loans -- 100% five and a half years after the consummation
of the merger;
- The acquisition loans -- 33.3% of any amount outstanding on December 31,
2001, in each of 2002, 2003 and 2004;
- The Term A loans -- 12.0% in 2000, 12.0% in 2001, 24.0% in 2002, 24.0% in
2003 and 28.0% in 2004; and
- The Term B loans -- 1.0% in each of 2000 through 2004 and 47.5% in each
of 2005 and 2006.
The Term B loans are expected to be drawn in full at the closing of the
Merger. (If it is desirable as a way to reduce transaction costs, the Term B
loans may be evidenced by one or more notes having different principal amounts
with the same aggregate amortization and other terms).
The Term A loans may be drawn in two stages. If the Pompeii acquisition is
not completed before (or at the same time as) the Merger, the initial Term A
loan advance is expected to be $5.0 million with the balance of $20.0 million to
be advanced upon consummation of the Pompeii acquisition. If the Pompeii
acquisition is not completed and the final $20.0 million of Term A loans
advanced on or before September 30, 1999, this remaining $20.0 million
commitment will terminate. No commitment fee is payable on any undrawn portion
of the Term A loan facility.
Borrowings under the revolving loans and outstanding letters of credit are
expected to be limited to $30.0 million or, if less, the sum of (i) 85% of
eligible accounts receivable, plus (ii) 60% of eligible inventory.
The acquisition loan facility will be used to fund permitted acquisitions
(other than Pompeii) after the Merger. Acquisition loans are expected to be
available on a revolving basis through December 31, 2001, when all outstanding
amounts are to be converted into a term loan due as set forth above, with any
portion of this facility that is not outstanding on December 31, 2001 to be
canceled.
WinsLoew will be permitted to repay any of its outstanding loans under the
senior credit facility without paying a premium or penalty, other than payment
of breakage costs and reimbursement of the lenders' actual costs of reemploying
funds under certain circumstances.
WinsLoew is expected to be required to repay any outstanding loans out of
cash it receives from certain events as follows:
- 100% of net cash proceeds of certain asset sales so long as WinsLoew's
leverage ratio is greater than or equal to 3.0:1, subject to certain
exceptions, including the right to reinvest such proceeds in WinsLoew's
business under certain circumstances;
- 100% of net cash proceeds of permitted debt issuances, subject to certain
exceptions;
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- 100% of net cash proceeds of permitted equity issuances (50% if an
initial public offering), subject to certain exceptions; and
- 50% of annual excess cash flow (25% when WinsLoew's leverage ratio is
less than 3.0:1).
Security; Guaranty. Each of WinsLoew's direct and indirect domestic
subsidiaries (and, if no adverse tax consequences result, foreign subsidiaries)
will also be borrowers or will guarantee the borrowers' obligations under the
senior credit facility. The following will secure the borrowers' obligations
under the senior credit facility and each of the guarantor's obligations under
its guarantee:
- a security interest in substantially all of the borrowers' assets and the
assets of the subsidiary guarantors; and
- a pledge of all of the capital stock of each of WinsLoew's direct and
indirect domestic subsidiaries (or 65% of the capital stock of any
foreign subsidiary).
Interest. At WinsLoew's option, the interest rates under the senior credit
facility are expected to be either: (1) the base rate, which is the higher of
the prime lending rate or 0.5% in excess of the federal funds effective rate,
plus a margin, or (2) adjusted LIBOR plus a margin. The margins of the different
loans under the senior credit facility are expected to vary according to a
pricing grid based upon WinsLoew's consolidated leverage ratio as follows:
- the initial margins on the Term A loans and revolving loans (including
acquisition loans) are expected to be .50% over the base rate or 2.5%
over adjusted LIBOR; after December 31, 1999, these margins are expected
to range from 0.75% to zero over the base rate and from 2.75% to 1.75%
over adjusted LIBOR; and
- the initial margins on the Term B loans are expected to be 1.0% over the
base rate and 3.0% over adjusted LIBOR; after December 31, 1999, these
margins are expected to range from 1.25% to 0.75% over the base rate and
from 3.25% to 2.75% over adjusted LIBOR.
Fees. WinsLoew has agreed to pay certain fees in connection with the
senior credit facility, including: (1) letter of credit fees; (2) agency fees;
and (3) commitment fees. Commitment fees are payable (1) at a rate per annum of
0.5% on the undrawn amounts of the revolving loans, subject to reduction to
0.375% per annum depending upon WinsLoew's consolidated leverage ratio and (2)
at a rate per annum of 0.75% on the undrawn amount of the acquisition loan
facility during the revolving period, subject to reduction to 0.50% (or 0.375%
depending upon WinsLoew's consolidated leverage ratio) per annum from and after
the date on which at least $20.0 million of acquisition loans are outstanding.
Covenants. The senior credit facility will require that WinsLoew meet
certain financial tests which include a maximum leverage ratio, a minimum
interest coverage ratio and minimum EBITDA levels. The senior credit facility
will also contain covenants which, among other things, restrict WinsLoew's
ability, subject to certain exceptions, to do the following:
- incur additional indebtedness;
- incur liens;
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- declare dividends or redeem or repurchase capital stock, or prepay other
debt;
- make loans and investments;
- make capital expenditures;
- engage in mergers, acquisitions, consolidations and asset sales;
- acquire assets, stock or debt securities of any person;
- engage in transactions with affiliates; and
- amend its articles of incorporation.
The senior credit facility will also require that WinsLoew satisfy certain
customary affirmative covenants and make certain customary indemnifications to
its lenders and the administrative agent under the senior credit facility.
Events of Default. The senior credit facility will contain customary
events of default, including, without limitation, payment defaults, breaches of
representations and warranties, covenant defaults, certain events of bankruptcy
and insolvency, ERISA violations, judgment defaults, cross-defaults to certain
other indebtedness and a change in control.
The definitive agreements for the senior credit facility to be provided
under the BankBoston commitment letter have not been reached. Accordingly, the
provisions described herein may change as a result of the negotiation of
definitive agreements. It is a condition to the BankBoston financing that
definitive agreements be entered into. In addition, it is anticipated that the
obligation of BankBoston to provide financing will be subject to the
satisfaction of certain other conditions, including among others: (i) the
satisfaction of all conditions precedent to the Merger and BankBoston's
satisfaction with the terms and documentation for the Merger; (ii) evidence that
the Trivest Partnerships have invested not less than $78.0 million to acquire
WinsLoew (including Pompeii); and (iii) WinsLoew shall have received the net
proceeds from not less than $125.0 million aggregate principal amount of senior
subordinated notes on terms and conditions satisfactory to BankBoston.
Senior Subordinated Notes. The Company expects to issue the senior
subordinated notes at the Effective Time in a private placement for resale
pursuant to Rule 144A under the Securities Act of 1993, as amended. The
Purchaser has received a "highly confident letter," dated May 12, 1999, from
Bear Stearns which states that, as of such date and based upon and subject to
current market conditions and the information concerning WinsLoew and Pompeii
supplied to Bear Stearns by or on behalf of the Purchaser, Bear Stearns was
highly confident of its ability, as lead manager, to place the senior
subordinated notes. The Bear Stearns letter does not constitute a commitment or
undertaking by Bear Stearns to place or purchase the senior subordinated notes
and does not ensure the successful placement or completion of the offering of
such notes; moreover, the letter sets forth only Bear Stearns' expectation as of
May 12, 1999 with respect to its ability to arrange a sale of the notes in
connection with the Merger.
It is currently contemplated that the senior subordinated notes will (i) be
unsecured, general obligations of the Company, (ii) mature on the eighth
anniversary of issuance, (iii) bear interest at a fixed rate to be determined,
(iv) have no mandatory redemption requirements prior to maturity, (v) be
redeemable at the Company's option at any time and (vi) contain standard high
yield covenants typical for a transaction of this nature.
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The highly confident letter is subject to each of the following: (i) all
terms and conditions of the notes and the offering of the notes, including, but
not limited to, coupon, price, maturity and covenants; (ii) the terms and
conditions of all of the other components of financing for the Merger; (iii) the
terms of, and the execution of documentation related to the Merger and the
financing, including, but not limited to loan agreements for the senior credit
facility, a definitive note purchase agreement and a definitive registration
rights agreement with respect to the notes, (iv) no material adverse change in
the business, prospects, condition (financial or otherwise) or material adverse
change in the business, prospects, condition (financial or otherwise) or results
of operations of WinsLoew or Pompeii; (v) completion of due diligence regarding
WinsLoew relating to the examination of accounting, legal, regulatory, tax,
labor, insurance, pension and environmental liabilities (actual or contingent),
material contracts, leases and debt agreements; (vi) nothing coming to Bear
Stearns' attention regarding WinsLoew that contradicts or calls into question
(A) the information previously provided to Bear Stearns by or on behalf of the
Purchaser or (B) the results of Bear Stearns' financial due diligence
investigation; (vii) satisfactory completion of due diligence on Pompeii; (viii)
no material adverse change in market conditions for new issues of high yield
debt; (ix) no material adverse change in conditions of the financial and capital
markets generally, and (x) the Purchaser's and WinsLoew's full and complete
cooperation with respect to the marketing of the notes. The acceptability of
each of the foregoing will be made in the sole discretion of Bear Stearns'
Commitment Committee. The termination of the agreement governing the acquisition
of Pompeii pursuant to its terms would not, in and of itself, cause Bear Stearns
to change its opinion, as of May 12, 1999, of its ability to place the notes.
Contributed Equity Financing. Members of the Management Group and the
Trivest Investors will contribute shares of Common Stock to the Purchaser in
exchange for shares of Purchaser common stock in the respective amounts shown
below and thereby relieve the Purchaser of the need to finance the payment of
Cash Merger Consideration for Common Stock in WinsLoew totaling approximately
$11.3 million. The Trivest Partnerships do not currently hold any shares of
Common Stock. Accordingly, all shares of Common Stock contributed to the
Purchaser will be from the individual Trivest Investors and members of the
Management Group; provided, however, that certain WinsLoew shareholders who will
be limited partners of Trivest Furniture Partners, Ltd. will make a capital
contribution of a portion of their shares of WinsLoew Common Stock to Trivest
Furniture Partners, Ltd., which will then contribute such shares to the
Purchaser in exchange for shares of Purchaser common stock.
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<TABLE>
<CAPTION>
SHARES OF WINSLOEW VALUE OF WINSLOEW
COMMON STOCK COMMON STOCK
PERSON OR ENTITY CONTRIBUTED TO PURCHASER CONTRIBUTED TO PURCHASER
- ---------------- ------------------------ ------------------------
<S> <C> <C>
Management Group:
Bobby Tesney..................... 33,324 $ 1,158,000
Stephen C. Hess.................. 2,878 100,000
R. Craig Watts................... 25,007 869,000
Vincent A. Tortorici, Jr......... 8,633 300,000
Rick J. Stephens................. 12,950 450,000
Jerry C. Camp.................... 1,755 61,000
Trivest Partnerships............... 117,500 4,083,125
Trivest Directors:
Earl W. Powell................... 86,331 3,000,000
Phillip T. George, M.D........... 28,187 979,483
Other Trivest Investors.......... 8,247 286,567
-------- -----------
Total......................... 324,812 $11,287,175
</TABLE>
EXPENSES OF THE TRANSACTION
Assuming the Merger is consummated, the estimated costs and fees in
connection with the Merger, financing and the related transactions that will be
paid by WinsLoew are as follows:
<TABLE>
<CAPTION>
COST OR FEE ESTIMATED AMOUNT
- ----------- ----------------
<S> <C>
Financial advisory fees............................. $ 6,078,000
Senior note underwriting commissions................ 3,713,000
Bank commitment fees................................ 2,175,000
Legal fees.......................................... 800,000
Accounting fees..................................... 135,000
Printing and mailing fees........................... 40,000
Solicitation expenses............................... 12,000
Commission filing fees.............................. 49,915
Miscellaneous....................................... 929,085
-----------
$13,932,000
===========
</TABLE>
See "SPECIAL FACTORS -- Opinion of Financial Advisor" for a description of
the fees to be paid to Mann Armistead in connection with its engagement. For a
description of certain fees payable to the members of the Special Committee, see
"SPECIAL FACTORS -- Conflicts of Interest."
For a description of WinsLoew's obligation, even if the Merger is not
consummated, to pay or reimburse the Purchaser for expenses incurred by the
Purchaser in connection with the Merger, see "THE MERGER -- Expenses" and
"-- Termination Fee."
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REGULATORY APPROVALS
WinsLoew is not aware of any license or regulatory permit which is material
to the business of WinsLoew and which is likely to be adversely affected by the
Merger or of any approval or other action by any state, federal or foreign
government or governmental agency that would be required prior to effecting the
Merger.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase business combination for
accounting purposes.
RIGHTS OF DISSENTING SHAREHOLDERS
Under Florida law, WinsLoew shareholders have no right to an appraisal of
the value of their shares in connection with the Merger.
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger to the holders of Common Stock. This discussion is
based on the current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury Regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Any change, which may or may not be retroactive, could alter the tax
consequences to the holders of Common Stock as described herein. The following
discussion is addressed to a shareholder that holds Common Stock as a capital
asset and that, for federal income tax purposes, is a U.S. citizen or resident
or a domestic corporation, partnership, trust or estate. This discussion does
not purport to deal with all aspects of taxation that may be relevant to a
particular shareholder in light of his, her or its particular circumstances or
to certain types of taxpayers subject to special treatment under the federal
income tax law, including financial institutions, broker-dealers, foreign
persons, persons holding Common Stock as part of a straddle, "synthetic
security" or other integrated investment (including a "conversion transaction")
or persons who acquired their Common Stock through the exercise of an employee
stock option or otherwise as compensation.
A holder of Common Stock will recognize capital gain or loss for federal
income tax purposes on each share of Common Stock exchanged for the Cash Merger
Consideration pursuant to the Merger. The amount of gain or loss recognized on a
share will be equal to the difference between $34.75 and the holder's basis in
the share. The gain or loss will be long-term capital gain or loss in the case
of shares held for more than one year as of the date of the Merger. In the case
of individuals, trusts and estates, net capital gain for a taxable year (that
is, the excess of net long-term capital gain for the taxable year over any net
short-term capital loss for the year) is subject to a maximum federal income tax
rate of 20 percent. Receipt of the Cash Merger Consideration in exchange for
Common Stock pursuant to the Merger also may be a taxable transaction under
applicable state, local and foreign tax laws.
A holder of Common Stock may be subject to backup withholding at the rate
of 31 percent with respect to Cash Merger Consideration received pursuant to the
Merger,
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unless the holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates that fact or (b) provides a correct
taxpayer identification number ("TIN"), certifies as to no loss of exemption
from backup withholding and otherwise complies with the applicable requirements
of the backup withholdings rules. To prevent the possibility of backup
withholding on payments made to certain holders with respect to shares of Common
Stock pursuant to the Merger, each holder must provide the Disbursing Agent with
his, her or its correct TIN by completing a Form W-9 or Substitute Form W-9 (or,
in the case of a foreign person, must provide to the Disbursing Agent a properly
completed Form W-8 or Substitute Form W-8). A holder of Common Stock that does
not provide his, her or its correct TIN, when required to do so, may be subject
to penalties imposed by the Internal Revenue Service (the "IRS"), as well as to
backup withholding. Any amount withheld under these rules will be refundable or
creditable against the holder's federal income tax liability, provided the
required information is furnished to the IRS. WinsLoew (or its agent) will
report to the holders of Common Stock and to the IRS the amount of any
"reportable payments," as defined in Section 3406 of the Code, and the amount of
tax, if any, withheld with respect thereto.
THE TAX CONSEQUENCES FOR A PARTICULAR SHAREHOLDER WILL DEPEND UPON THE
FACTS AND CIRCUMSTANCES APPLICABLE TO THAT SHAREHOLDER. ACCORDINGLY, EACH
SHAREHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISER TO DETERMINE THE
TAX CONSEQUENCES OF THE MERGER TO THE SHAREHOLDER IN LIGHT OF HIS, HER OR ITS
PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND ANY POSSIBLE CHANGES IN THOSE LAWS. THE
FOREGOING DISCUSSION MAY NOT APPLY TO SHARES RECEIVED PURSUANT TO THE EXERCISE
OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION.
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BUSINESS OF THE COMPANY
BACKGROUND
WinsLoew is a leading designer, manufacturer and distributor of a broad
offering of casual outdoor furniture and seating products. WinsLoew also
manufactures certain ready-to-assemble furniture products. WinsLoew's casual
furniture includes chairs, chaise lounges, tables, umbrellas and related
accessories, which are generally constructed from aluminum, wrought iron, wood
or fiberglass. WinsLoew seating products include wood, metal and upholstered
chairs, sofas and loveseats, which are offered in a wide variety of finish and
fabric options. All of WinsLoew's casual furniture and seating products are
manufactured pursuant to customer orders. WinsLoew sells its furniture products
to residential users (commonly referred to as the residential market) and to
commercial and institutional users (commonly referred to as the contract
market). WinsLoew believes that its success is attributable to its proven
ability to consistently deliver high quality, innovatively-styled products on a
timely basis with superior customer service. For the twelve months ended June
25, 1999, its casual, seating and ready-to-assemble furniture products accounted
for 44.8%, 46.3% and 8.9%, respectively, of its net sales. During this period,
WinsLoew generated net sales of $151.5 million and EBITDA of $36.2 million,
representing an EBITDA margin of 23.9% which WinsLoew believes is among the
highest in the industry.
WinsLoew markets its casual furniture products to the residential market
under the Winston(R) brand name through approximately 25 independent sales
representatives to over 800 active customers, which are primarily specialty
patio furniture stores located throughout the United States. WinsLoew believes
that Winston(R) is one of the leading brand names in the residential casual
furniture sector. WinsLoew offers over 20 separate style collections of casual
furniture products for the residential market, each of which is comprised of
numerous pieces available in various combinations of finishes and fabrics.
WinsLoew's target market is the medium to upper-end price category of the casual
furniture market, with suggested retail prices for a table and four chairs
typically ranging from $700 to $1,800. As a result, WinsLoew does not sell its
casual furniture products to mass merchandisers. In addition, WinsLoew markets a
broad line of casual furniture products in the contract markets under the
Texacraft(R) and Tropic Craft(R) brand names, primarily through its in-house
sales force, to lodging and restaurant chains, country clubs, apartment
developers and property management firms, architectural design firms,
municipalities and other commercial and institutional users.
WinsLoew markets its seating products to a broad customer base in the
contract market under the Loewenstein(R) and Gregson(R) brand names (through
approximately 40 independent sales organizations, which employ approximately 120
sales representatives). WinsLoew's customers include lodging and restaurant
chains, architectural design firms, professional sports complexes, schools,
healthcare facilities, office furniture dealers, retail store planners and other
commercial and institutional users in the contract market. WinsLoew manufactures
over 300 distinct models of seating products ranging from traditional to
contemporary styles of chairs, as well as reception area love seats, sofas and
stools. WinsLoew designs, assembles and finishes its seating products with
component parts from a variety of suppliers, including a number of Italian
manufacturers. WinsLoew believes that its success in distinguishing its seating
products from those of its competitors is due in part to its long-standing and
frequently exclusive relationships with a number of leading Italian designers
and manufacturers. These relationships enable WinsLoew to offer
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products incorporating unique designs and sophisticated manufacturing techniques
that are generally unavailable or are not cost effective in the United States.
WinsLoew has excellent and in many instances long-term relationships with its
diverse customer base, which includes, for example, Marriott International.
WinsLoew recently entered into a three year contract with Marriott under which
WinsLoew is a preferred supplier of upholstered seating products for certain of
its affiliated lodging chains. WinsLoew also provides seating for various
retailers, as well as commercial and institutional construction projects, such
as professional sports stadiums and arenas. For example, WinsLoew recently was
selected to provide all luxury sky box seating for a major new professional
sports arena in Los Angeles.
Over the past several years, WinsLoew has undertaken a number of
initiatives to strengthen and grow its core casual furniture and seating
businesses. WinsLoew has focused resources on its core business and disposed of
non-core or unprofitable operations. In 1997, WinsLoew sold its wrought iron
furniture business, and in 1998 WinsLoew discontinued and sold or liquidated
certain of its ready-to-assemble furniture operations. WinsLoew also embarked on
a focused acquisition program to broaden its core product offering that, to
date, has resulted in the acquisition of Tropic Craft (a manufacturer of casual
furniture sold into the contract markets) and the pending acquisition of Pompeii
(a manufacturer of upper-end casual furniture sold into both the residential and
contract markets). WinsLoew have also implemented a strategic operating plan to
enhance operating efficiencies and controls and improve its market position. As
part of this plan, WinsLoew reconfigured the manufacturing processes within the
majority of its manufacturing facilities to allow faster product flow through
the plants. In addition, WinsLoew reallocated production between its two main
seating facilities to achieve increased efficiencies. WinsLoew believe that
these initiatives have contributed to the increase of its EBITDA margin from
12.9% in fiscal 1995 to 23.9% for the twelve months ended June 25, 1999.
HISTORY
Merger of Winston and Loewenstein. WinsLoew was formed in December 1994
through the merger of Winston Furniture Company, Inc. ("Winston") and
Loewenstein Furniture Group, Inc. ("Loewenstein") with and into WinsLoew, a
newly-formed corporation that was formed for the purpose of the merger. As a
result of the merger, (i) each outstanding share of Winston common stock was
converted into 1.00 shares of WinsLoew Common Stock, and each outstanding share
of Loewenstein common stock was converted into 1.05 shares of WinsLoew Common
Stock.
Winston History. Winston, a designer, manufacturer and distributor of
casual furniture for both the residential and contract markets, began business
in October 1975 as a division of Marathon Corporation. In March 1986, Winston
management and certain other investors acquired the aluminum furniture business
of that division in a leveraged buyout. Winston acquired the wrought iron and
tubular steel furniture business of the Lyon-Shaw, Inc., a division of B.B.
Walker Company ("Lyon Shaw"), in November 1986. In August 1987, Winston
completed an initial public offering of its shares. In December 1988, Winston
management, other employees and affiliates of the Trivest Partnerships purchased
Winston in a leveraged buyout. Following the December 1988 buyout, Winston
expanded its manufacturing facilities, focused on its core business and reduced
its outstanding indebtedness. In February 1993, Winston completed its initial
public offering and used the net proceeds received therefrom to further reduce
outstanding
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indebtedness. In September 1994, Winston acquired substantially all of the
assets of Texacraft, Inc., a Texas corporation ("Texacraft"), which was a
privately held manufacturer of aluminum furniture for the contract market.
Loewenstein History. Loewenstein, Inc. was founded in 1967 and acquired in
February 1985 by Atlantis Plastics, Inc., a publicly-traded plastics company and
an affiliate of the Trivest Partnerships. In 1987 and 1988, Atlantis acquired
(i) Southern Wood Products, Inc. ("Southern Wood"), a manufacturer of
promotionally priced RTA furniture; (ii) Gregson Furniture Industries, Inc.
("Gregson"), a manufacturer of traditional and transitional styled seating for
the office and institutional markets; and (iii) Excel Office and Contract, Inc.
("Excel"), a manufacturer of contemporary and traditional styled seating for the
office furniture market. Loewenstein, Inc., Southern Wood, Gregson and Excel
represented the furniture group of Atlantis (the "Atlantis Furniture Group"). In
April 1991, former management and employees of the Atlantis Furniture Group and
certain affiliates of the Trivest Partnerships formed Loewenstein, which
concurrently therewith purchased the Atlantis Furniture Group. In September
1993, Loewenstein completed its initial public offering of Loewenstein common
stock and used the net proceeds to retire substantially all of its outstanding
indebtedness and for working capital. In November 1993, Loewenstein acquired
substantially all of the assets of Shaffield Industries, Inc., a Tennessee
corporation, and certain of its affiliates (collectively, "Shaffield"). The
assets acquired consisted of substantially all of the assets used by Shaffield
in its business as a vertically-integrated manufacturer of RTA furniture,
including futons, chairs, tables and related accessories marketed under the
trademark From the Source(R). In February 1994, Loewenstein acquired New West
Industries, a California corporation ("New West"). New West was a manufacturer
of RTA furniture, including futons, chairs and related accessories.
RECENT DEVELOPMENTS
Sale of Excel. During the fourth quarter of 1995, WinsLoew disposed of the
assets of its Excel business.
Sale of Lyon Shaw. During the third quarter of 1997, WinsLoew disposed of
certain assets of its Lyon Shaw wrought iron furniture manufacturing business in
the casual furniture product line.
Tropic Craft Acquisition. During the third quarter of 1998, WinsLoew
acquired the stock of Villella, Inc. d.b.a. Tropic Craft Aluminum Furniture
Manufacturers ("Tropic Craft"), a manufacturer of aluminum casual furniture sold
into contract markets.
Pompeii Acquisition. During the fourth quarter of 1998, WinsLoew entered
into a stock purchase agreement with the shareholders of Pompeii, a manufacturer
of aluminum casual furniture sold into the contract and residential markets. For
the year ended December 31, 1998, Pompeii reported net revenues of $14.5
million, net income of $2.7 million and EBITDA (as defined) of $3.0 million. For
the quarter ended March 31, 1999, Pompeii reported unaudited net revenues of
$3.4 million, unaudited net income of $664,000, and EBITDA (as defined) of
$697,000. Pompeii is organized as Subchapter S Corporation under the Internal
Revenue Code of 1986, as amended, and, consequently, in determining net income,
no deduction is made for income taxes; had Pompeii deducted income taxes, using
an effective rate of 38%, net income for the year ended December 31, 1998 would
have been $1.7 million and unaudited net income for the quarter ended March 31,
1999 would have been $412,000. The stock purchase agreement provides for a
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cash purchase price of $17.4 million. The closing of the Pompeii acquisition is
expected to occur by the end of the first week of August 1999.
RTA Operations. During 1997, WinsLoew adopted a plan to dispose of its RTA
operations and recorded a pretax non-cash charge totaling $12.4 million in the
fourth quarter of 1997 relating to the disposal of the RTA operations. During
1998, WinsLoew sold its equity interest in the Continental Engineering Group,
Inc. subsidiary, which WinsLoew had acquired in February 1995. In addition,
WinsLoew liquidated the assets related to its New West futon business. WinsLoew
subsequently decided to retain its third RTA entity (Southern Wood) due to
improved profitability and, accordingly, has reclassified its Southern Woods
results to continuing operations.
Reference is made to Note 2 of the Company's Consolidated Financial
Statements for additional information with respect to the Company's discontinued
operations, acquisitions and dispositions, including the completed Tropic Craft
acquisition.
COMPETITIVE STRENGTHS
WinsLoew believes that it has achieved its leading market position by
capitalizing on the following key competitive strengths.
Reputation for Producing High Quality Products. WinsLoew's reputation for
providing customers with high quality products is built upon its use of superior
structural designs, aesthetic styling, sophisticated manufacturing techniques
and strict quality control standards. WinsLoew's dedication to quality begins
with a customer-oriented design process that is based upon independent market
research and the involvement of senior management, independent designers, sales
representatives, dealers, its engineering department and suppliers. WinsLoew
also employs a number of sophisticated manufacturing processes that increase the
quality of its products and differentiate them from those of its competitors.
For example, WinsLoew uses an electrostatically applied ultraviolet cured wood
finishing system that produces one of the most consistent, durable and vibrant
finishes in the industry. Further, to ensure that only the highest quality
products are shipped to our customers, WinsLoew has established numerous check
points where the quality of all of the products is examined during the
manufacturing process. WinsLoew's focus on quality is evidenced by its low level
of actual warranty claims which, for the past five years, have approximated only
0.8% of net sales. WinsLoew's reputation for producing high quality products is
further evidenced by its receipt of the Casual Furniture Retailer Association's
prestigious "Manufacturer's Leadership Award" three times and being recognized
as a finalist every year since the award was first given in 1990. The criteria
for this award include quality, design, merchandising, customer service and
ethics.
Unique Delivery Capabilities. WinsLoew has tailored its operations to meet
the unique delivery requirements of its customers. On time delivery is critical
to its casual furniture retailers because of their short selling season, general
desire to minimize inventory levels and need to offer their customers products
that will be available at the time of or soon after their purchase. WinsLoew's
commitment to timely delivery to these retailers is exemplified by its "Quick
Ship" program under which WinsLoew, rather than the customer, pays the freight
charges if shipment is not made within 15 working days from credit approval of a
customer's order. Since WinsLoew introduced this program in 1988, it has never
had to pay freight charges. WinsLoew ability to deliver "in time, on time" is
also important to its contract market customers, who must receive WinsLoew's
casual furniture or seating products on a timely basis to meet their own
construction or
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operating deadlines. WinsLoew believes that its "Quick Ship" program and its
ability to deliver its products "in time, on time" are unique in the furniture
manufacturing industry and distinguish it from its competitors.
Continual Focus on Customer Service. WinsLoew is dedicated to providing
the highest level of customer service through its focus on complete customer
satisfaction. WinsLoew provides a variety of services which are geared towards
assisting its customers to improve the profitability of their business while
strengthening their loyalty to its products. For example, in its casual
furniture segment, WinsLoew provides retailers with improved terms and extended
payment plans for products ordered prior to the main selling season which
ensures them product availability and slightly lower costs. WinsLoew also
responds to customers' urgent orders with its "red flag" service which gives
such products priority in its plants throughout the manufacturing process.
Moreover, in the event a customer requests a replacement part that does not need
to be manufactured, WinsLoew guarantees delivery within 24 hours of its receipt
of the order. This level of customer service is equally important to its seating
customers. Since its seating customers require unique product features, WinsLoew
works closely with them to provide customized seating products that meet their
particular needs. WinsLoew offers these customized products quickly and cost
effectively through its flexible manufacturing processes and trained sales staff
knowledgeable in the design, manufacture, variety and decor applications of its
products. WinsLoew also has a customer service department at each manufacturing
plant to respond directly to customer inquiries.
Efficient Operations and Variable Cost Structure. WinsLoew continually
reviews its operations to identify ways to streamline its manufacturing process
and reduce its costs in order to further increase efficiencies and
profitability. Over the past few years, WinsLoew has (i) improved its
manufacturing capabilities through the use of technologically advanced systems,
(ii) optimized its use of vertical integration and outsourcing (as appropriate),
(iii) exited lower margin or non-core businesses, and (iv) extensively
reconfigured manufacturing processes within its principal manufacturing
facilities. WinsLoew operates its business with a highly variable cost structure
so it can react quickly to significant changes in market conditions. WinsLoew's
manufacturing and other operations can be rapidly adjusted, as appropriate, to
reduce labor, raw materials, general administrative and other costs. These
variable costs represent the majority of its total operating expenses.
Historically, its variable cost structure, combined with its flexible
manufacturing capabilities, has allowed WinsLoew to maintain its profit margins
during periods of market weakness.
Experienced Management Team with Significant Ownership. WinsLoew's
experienced and dedicated management team has been instrumental in its success
and represents one of its key competitive advantages. Each member of the senior
management team has worked with the Company for over 10 years and has extensive
experience in the furniture manufacturing industry. Bobby Tesney, the President
and Chief Executive Officer, leads the management team and has over 20 years of
industry experience. WinsLoew also benefits from the experience and expertise of
Trivest (a private investment firm specializing in acquisitions,
recapitalizations and other principal investing activities), which has been an
investor in WinsLoew and its predecessors since 1985. During that time, Trivest
has provided, and will continue to provide after the Merger, strategic
consulting, acquisition and other advice to us. Earl Powell, President and Chief
Executive Officer of Trivest, has served as Chairman of the Board of WinsLoew
and its predecessors for over 10 years. After the consummation of the Merger,
Trivest's investment partnerships
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and other affiliates and associated persons will beneficially own approximately
95.2% of WinsLoew's capital stock and members of senior management will
beneficially own approximately 4.8%.
GROWTH STRATEGY
WinsLoew's strategic objective is to further enhance its leading market
position in the residential and contract furniture markets. WinsLoew plans on
achieving this objective through the continued implementation of the following
strategies:
Increase Penetration of Existing Customers. WinsLoew is constantly working
on ways to increase its sales to its existing customer base. WinsLoew believes
that it can increase its penetration of existing customers by continuing to
emphasize high quality products, timely delivery and customer service together
with innovatively styled new product designs. For example, through these focused
efforts its specialty retail customers are dedicating increased retail floor
space to WinsLoew's casual furniture products, which generates increased sales
for its products. Similarly, WinsLoew began selling seating products to a single
Marriott lodging chain in the early 1990's, and today, due to its consistently
superior performance, WinsLoew is a preferred provider of seating products to
Marriott and several of its affiliated lodging chains.
Attract New Customers. WinsLoew has undertaken a number of programs to
expand its customer base in existing and new markets. Examples of these efforts
include the use of specific market focused sales personnel, private labeling and
the targeting of national specialty stores. In its seating business, WinsLoew is
in the process of establishing dedicated sales groups to focus on attractive
specialty end markets. WinsLoew established its first such group to focus
exclusively on selling seating products in the lodging industry. As a result of
this effort, WinsLoew is currently negotiating with another national lodging
chain to become a preferred supplier for various seating products for their
chains. Through its private labeling program, WinsLoew is seeking to take
advantage of the trend towards outsourcing by selling its seating products to
several nationally recognized designers of office furniture systems who in turn
sell its products under their own brand name. In the residential market,
WinsLoew is targeting national specialty stores that offer home design products,
including outdoor casual furniture. The penetration of these national specialty
retailers allows WinsLoew to take advantage of new, expanding distribution
channels and capitalize on the significant marketing clout of these retailers
without significantly increasing its selling and marketing expenses or
cannibalizing its existing customer base.
Selectively Introduce New Products. WinsLoew annually updates and expands
its product line with new designs and styles, as well as periodically introduce
complementary products. Each year WinsLoew undergoes a design process that
results in the introduction of newly designed products that make up a meaningful
portion of its product offering. WinsLoew's design process involves personnel
from all areas of the Company including senior management, manufacturing and
sales, as well as its distributors and sales representatives in an effort to
design new furniture styles which are attractive and innovative while cost
effective to manufacture and have a higher likelihood of success. WinsLoew also
periodically adds new products that complement its existing product offering.
For example, WinsLoew recently expanded its product line to include tables for
lobbies and other common areas in the hospitality industry.
Selectively Pursue Complementary Acquisitions. WinsLoew continually
reviews acquisition opportunities that augment or complement our existing
operations or provide
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entry into new geographic markets. WinsLoew also seeks to improve the efficiency
of its recent acquisitions by reducing overhead, leveraging sales and
distribution, achieving raw material purchasing savings and improving
manufacturing operations. Tropic Craft for example, which was acquired in 1998,
provided WinsLoew with an increased presence in the contract market for casual
furniture. Pompeii, which is under contract to be acquired, provides WinsLoew
with a leading brand in the upper end of the casual furniture market and a
significant opportunity to achieve operating efficiencies.
INDUSTRY DYNAMICS AND TRENDS
WinsLoew believes that it is well positioned to take advantage of the
following industry dynamics and trends impacting its core business segments.
CASUAL FURNITURE
Highly Fragmented. The casual furniture industry is highly fragmented and
includes a large number of manufacturers, none of which individually accounts
for a significant market share. The casual furniture industry is served by a
large number of relatively small private companies, most of which have sales
under $50.0 million. Management believes that the fragmented nature of the
industry provides larger and well capitalized companies, such as us, an
opportunity to grow internally through increasing market share and externally
through acquisitions.
Favorable Demographics. The majority of U.S. household outdoor furniture
purchases are estimated to be made by households headed by 25 to 54 year olds.
Management believes that the large baby boom population is driving increased
spending by this age group. In addition, Management believes than an increase in
vacation and second home purchases is also contributing to increased casual
furniture purchases. Such homes are frequently located in warm climates and
generate casual furniture purchases.
Foreign Competition. In recent years there has been an increased level of
imports in the U.S. outdoor and casual furniture market. However, these foreign
manufacturers generally compete in the lower end of the market (in which we do
not participate) as they have been unable to provide the service, quality and
timely delivery required by the middle to upper end of the market. As a result,
WinsLoew has not been, and does not expect to be, significantly impacted by
foreign competitors.
Dominated by Metal Products. The U.S. casual furniture market is dominated
by metal product lines, primarily aluminum. Metal products have increased in
popularity during the 1990s due to rising consumer preference for higher quality
casual furniture products, such as the aluminum products we manufacture. This
increase in popularity, combined with rising demand and the lower levels of
competition from low-cost imports, have resulted in rising demand for WinsLoew's
casual furniture.
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SEATING PRODUCTS
Highly Fragmented. The contract markets for seating products that WinsLoew
operates in are served by a number of divisions of large public and private
companies as well as a large number of relatively small, privately-held regional
companies. As in the casual furniture sector, Management believes that the
fragmented nature of the industry provides larger and well capitalized companies
such as WinsLoew an opportunity to grow internally through increasing market
share and externally through acquisitions.
Diverse End Markets. The market for seating products is characterized by a
wide variety of diverse end markets which include offices, hotels and motels,
restaurants, country clubs, apartments, schools, healthcare facilities, retail
stores, municipalities and sports arenas. WinsLoew sell its seating products
into each of these end markets. Therefore, WinsLoew believes that it is not
dependent on any particular end market.
Replacement, Refurbishment and New Construction. The demand for new
seating products is generated by ongoing replacement of existing furniture,
refurbishment of existing facilities and construction of new facilities. Based
on WinsLoew's experience and knowledge of the industry, Management believes that
the demand for seating products is primarily driven by refurbishment and ongoing
replacement rather than new construction due to the relatively large installed
base. For example, in the hotel sector, according to industry sources, there are
approximately 3.8 million hotel rooms in the United States, of which
approximately 90% are refurbished every seven years, versus approximately
100,000 new rooms constructed annually. WinsLoew targets each of these segments,
altering its focus based upon market conditions.
PRODUCTS AND MARKETS
WinsLoew designs, manufactures and distributes three principal product
lines: casual furniture designed for residential, commercial and institutional
use; seating products designed for commercial and institutional use; and
ready-to-assemble furniture designed for household use. For the twelve months
ended June 25, 1999, WinsLoew's casual, seating and ready-to-assemble furniture
products accounted for 44.8%, 46.3% and 8.9%, respectively, of WinsLoew's net
sales. The following is a summary of WinsLoew's principal products, customers
and markets:
<TABLE>
<CAPTION>
BRAND PRINCIPAL PRODUCTS PRINCIPAL CUSTOMERS AND MARKETS
- ----- ------------------ -------------------------------
<S> <C> <C>
Winston(R) Casual furniture, including Over 800 active customers,
chairs, chaise lounges, tables, consisting of specialty patio
umbrellas and related stores, full-line furniture
accessories, constructed of retailers and department stores in
extruded and tubular aluminum. the residential market.
Texacraft(R) and Casual furniture, including Lodging and restaurant chains,
Tropic Craft(R) chairs, chaise lounges, tables, country clubs, apartment
umbrellas and related developers and managers,
accessories, constructed of architectural design firms,
aluminum, wrought iron, wood and municipalities and other
fiberglass. commercial and institutional users
in the contract market.
</TABLE>
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<PAGE> 100
<TABLE>
<CAPTION>
BRAND PRINCIPAL PRODUCTS PRINCIPAL CUSTOMERS AND MARKETS
- ----- ------------------ -------------------------------
<S> <C> <C>
Loewenstein(R) Contemporary to traditional Lodging and restaurant chains,
seating products, such as wood, architectural design firms, sports
metal and upholstered chairs, facilities, schools, healthcare
sofas and loveseats. facilities, office furniture
dealers, retail store planners and
other commercial and institutional
users in the contract market.
Gregson(R) Traditional seating products, Office furniture dealers and
such as wood, metal and lodging chains in the contract
upholstered chairs, sofas and market.
loveseats.
Southern Wood Ready-to-assemble furniture Mass merchandisers and catalog
Products(R) products, such as book shelves, wholesalers.
entertainment centers, coffee
tables, end tables and wall
units, as well as case goods,
such as chests of drawers,
changing towers and hutches, all
of which are constructed of wood.
</TABLE>
WinsLoew markets its casual furniture products, consisting principally of
medium to upper-end outdoor furniture, under the Winston(R), Texacraft(R) and
Tropic Craft(R) brand names. WinsLoew currently manufactures and sells over 20
separate style collections of casual furniture products that include
traditional, European, and contemporary design patterns. Within each style
collection there are multiple products including chairs, tables, chaise lounges
and accessory pieces such as ottomans, cocktail tables, end tables, tea carts
and umbrellas constructed of extruded, tubular and cast aluminum, steel, wrought
iron, wood and fiberglass. WinsLoew offers chairs with glider action, adjustable
positions and rocking and swivel motions, as well as a selection of restaurant
and outdoor seating. WinsLoew's casual seating products feature cushions and
vinyl strapping in a variety of colors and patterns. All of its casual furniture
products feature a durable painted finish, which is also offered in a wide
selection of colors. The suggested retail prices for a residential table and
four chairs currently range from approximately $700 to $1,800. WinsLoew's casual
furniture is generally used by residential customers on patios, decks and
poolsides, while its contract customers generally use its products in
restaurants and lodging, as well as for outdoor purposes.
Pompeii manufactures indoor and outdoor casual furniture products
constructed of extruded and tubular aluminum, such as chairs, chaise lounges,
tables umbrellas and related accessories. Pompeii sells these products under the
Pompeii(R) brand name to the residential market and to architectural design
firms, restaurant and lodging chains and other commercial users in the contract
markets. WinsLoew expects to close the pending Pompeii acquisition prior to the
Merger or later in the third quarter of fiscal 1999. See "SUMMARY -- Recent
Developments."
WinsLoew's seating products are marketed under the Loewenstein(R) and
Gregson(R) brand names and include over 300 distinct models, ranging from
contemporary to traditional styles, of wood, metal and upholstered chairs,
reception area love seats, sofas and stools. WinsLoew assembles wood frames and
finish them with one of its numerous standard colors or, if requested, to the
customer's specification. WinsLoew's metal chairs are available in chrome or in
a selection of standard powder coat finishes. For upholstered
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products, the customer may select from a number of catalog fabrics, vinyls and
leathers or may specify or supply its choice of materials. WinsLoew maintains an
inventory of unassembled chair components that enables it to respond quickly to
large quantity orders in a variety of finish and fabric combinations. WinsLoew's
seating products have a number of commercial and institutional uses, including
seating for in-room lodging, stadium luxury sky boxes, restaurants, lounges and
classrooms. WinsLoew has excellent and in many instances long-term relationships
with its diverse customer base, which includes, for example, Marriott
International. Moreover, WinsLoew recently entered into a three year contract
with Marriott, effective January 1, 1999, under which it is a preferred supplier
of upholstered seating products for certain of Marriott's affiliates, including
Marriott's Lodging, Senior Living Services or Marketplace businesses, as well as
Host Marriott Services Corporation. See "Risk Factors -- Significant Customer."
In addition, WinsLoew is also currently negotiating with another national
lodging chain to become a preferred supplier for various seating products.
WinsLoew also provides seating for various retailers, as well as commercial and
institutional construction projects, such as professional sports stadiums and
arenas. For example, WinsLoew recently was selected to provide all luxury sky
box seating for a major new professional sports arena in Los Angeles.
WinsLoew sells its ready-to-assemble products under the Southern Wood
Products(R) brand name to mass merchandisers and catalog wholesalers. WinsLoew's
ready-to-assemble products include promotionally priced traditional
ready-to-assemble "flatline" and "spindle" furniture and a new line of fully
assembled case goods furniture products designed for household use. "Flatline"
products include ready-to-assemble items that are constructed of flat pieces of
wood, such as book shelves, entertainment centers and tape storage units.
WinsLoew's "spindle" products include ready-to-assemble items that are
constructed of flat pieces of wood connected by decorative joints and brackets,
such as coffee tables, end tables, wall units and rolling carts. Case goods
products include fully assembled four drawer chests and three drawer chest and
changing towers, with an optional hutch.
PRODUCT DESIGN AND DEVELOPMENT
WinsLoew annually updates and expands its product line with new designs and
styles, as well as periodically introducing complementary products. Each year
WinsLoew undergoes a design process that results in the introduction of newly
designed products that make up a meaningful portion of its product offering.
WinsLoew uses a customer oriented design process that is based upon independent
market research and the involvement of senior management, independent designers,
sales representatives, dealers, its engineering department and suppliers.
WinsLoew identifies trends in shapes, colors, patterns and other design elements
and provides preliminary sketches to its manufacturing personnel and, in the
case of its seating lines, its Italian suppliers, who in turn engineer the
product's construction and produce one or more prototypes in preparation for
actual full-scale production. WinsLoew generally introduces new products at
national or regional furniture markets. Shipments of its new designs generally
begin in September of each year. WinsLoew's custom design capabilities also
allow it to modify styles, materials and production in order to provide
customers with products that meet their particular needs.
The design process for WinsLoew's seating products takes advantage of its
long-standing and frequently exclusive relationships with a variety of leading
Italian design firms and manufacturers. These Italian suppliers, which provide
WinsLoew with component parts for its seating products and are involved in the
design process, have extensive experience in
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the design, engineering, and production of contemporary and transitional-styled
chairs. They also utilize manufacturing techniques such as steam bending of
solid wood components and intricate joinery, which are generally unavailable in
the U.S. As a result, these suppliers assist WinsLoew in distinguishing its
seating products from its competitors by enabling it to consistently and cost
effectively provide new and updated products that incorporate unique designs and
utilize unique manufacturing capabilities.
MARKETING AND SALES
WinsLoew sells its products through both independent manufacturers
representatives and internal sales staff. WinsLoew sells its residential casual
furniture through 25 independent sales representatives and it sells its seating
products through approximately 40 independent sales representative organizations
that employ approximately 120 sales associates. WinsLoew has strong
relationships with its independent sales personnel. At Winston and Loewenstein,
for example, WinsLoew's independent sales representatives have been selling its
products for an average of approximately nine years. WinsLoew primarily uses an
internal sales staff to sell its casual furniture products into the contract
market, while its ready-to-assemble products are sold exclusively by independent
sales representatives. Senior management is also involved in the sales process
for all furniture products.
Each independent representative:
- promotes, solicits and sells our products in an assigned territory;
- assists in the collection of receivables; and
- receives commissions based on the net sales made in his or her territory.
WinsLoew determines the prices at which its products will be sold and may
refuse to accept any orders submitted by a sales representative for
credit-worthiness or other reasons. WinsLoew's independent representatives do
not carry directly competing product lines.
WinsLoew has developed a comprehensive marketing program to assist its
representatives in selling its products. Key elements of this program include:
- holding exhibitions at national and regional furniture markets and
leasing year-round showrooms at the Merchandise Mart in Chicago,
Illinois;
- providing retailers with annual four-color catalogs of our products,
sample materials illustrating available colors and fabrics, point of sale
materials and special sales brochures;
- providing information directly to representatives at annual sales
meetings attended by senior management and manufacturing personnel;
- maintaining a customer service department at each of its manufacturing
facilities which ensures that WinsLoew promptly respond to the needs and
orders of its customers;
- maintaining regular contact with key retailers; and
- conducting ongoing surveys to determine dealer satisfaction.
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MANUFACTURING
WinsLoew produces its products at eight manufacturing facilities located
throughout the United States. See "-- Properties." WinsLoew has tailored its
manufacturing processes to each business to maximize efficiencies, create high
quality products and maintain operating flexibility. WinsLoew's casual furniture
facilities are vertically integrated -- WinsLoew manufactures its casual
furniture products from basic raw materials such as aluminum rod and fabric. In
contrast, WinsLoew's seating facilities take advantage of outsourcing
opportunities -- WinsLoew assembles its seating products from wood components
received from its Italian and other suppliers. In both cases, WinsLoew maintains
flexible manufacturing processes that enable it to:
- minimize finished goods inventory and warehousing costs;
- efficiently expand its product lines to meet the demands of a diverse
customer base; and
- effectively control the cost, quality and production time of its
products.
Management believes that WinsLoew's facilities are among the most modern in the
furniture industry and that the efficiencies attributable to these plants are a
significant factor in its relatively low manufacturing costs. These low
manufacturing costs, combined with WinsLoew's philosophy of strict cost controls
in all areas of our operations, have enabled it to continually increase gross
margins and income from operations without the necessity of significant price
increases.
CASUAL FURNITURE
In the manufacturing process for its casual furniture products, WinsLoew
cuts extruded aluminum tubes to size and shapes or bends them in specially
designed machinery. The aluminum is then welded to form a solid frame, and the
frame is subjected to a grinding and buffing process to eliminate any rough
spots that may have been caused during welding. After this process is completed,
the frame is cleaned, painted in a state-of-the-art powder coating system and
heat cured. WinsLoew then adds vinyl strapping, cushions, fabric slings, or
other accessories to the finished frame, as appropriate. WinsLoew then packages
the product with umbrellas, tempered glass and other accessories, as applicable,
and ships it to the customer.
WinsLoew believes that it manufactures the highest quality aluminum casual
furniture in its price range. Unlike manufacturers of lower-end products that
rivet or bolt major frame components, WinsLoew welds the major frame components
of its aluminum furniture, thereby increasing the durability and enhancing the
appearance of the aluminum product line. WinsLoew's state-of-the-art powder
coated painting process results in an attractive and durable finish. To ensure
that only the highest quality products are shipped to customers, its quality
control department has established numerous check points where the quality of
all of its aluminum products is examined during the manufacturing process. These
processes allow WinsLoew to offer a two-year frame and finish guarantee on all
of its aluminum products for residential use.
SEATING
WinsLoew assembles most of its seating products to order, but do not
generally have the same level of vertical integration as is present in the
manufacture of its casual product
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lines. Instead, WinsLoew purchases component parts from a variety of suppliers,
including a number of Italian suppliers. WinsLoew utilizes these component parts
because they enable it to offer sturdy and aesthetically appealing products,
which incorporate unique designs and sophisticated manufacturing techniques that
are generally unavailable or are not cost effective in the United States. See
"-- Product Design and Development" above. The principal elements of wood chair
assembly include:
- frame glue-up;
- sanding;
- seat assembly (in which upholstered seats are constructed from component
bottoms, foam padding and cloth coverings); and
- painting/lacquering.
To provide consistency and speed in this finishing process, WinsLoew
utilizes a state-of-the-art conveyorized paint line with electrostatic spray
guns and a three-dimensional ultraviolet drying system. In particular,
Loewenstein's finishing system applies specially formulated materials via
robotic reciprocators and utilizes three advanced technologies:
- electrostatic finish application, which is designed to ensure that a
significantly higher percentage of the actual finishing material will
adhere to the product, thereby reducing raw material costs;
- ultraviolet finishing materials, which allow a much higher solids
content, thereby reducing environmental concerns and enhancing finish
quality; and
- high-powered ultraviolet light, which can cure chairs in less than 60
seconds, thereby speeding inventory turn-over and reducing warehouse
requirements.
For upholstered products, the specified fabric cloth is stretched to the
chair frame over foam padding. WinsLoew generally assembles its metal chairs
from imported components. After rework and leveling, WinsLoew cartons its chairs
to prevent damage in transportation. The manufacturing process also includes a
number of product inspections and other quality control procedures.
READY-TO-ASSEMBLE FURNITURE
For the manufacture of our ready-to-assemble products, which include
"spindle," "flatline" and case goods products, WinsLoew uses high density
particle board, which it laminates with a variety of wood grains and solid
colors. For WinsLoew's "spindle" products, it turns, stains and lacquers all of
the spindles and then individually boxes the products with spindles and board,
along with any necessary hardware and assembly instructions. For WinsLoew's
"flatline" products it individually boxes the cut laminated particle board,
along with necessary hardware and assembly instructions. For its case goods
products, the edges of the cut laminated particle board may be "soft formed" for
aesthetic value. WinsLoew then assembles the unit using glue, screws and
hardware, such as self-closing drawer runners, on all units.
RAW MATERIALS
WinsLoew's principal raw materials consist of extruded aluminum tubes,
woven vinyl fabrics, paint/finishing materials, vinyl strapping, cushion filler
materials, cartons, glass
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table tops, component parts for seating, particle board and other lumber
products and hardware. Although WinsLoew has no long-term supply contracts, it
generally maintains a number of sources for its raw materials and have not
experienced any significant problems in obtaining adequate supplies for its
operations. In addition, increases in the cost of our raw materials, such as
fluctuations in the costs of aluminum, lumber and other raw materials have not
historically had a material adverse effect on its results of operations because
WinsLoew is generally able to pass through such increases in raw material costs
to its customers over time through price increases. WinsLoew believes that its
policy of maintaining several sources for most supplies and its large volume
purchases contribute to its ability to obtain competitive pricing. Nevertheless,
the market for aluminum is, from time to time, highly competitive, and its
price, as a commodity, is subject to market conditions beyond WinsLoew's
control. Accordingly, future price increases could have a material adverse
effect on WinsLoew's business, financial condition, results of operations or
prospects.
A significant portion of the Loewenstein raw materials consist of component
chair parts purchased from several Italian manufacturers. WinsLoew views its
suppliers as "partners" and works with such suppliers on an ongoing basis to
design and develop new products. WinsLoew believes that these cooperative
efforts, its long-standing relationships with these suppliers and its experience
in conducting on-site, quality control inspections provide it with a competitive
advantage over many other furniture manufacturers, including a competitive
purchasing advantage in times of product shortages. In addition, in the case of
its Italian suppliers, WinsLoew generally contracts for its purchases of such
component parts in such manner as to minimize its exposure to foreign currency
fluctuations. Although WinsLoew has close working relationships with its foreign
suppliers, its future success may depend, in part, on maintaining such or
similar relationships. Given the special nature of the manufacturing
capabilities of these suppliers, in particular certain wood-bending
capabilities, and sources of specialized wood types, the Loewenstein division
could experience a disruption in operations in the event of any required
replacement of such suppliers. Situations beyond WinsLoew's control, including
political instability, significant and prolonged foreign currency fluctuations,
economic disruptions, the imposition of tariffs and import and export controls,
changes in government policies and other factors could have a material adverse
effect on its business, financial condition, results of operations or prospects.
BACKLOG
As of June 25, 1999, WinsLoew's backlog of orders was approximately $23.1
million, compared to $22.8 million at June 26, 1998. In accordance with industry
practice, WinsLoew generally permits orders to be canceled prior to shipment
without penalty. WinsLoew does not consider backlog to be predictive of future
sales activity because of its short manufacturing cycle and delivery time, and,
especially in the case of casual furniture, the seasonality of sales.
COMPETITION
The furniture industry is highly competitive and includes a large number of
manufacturers, none of which dominate the market. Certain of the companies which
compete directly with WinsLoew may have greater financial and other resources
than WinsLoew does. Based on management's extensive industry experience,
management believes that competition in casual furniture and seating is
generally a function of product
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design, construction quality, prompt delivery, product availability, customer
service and price. Similarly, management believes that competition in WinsLoew's
promotional price niche of the ready-to-assemble furniture industry is limited,
and is based primarily on price, product availability, prompt delivery and
customer service.
WinsLoew believes that it successfully competes in the furniture industry
primarily on the basis of our innovatively styled product offerings, its unique
delivery capabilities, the quality of our products, and its emphasis on
providing high levels of customer service. WinsLoew believes that its
residential casual product line has a leading share of the casual furniture
market in the geographic region east of the Mississippi River.
While sales of imported, foreign-produced casual furniture have increased
significantly in recent years, WinsLoew's sales have not been adversely affected
because its products generally do not compete with such foreign products, which
are typically: (i) limited in design, styles and colors, (ii) of lesser quality
than WinsLoew's products, (iii) marketed in the lower-end price range and (iv)
not supported with competitive customer service and responsiveness to customers'
needs for quick delivery.
In the seating segment, WinsLoew competes with many manufacturers, ranging
from large, national, publicly traded entities to small, one-product firms
selling to small, geographic markets.
TRADEMARKS AND PATENTS
The Company has registered the Winston(R), Loewenstein(R), Gregson(R) and
Southern Wood Products(R) trademarks with the United States Patent and Trademark
Office. Management believes that the Company's trademark position is adequately
protected in all markets in which the Company does business. Management also
believes that the Company's various trade names are generally well recognized by
dealers and distributors, and are associated with a high level of quality and
value.
The Company holds several design and utility patents, and has applications
pending for issuance of other design and utility patents. Since management
believes that the Company is an innovator of styles and designs, it is the
Company's policy to apply for design and utility patents for those designs that
management believes may be of significance to its business.
ENVIRONMENTAL MATTERS
Management believes that the Company complies in all material respects with
all applicable federal, state and local provisions relating to the protection of
the environment. The principal environmental regulations that apply to the
Company govern air emissions, water quality and the storage and disposition of
solvents. Compliance with environmental protection laws and regulations has not
had a material adverse impact on the Company's financial condition or results of
operations in the past and management does not expect compliance to have a
material adverse impact in the future.
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PROPERTIES
The following table provides information with respect to each of the
Company's facilities:
<TABLE>
<CAPTION>
APPR. BUILDING OWNED
LOCATION PRIMARY USE AREA (FEET) OR LEASED
- -------- ----------- -------------- ---------
<S> <C> <C> <C>
Birmingham, AL........... Corporate headquarters 9,800 Owned
Haleyville, AL........... Casual furniture
manufacturing and offices 155,000 Owned
Haleyville, AL........... Casual furniture
warehouse 20,000 Owned
Haleyville, AL........... Casual furniture sewing
plant 30,000 Owned
Chicago, IL.............. Casual furniture
merchandise mart showroom 12,000 Leased(1)
Houston, TX.............. Casual furniture
manufacturing and offices 89,500 Leased(2)
Ocala, FL................ Casual furniture
manufacturing and offices 49,000 Owned
Pompano Beach, FL........ Seating manufacturing and
offices 100,000 Owned
Pompano Beach, FL........ Seating warehouse 6,500 Leased(3)
Liberty, NC.............. Seating manufacturing and
offices 126,000 Owned
Chicago, IL.............. Seating merchandise mart
showroom 5,500 Leased(4)
Sparta, TN............... Seating manufacturing and
offices 94,300 Owned
Sparta, TN............... Seating manufacturing and
offices 63,260 Owned
</TABLE>
- -------------------------
(1) Lease expires August 31, 2002.
(2) Lease expires April 15, 2005.
(3) Lease is month-to-month.
(4) Lease expires June 30, 2001.
Management believes that the Company's manufacturing facilities in the
casual furniture and seating product lines are currently operating, in the
aggregate, at approximately 75% of capacity, assuming a one-shift basis.
Management considers the Company's present manufacturing capacity to be
sufficient for the foreseeable future and believes that, by adding multiple
shift operations, the Company can significantly increase the total capacity of
its facilities to meet growing product demand with minimal additional capital
expenditures. In addition, the Company engages in an ongoing maintenance and
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upgrading program, and management considers the Company's machinery and
equipment to be in good condition and adequate for the purposes for which they
are currently used.
EMPLOYEES
At June 25, 1999, the Company had approximately 1,121 full-time employees,
of whom 30 were employed in management, 134 in sales, general, and
administrative positions, and 957 in manufacturing, shipping, and warehouse
positions. Full-time employees at June 25, 1999 included approximately 948
hourly and 173 salaried employees.
The only employees subject to collective bargaining agreements are
approximately 118 of the Company's hourly employees in Haleyville, Alabama, who
are represented by the Retail, Wholesale, and Department Store Union. The labor
agreement between WinsLoew and the union, which expires on July 31, 2001,
provides that there shall be no strikes, slowdowns or lockouts. Management
considers the Company's employee relations to be good.
LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of business. The Company maintains
insurance coverage against potential claims in an amount which management
believes to be adequate. Based primarily on discussions with counsel and
management familiar with the underlying disputes, management believes that the
Company is not presently a party to any litigation, the outcome of which would
have a material adverse effect on the Company's business or operations.
The Company and the members of the Board have been named as defendants in a
lawsuit filed on March 25, 1999 in the Circuit Court of Jefferson County,
Alabama, styled Craig Smith v. WinsLoew Furniture, Inc., et al. The lawsuit
purports to be brought as a class action on behalf of all of the Company's
shareholders except the defendants and was filed in connection with the
Transaction. As of the date of this Proxy Statement, the complaint filed in the
lawsuit has not been amended to reflect the increase in the per share merger
consideration from $30.00 to $34.75 pursuant to the Second Amended Merger
Agreement subsequent to the filing of the complaint.
The principal substantive allegations set forth in the complaint are that
(i) the individual defendants breached fiduciary duties of care and loyalty owed
by them as directors to the shareholder plaintiffs, (ii) Mr. Powell and other
members of the "management group" breached fiduciary duties owed by them as
allegedly controlling shareholders to the Company's other shareholders by, among
other things, attempting to acquire 100% equity ownership of the Company for an
allegedly "grossly inadequate price" at the alleged expense of the Company's
other shareholders, (iii) the Company's announcement of the initial $30.00 per
share bid by Trivest Furniture Corporation failed to disclose improving growth
prospects, (iv) by virtue of the equity holdings of the "management group" and
their alleged "overwhelming control" of the Board, third parties were
practically precluded from making competing bids, and (v) the initial per share
merger consideration of $30.00 per share is unconscionable, unfair and grossly
inadequate
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and the terms of the merger constituted an unfair and illegal business practice
upon the Company's minority shareholders. No other per share amount is specified
in the complaint.
The relief sought by the plaintiff is that (i) the court declare the
lawsuit to be a class action and certify the plaintiff as class representative
and his counsel as class counsel, (ii) the merger be enjoined or, if not
enjoined, that the plaintiffs be granted rescission and rescissionary damages,
(iii) the plaintiff and the alleged class be awarded damages, (iv) the plaintiff
be awarded costs and disbursements of bringing the lawsuit, together with fees
and expenses of the plaintiff's counsel and experts, and (v) the plaintiff and
the alleged class be granted such other relief as the court shall deem just and
proper. The complaint does not specify the amount of any damages sought.
The Company forwarded a claim with respect to this matter to its directors'
and officers' insurance carrier and, with the approval of such carrier, has
retained legal counsel to represent the Company and the members of the Board.
The Company believes that the claims set forth in the lawsuit are without merit
and intends to vigorously defend this lawsuit.
On June 14, 1999, WinsLoew and the members of the Board filed a motion to
dismiss the lawsuit or, in the alternative, to grant summary judgment in the
defendants' favor. A hearing has been set for August 6, 1999.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1997
and 1998 and for each of the three years in the period ended December 31, 1998
are derived from the Consolidated Financial Statements of WinsLoew. The
following data has been restated to reflect Southern Wood as a continuing
operation (see Note 2 to Consolidated Financial Statements). The selected
consolidated financial data as of December 31, 1994, 1995 and 1996 and for each
of the two years in the period ended December 31, 1995 and for the six-month
periods ended June 26, 1998 and June 25, 1999 are derived from the unaudited
consolidated financial statements of the Company and include in the opinion of
management, all adjustments necessary to present fairly the data for such
periods. Due to the seasonality of the Company's operation and other factors,
the results of operations for the six months ended June 25, 1999 may not be
indicative of the results that may be expected for the full year. The following
selected consolidated financial data should be read in conjunction with
WinsLoew's Consolidated Financial Statements and related Notes, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other financial information included herein.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, ---------------------
---------------------------------------------------- JUNE 26, JUNE 25,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(1)
Net sales.................................. $ 95,561 $110,887 $117,405 $122,145 $141,360 $70,468 $80,589
Cost of sales.............................. 65,060 78,710 78,029 79,431 87,232 44,098 48,014
-------- -------- -------- -------- -------- ------- -------
Gross profit............................. 30,501 32,177 39,376 42,714 54,128 26,370 32,575
Selling, general and administrative
expenses................................. 16,303 19,303 21,472 21,427 23,124 10,730 13,270
Amortization............................... 2,000 2,087 1,444 992 1,122 487 634
Non-recurring charges...................... 917 -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Operating income......................... 11,281 10,787 16,460 20,295 29,882 15,153 18,671
Interest expense........................... 2,795 3,841 3,083 2,296 635 687 77
-------- -------- -------- -------- -------- ------- -------
Income from continuing operations before
income taxes and extraordinary item...... 8,486 6,946 13,377 17,999 29,247 14,466 18,594
Provision for income taxes................. 3,068 3,489 4,834 6,838 10,947 5,394 7,060
-------- -------- -------- -------- -------- ------- -------
Income from continuing operations before
extraordinary item....................... 5,418 3,457 8,543 11,161 18,300 9,072 11,534
Income (loss) from discontinued operations,
net of taxes............................. 934 (9,199) (259) (718) -- -- --
Gain (loss) from sale of discontinued
operations, net of taxes................. -- -- -- (8,200) 2,031 -- --
Extraordinary item......................... -- 1,698 -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Net income (loss).......................... $ 6,352 ( $4,044) $ 8,284 $ 2,243 $ 20,331 $ 9,072 $11,534
======== ======== ======== ======== ======== ======= =======
Basic earnings (loss) per share:
Income from continuing operations before
extraordinary item....................... $ 0.56 $ 0.38 $ 0.98 $ 1.49 $ 2.46 $ 1.21 $ 1.60
Income (loss) from discontinued operations,
net of taxes............................. 0.10 (1.02) (0.03) (0.09) -- -- --
Gain (loss) from sale of discontinued
operations, net of taxes................. -- -- -- (1.10) 0.27 -- --
Extraordinary item......................... -- 0.19 -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Net income (loss).......................... $ 0.66 ($ 0.45) $ 0.95 $ 0.30 $ 2.73 $ 1.21 $ 1.60
======== ======== ======== ======== ======== ======= =======
Weighted average shares.................... 9,655 9,029 8,724 7,484 7,450 7,513 7,220
======== ======== ======== ======== ======== ======= =======
</TABLE>
100
<PAGE> 111
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, ---------------------
---------------------------------------------------- JUNE 26, JUNE 25,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Diluted earnings (loss) per share:
Income from continuing operations before
extraordinary item....................... $ 0.56 $ 0.38 $ 0.98 $ 1.48 $ 2.40 $ 1.17 $ 1.55
Income (loss) from discontinued operations,
net of taxes............................. 0.10 (1.02) (0.03) (0.10) -- -- --
Gain (loss) from sale of discontinued
operations, net of taxes................. -- -- -- (1.08) 0.27 -- --
Extraordinary item......................... 0.19 -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Net income (loss).......................... $ 0.66 ($ 0.45) $ 0.95 $ 0.30 $ 2.67 $ 1.17 $ 1.55
======== ======== ======== ======== ======== ======= =======
Weighted average shares and common share
equivalents outstanding.................. 9,655 9,029 8,730 7,563 7,624 7,722 7,444
======== ======== ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
DECEMBER 31, ---------------------
---------------------------------------------------- JUNE 26, JUNE 25,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Working capital............................ $ 37,711 $ 58,785 $ 40,102 $ 29,937 $ 25,840 $23,726 $33,447
Total assets............................... 111,054 104,004 99,950 80,414 84,553 81,514 96,467
Long-term debt (less current portion)...... 39,094 40,130 38,726 15,908 1,400 2,455 0
Total debt................................. 40,893 41,941 40,681 16,423 1,447 2,970 24
Stockholders' equity....................... 60,680 53,228 48,400 51,026 66,226 58,618 74,574
</TABLE>
- -------------------------
(1) The ratio of earnings to fixed charges for the fiscal years ended December
31, 1997 and 1998 and the six months ended June 26, 1998 and June 25, 1999
was 9-to-1, 4.7-to-1, 14-to-1 and 151-to-1, respectively. The book value per
share as of December 31, 1998 and June 25, 1999 was $9.08 and $10.38 per
share, respectively.
101
<PAGE> 112
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERAL
WinsLoew designs, manufactures and distributes casual furniture and seating
furniture. WinsLoew's casual furniture products are distributed through
independent manufacturer's representatives and are constructed of extruded and
tubular aluminum and cast aluminum. These products are distributed through fine
patio stores, department stores and full line furniture stores nationwide.
WinsLoew's seating products are distributed to a broad customer base, which
includes architectural design firms and restaurant and lodging chains.
During 1997 the Company adopted a plan to dispose of its RTA operations.
WinsLoew's RTA products included ergonomically-designed computer workstations,
which the Company denoted as "space savers", promotionally-priced coffee and end
tables, wall units and rolling carts and an extensive line of futons, futon
frames and related accessories. Distribution of RTA furniture products was
primarily through mass merchandisers, catalogue wholesalers and specialty
retailers. As a result of this decision, the Company recorded a pre-tax non-cash
charge totaling $12.4 million in the fourth quarter of 1997 relating to the
disposal of the RTA operations. The charge can be summarized as follows:
<TABLE>
<S> <C>
Write-off of goodwill in connection with sale of
assets................................................ $ 3,902,000
Reduction of inventory value............................ 2,791,000
Reduction of property to net realizable value........... 2,067,000
Reduction of accounts receivable value.................. 1,390,000
Other liabilities / reserves............................ 1,050,000
Accrual for losses through disposition.................. 1,200,000
-----------
Total................................................... $12,400,000
===========
</TABLE>
The Company planned to sell two of the businesses and liquidate the assets
related to the futon business. During 1998 the Company sold one of the
businesses, completed the liquidation of the futon business and decided to
retain its Southern Wood business due to improved profitability (see Note 2 to
the Consolidated Financial Statements). Accordingly, the amounts reflected
hereafter include Southern Wood as a continuing operation.
RESULTS OF OPERATIONS
The following table sets forth net sales, gross profit and gross margin as
a percent of net sales for the fiscal periods indicated for each of the
Company's product lines (in thousands, except for percentages):
<TABLE>
<CAPTION>
1996 1997 1998
--------------------------- --------------------------- ---------------------------
NET GROSS GROSS NET GROSS GROSS NET GROSS GROSS
SALES PROFIT MARGIN SALES PROFIT MARGIN SALES PROFIT MARGIN
-------- ------- ------ -------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Casual furniture..... $ 58,066 $23,812 41.0% $ 56,363 $24,164 42.9% $ 59,733 $28,227 47.3%
Seating.............. 48,629 14,126 29.0% 58,386 17,256 29.6% 69,938 23,439 33.5%
RTA.................. 10,710 1,438 13.4% 7,396 1,294 17.5% 11,689 2,462 21.1%
-------- ------- -------- ------- -------- -------
Total................ $117,405 $39,376 33.5% $122,145 $42,714 35.0% $141,360 $54,128 38.3%
======== ======= ======== ======= ======== =======
</TABLE>
102
<PAGE> 113
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------------------------------
JUNE 26, 1998 JUNE 25, 1999
-------------------------- --------------------------
NET GROSS GROSS NET GROSS GROSS
SALES PROFIT MARGIN SALES PROFIT MARGIN
------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Casual furniture............. $31,525 $14,716 46.7% $39,639 $19,028 48.0%
Seating...................... 33,402 10,517 31.5% 33,572 11,809 35.2%
RTA.......................... 5,541 1,137 20.5% 7,378 1,738 23.6%
------- ------- ------- -------
Total........................ $70,468 $26,370 37.4% $80,589 $32,575 40.4%
======= ======= ======= =======
</TABLE>
The following table sets forth certain information relating to the
Company's operations expressed as a percentage of the Company's net sales:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
-------------------- --------------------
JUNE 26, JUNE 25,
1996 1997 1998 1998 1999
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Gross profit......................... 33.5% 35.0% 38.3% 37.4% 40.4%
Selling, general and administrative
expense............................ 18.3% 17.5% 16.4% 15.2% 16.5%
Amortization......................... 1.2% 0.8% 0.8% .7% .7%
Operating income..................... 14.0% 16.6% 21.1% 21.5% 23.2%
Interest expense..................... 2.6% 1.9% 0.4% 1.0% .1%
Provision for income taxes........... 4.1% 5.6% 7.7% 7.7% 8.8%
Income from continuing operations
before extraordinary item.......... 7.3% 9.1% 12.9% 12.9% 14.3%
Loss from discontinued operations,
net of taxes....................... (0.2%) (0.6%) -- -- --
Gain (loss) from sale of discontinued
operations, net of taxes........... -- (6.7%) 1.4% -- --
Net income........................... 7.1% 1.8% 14.4% 12.9% 14.3%
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 25, 1999 AND SIX MONTHS ENDED
JUNE 26, 1998
Net Sales. WinsLoew's consolidated net sales for the first six months of
1999, increased $10.1 million, or 14.3%, to $80.6 million, compared to $70.5
million in the first six months of 1998. WinsLoew's casual and ready-to-assemble
product lines experienced strong sales increases. Sales of casual products
increased 25.7% in the first six months of 1999, compared to the first six
months of 1998. Excluding Tropic Craft, which was purchased in the third quarter
of 1998, sales of casual products increased 13.7%. Management believes that this
increase in demand is primarily due to WinsLoew's emphasis on quality, leading
the industry through innovative designs and providing customer flexibility with
its delivery program during the short casual retail season. RTA product sales
increased 33.2% in the first half of 1999, compared to the first half of 1998,
primarily due to increased demand on all RTA furniture. Seating sales
experienced only a slight 0.5% increase during the first half of 1999 compared
to the first half of 1998, primarily due to less favorable market conditions
during the period.
103
<PAGE> 114
Gross Profit. Consolidated gross profit increased $6.2 million in the
first six months of 1999 to $32.6 million, or 40.4%, compared to $26.4 million,
or 37.4%, in the first six months of 1998. All three of WinsLoew's product lines
contributed to the increase in gross profit. The casual product line gross
profit improved to 48.0% in the first half of 1999 compared to 46.7% in the
first half of 1998, due to increased demand and improved operating efficiencies.
The gross profit for seating products improved to 35.2% in the first six months
of 1999 compared to 31.5% in the first six months of 1998 due to a favorable
product mix and improved profit margins on WinsLoew's core seating products. The
RTA product line gross profit improved to 23.6% in the first six months of 1999,
compared to 20.5% in the first six months of 1998, due to increased demand and
improved operating efficiencies.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.5 million in the first six months of 1999
to $13.3 million, compared to selling, general and administrative expenses of
$10.7 million in the first six months of 1998. The increase was primarily the
result of higher sales related expenditures and provisions for self-insured
medical insurance reserves.
Amortization. Amortization expense increased $0.1 million in the first six
months of 1999, compared to the first six months of 1998, due to amortization of
goodwill related to the Tropic Craft acquisition.
Operating Income. As a result of the above, operating income increased by
$3.5 million, to $18.7 million (23.2% of net sales) in the first six months of
1999, compared to $15.2 million (21.5% of net sales) in the first six months of
1998.
Interest Expense. WinsLoew's interest expense decreased $0.6 million in
the first six months of 1999, compared to the first six months of 1998, due to
lower outstanding debt balances.
Provision for Income Taxes. WinsLoew's effective tax rate for the first
six months of 1999 was 38.0% compared to 37.3% for the first six months of 1998.
The effective tax rate is greater than the federal statutory rate primarily due
to the effect of state income taxes and non-deductible goodwill amortization.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Net Sales. WinsLoew's consolidated net sales for 1998 increased $19.2
million or 15.7% to $141.4 million, compared to $122.1 million in 1997. The
casual product line sales increased by 17.9%, after excluding sales for the
Company's wrought iron business sold during 1997. The Company believes that due
to its high quality and innovative designs, existing retail customers have
continued to allocate more floor space, requiring larger inventories of the
Company's casual aluminum furniture. The seating product line experienced a
sales increase of 19.8% due to growth in the core business and increased demand
from the lodging industry. The RTA product line experienced a sales increase of
58.0% due to increased demand as the Company broadened its product offering to
include additional flat-line products and case goods which allowed the Company
to enter new markets.
Gross Profit. Consolidated gross profit increased $11.4 million in 1998 to
$54.1 million compared to $42.7 million in 1997. The casual, contract seating
and RTA product lines improved gross profits in 1998 due to greater operating
efficiencies, increased sales volumes and improved raw material costs.
104
<PAGE> 115
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.7 million in 1998, compared to 1997, due to
commissions expense and other variable costs related to the increased sales
volume in 1998.
Amortization. Amortization expense increased $130,000 in 1998, compared to
1997, due to amortization of goodwill related to the Tropic Craft acquisition.
Operating Income. As a result of the above, WinsLoew recorded operating
income of $29.9 million (21.1% of net sales) in 1998, compared to operating
income of $20.3 million (16.6% of net sales) in 1997.
Interest Expense. WinsLoew's interest expense decreased $1.7 million in
1998, compared to 1997. The Company has reduced its debt by $15.0 million from
December 31, 1997.
Provision for Income Taxes. WinsLoew's effective tax rate from continuing
operations of 37.4% in 1998 and 38.0% in 1997 is greater than the federal
statutory rate due to the effect of state income taxes and non-deductible
goodwill amortization.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Sales. WinsLoew's consolidated net sales for 1997 increased $4.7
million or 4.0% to $122.1 million, compared to $117.4 million in 1996. The
casual product line sales increased by 7.6% after excluding sales for the
Company's wrought iron business sold during 1997. The Company believes that due
to its high quality and innovative designs, existing retail customers have
allocated more floor space, requiring larger inventories of the Company's casual
aluminum furniture. The seating product line experienced a sales increase of
20.1% due to growth in the core business and increased demand from the lodging
industry. The RTA product line experienced a sales decrease of 30.9% due to the
loss of a major customer.
Gross Profit. Consolidated gross profit increased $3.3 million in 1997 to
$42.7 million compared to $39.4 million in 1996. The seating product lines
improved gross profits in 1997 due to greater operating efficiencies, increased
sales volumes (after excluding sales for the Company's Lyon Shaw wrought iron
business sold in 1997) and improved raw material costs. The RTA product line
experienced a 10.0% decrease in gross profit in 1997 due to lower sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $45,000 in 1997, compared to 1996, due to
various cost reduction programs which more than offset commission expense and
other variable costs related to the increased sales volume in 1997.
Amortization. Amortization expense decreased $452,000 due to the
intangible assets that became fully amortized in 1996.
Operating Income. As a result of the above, WinsLoew recorded operating
income of $20.3 million (16.6% of net sales) in 1997, compared to operating
income of $16.5 million (14.0% of net sales) in 1996.
Interest Expense. WinsLoew's interest expense decreased $787,000 in 1997,
compared to 1996. The Company reduced its debt by $24.3 million from December
31, 1996 to December 31, 1997.
105
<PAGE> 116
Provision for Income Taxes. WinsLoew's effective tax rate from continuing
operations of 38.0% in 1997 and 36.1% in 1996 is greater than the federal
statutory rate due to the effect of state income taxes and non-deductible
goodwill amortization.
SEASONALITY AND QUARTERLY INFORMATION
The furniture industry is cyclical and sensitive to changes in general
economic conditions, consumer confidence, and discretionary income, interest
rate levels and credit availability.
Sales of casual products are typically higher in the second quarter and
fourth quarters of each year, primarily as a result of the following: (i) high
retail demand for casual furniture in the second quarter, preceding the summer
months and (ii) the impact of special sales programs on fourth quarter sales.
The Company's casual product sales can also be affected by weather conditions
during the peak retail selling season and the resulting impact on consumer
purchases of outdoor furniture products. During the third quarter of 1997, the
Company sold its Lyon Shaw wrought iron division (See Note 3 to the Consolidated
Financial Statements).
The following table presents the Company's unaudited quarterly data for
1999, 1998 and 1997. Such operating results are not necessarily indicative of
results for future periods. WinsLoew believes that all necessary and normal
recurring adjustments have been included in the amounts in order to present
fairly and in accordance with generally accepted accounting principles the
selected quarterly information when read in conjunction with WinsLoew's
Consolidated Financial Statements included elsewhere herein. The results of
operations for any interim quarter are not necessarily indicative of results for
a full year. The following data has been restated to reflect Southern Wood as a
continuing operation.
106
<PAGE> 117
<TABLE>
<CAPTION>
FIRST SECOND
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
1999 QUARTERS
Net sales.................................................. $32,910 $47,679
Gross profit............................................... 12,879 19,696
Operating income........................................... 6,838 11,833
Interest expense (income).................................. 123 (46)
Income from continuing operations.......................... 4,184 7,350
Gain on sale of discontinued operations.................... -- --
Net income................................................. 4,184 7,350
======= =======
Basic earnings per share:
Income from continuing operations (1).................... $ 0.58 $ 1.02
Gain on sale of discontinued operations.................. -- --
------- -------
Net income (1)........................................... $ 0.58 $ 1.02
======= =======
Weighted average shares.................................... 7,220 7,200
======= =======
Diluted earnings per share:
Income from continuing operations........................ $ 0.56 $ 0.99
Gain on sale of discontinued operations.................. -- --
Net income............................................... $ 0.56 $ 0.99
======= =======
Weighted average shares and common share equivalents
outstanding.............................................. 7,434 7,444
======= =======
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998 QUARTERS
Net sales............................. $27,576 $42,892 $36,258 $34,634
Gross profit.......................... 9,630 16,740 13,527 14,231
Operating income...................... 4,871 10,282 6,265 8,464
Interest expense (income)............. 333 354 137 (189)
Income from continuing operations..... 2,873 6,199 3,791 5,437
Gain on sale of discontinued
operations.......................... -- -- -- 2,031
Net income............................ $ 2,873 $ 6,199 $ 3,791 $ 7,468
======= ======= ======= =======
Basic earnings per share:
Income from continuing
operations(1).................... $ 0.38 $ 0.83 $ 0.51 $ 0.75
Gain on sale of discontinued
operations....................... -- -- -- 0.27
------- ------- ------- -------
Net income (1)...................... $ 0.38 $ 0.83 $ 0.51 $ 1.02
======= ======= ======= =======
Weighted average shares............... 7,535 7,513 7,468 7,296
======= ======= ======= =======
Diluted earnings per share:
Income from continuing operations... $ 0.37 $ 0.80 $ 0.50 $ 0.73
Gain on sale of discontinued
operations....................... -- -- -- 0.27
Net income.......................... $ 0.37 $ 0.80 $ 0.50 $ 1.00
======= ======= ======= =======
Weighted average shares and common
share equivalents outstanding....... 7,683 7,722 7,647 7,453
======= ======= ======= =======
</TABLE>
107
<PAGE> 118
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997 QUARTERS
Net sales............................. $24,682 $39,854 $29,523 $28,086
Gross profit.......................... 7,519 15,020 10,073 10,102
Operating income...................... 2,592 8,313 4,440 4,950
Interest expense...................... 857 645 590 204
Income from continuing operations..... 1,047 4,729 2,355 3,030
Loss from discontinued operations..... (229) (225) (73) (191)
Loss on sale of discontinued
operations.......................... -- -- -- (8,200)
Net income (loss)..................... $ 818 $ 4,504 $ 2,282 ($5,361)
======= ======= ======= =======
Basic earnings (loss) per share:
Income from continuing
operations(1).................... $ 0.14 $ 0.63 $ 0.31 $ 0.40
Loss from discontinued
operations(1).................... (0.03) (0.03) (0.01) (0.03)
Loss on sale of discontinued
operations(1).................... -- -- -- (1.09)
------- ------- ------- -------
Net income (loss)................... $ 0.11 $ 0.60 $ 0.30 ($ 0.72)
======= ======= ======= =======
Weighted average shares............... 7,443 7,456 7,508 7,524
======= ======= ======= =======
Diluted earnings (loss) per share:
Income from continuing operations... $ 0.14 $ 0.63 $ 0.31 $ 0.40
Loss from discontinued operations... (0.03) (0.03) (0.01) (0.03)
Loss on sale of discontinued
operations(1).................. -- -- -- (1.07)
------- ------- ------- -------
Net income (loss) (1)............... $ 0.11 $ 0.60 $ 0.30 ($ 0.70)
======= ======= ======= =======
Weighted average shares and common
share equivalents outstanding....... 7,495 7,502 7,602 7,630
======= ======= ======= =======
</TABLE>
- -------------------------
(1) Quarter amounts do not add to annual figures due to rounding.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for working capital to
support its debt service, accounts payable and inventory requirements. The
Company has historically financed its short-term liquidity needs with internally
generated funds and revolving line of credit borrowings. The Company actively
monitors its cash balances and applies available funds to reduce borrowings
under its senior credit facility. At December 31, 1998, the Company had $25.8
million of working capital and $18.4 million of unused and available funds under
its credit facilities, and at June 25, 1999, the Company had $33.4 million of
working capital and $25.8 million of unused and available funds under its senior
credit facility.
The Company has a senior credit facility with a consortium of banks and
other institutional lenders. The facility, which matures in February 2001 and is
collateralized by substantially all of the assets of the Company, consists of a
revolving line of credit, term
108
<PAGE> 119
loan and an acquisition line of credit. The working capital revolving line of
credit allows the Company to borrow funds up to a certain percentage of eligible
inventories and accounts receivable. The $12.5 million acquisition line of
credit can be used for capital expenditures and purchases of the Company's
Common Stock.
In June 1996, WinsLoew amended its senior credit facility to provide the
Company with a variable amount available under the revolving line of credit (see
Note 4 to the Consolidated Financial Statements). Due to the seasonal nature of
the casual furniture product line, WinsLoew's cash requirements are usually
greater in the first quarter of each year. The June 1996 amendment allows the
amount available to fluctuate with the seasonal nature of the Company's
business. After the first quarter of each year, the Company's cash requirements
from its credit line decline. By use of a variable amount of credit
availability, the Company can avoid the cost of an available but unused line of
credit. At July 1, 1999, from an available maximum line of credit of $40.0
million, WinsLoew has elected to set the amount available at $20.0 million.
WinsLoew's senior credit facility allows the Company to borrow under its
line of credit to purchase shares of the Company's Common Stock (see Note 4 to
the Consolidated Financial Statements). As of June 25, 1999, there was $2.9
million available for such repurchases.
Cash Flows from Operating Activities. Net cash provided by operations
increased to $31.1 million in 1998, compared to $22.0 million in 1997, primarily
due to improved profitability from continuing operations. Net cash provided by
operating activities in the first six months of 1999 was $18.3 million, compared
to $18.5 million of net cash provided by operating activities in the first six
months of 1998. Negative cash flow in the first quarter of 1999 reflects
financing of accounts receivable pursuant to the Company's long-standing sales
strategy of providing extended payment terms to customers. During the first four
months of each year, accounts receivable in the casual furniture division
normally increase due to extended payment terms offered to customers. During the
second quarter, the Company receives payment on these accounts receivable.
Management believes that this special sales program provides a matching
advantage, reduces the effects of seasonality on operations and reduces finished
goods inventory levels.
Cash Flows from Investing Activities. During 1998, the Company spent
$900,000 on capital expenditures and $9.3 million on the purchase of Tropic
Craft (see Note 3 to the Consolidated Financial Statements), compared to $1.0
million spent on capital expenditures and $2.1 million received in proceeds
related to the disposition of certain assets of the Company's wrought iron
business in 1997. Net cash used in investing activities in the first six months
of 1999 was $242,000, compared to $560,000 used in the first six months of 1998.
Cash used in investing activities in the first six months of 1999 and 1998 was
primarily for the purchase of machinery and equipment. At June 25, 1999, the
Company had no material commitments for capital expenditures.
Cash Flows From Financing Activities. During 1998, the Company used the
cash generated by operations to repay $15.0 million of debt and purchase $6.1
million of its Common Stock (see Note 5 to the Consolidated Financial
Statements), compared to $24.3 million of cash generated by operations and from
investing activities used to repay debt during 1997. Net cash used in financing
activities in the first six months of 1999 was $4.6 million, compared to $14.9
million provided in the first six months of 1998. Cash was primarily used to
retire the Company's revolving credit debt (see Note 3 to the unaudited interim
Consolidated Financial Statements) and to purchase shares of the Company's
Common Stock (see Note 4 to the unaudited interim Consolidated Financial
Statements).
109
<PAGE> 120
In connection with the Merger, the Purchaser has received a commitment from
BankBoston relating to a $145.0 million senior credit facility. See "THE
MERGER -- Financing."
FOREIGN EXCHANGE FLUCTUATIONS AND EFFECTS OF INFLATION
WinsLoew purchases some raw materials from several Italian suppliers. These
purchases expose the Company to the effects of fluctuations in the value of the
U.S. dollar versus the Italian lira. If the U.S. dollar declines in value versus
the Italian lira, the Company will pay more in U.S. dollars for these purchases.
To reduce its exposure to loss from such potential foreign exchange
fluctuations, the Company will occasionally enter into foreign exchange forward
contracts. These contracts allow the Company to buy Italian lira at a
predetermined exchange rate, thereby transferring the risk of subsequent
exchange rate fluctuations to a third party. However, if the Company is unable
to continue such forward contract activities, and the Company's inventories
increase in connection with expanding sales activities, a weakening of the U.S.
dollar against the Italian lira could result in reduced gross margins. At
December 31, 1998, the Company did not have any foreign currency forward
contracts outstanding. The Company elected to hedge a portion of its exposure to
purchases to be made in 1999 by entering into foreign currency forward contracts
with a value of approximately $2.3 million, approximately $1.7 million of which
were outstanding and unsettled at June 25, 1999, maturing at approximately $0.3
million per month. The Company did not incur significant gains or losses from
these foreign currency transactions.
Inflation has not had a significant impact on the Company in the past three
years, nor is it expected to have a significant impact in the foreseeable
future.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This error could potentially result in
a system failure or miscalculation causing disruptions to operations.
In mid-1995, the Company began an assessment of the Year 2000 issue on its
internal information technology systems and other non-information technology
systems such as facility automation control systems, third-party network systems
and other embedded technology and microcontrollers, as well as for the
replacement or correction of all such systems required in the new millennium.
Based on the assessment, the Company determined that it was necessary to replace
portions of its software and hardware so that those systems will properly
utilize dates beyond December 31, 1999, including third-party network equipment,
software products and services.
As of June 1, 1999, the Company has completed testing and remediation of
100% of its continuing operations business critical systems at an aggregated
cost of approximately $500,000, representing approximately 20% of the Company's
information technology budget for the last four years, which has been obtained
from internally generated funds. Approximately 59% of these costs were for
replacement of existing software, approximately 23% were for replacement and/or
upgrade of existing hardware, approximately 12% were for replacement of
non-information technology systems and equipment, and approximately 6% were for
repair and/or upgrade of existing software. Non-information technology systems
do not represent a significant component of the Company's operations. The
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<PAGE> 121
Company deducts these costs from income. Other non-Year 2000 efforts have not
been materially delayed.
The Company has contacted and received responses from all of its material
suppliers and customers concerning Year 2000 compliance. Based on these
discussions the Company is not aware of any supplier or customer with a Year
2000 issue that would materially impact its financial position, results of
operations or liquidity. The Company did not use any independent verification or
validation process to assure the reliability of their risk and cost estimates.
Consequently, the Company has no means of ensuring that suppliers or customers
will be Year 2000 ready. The effect of non-compliance by third parties is not
determinable.
Management believes that it has substantially completed an effective
program to resolve the Year 2000 issue in a timely manner. In the event that the
Company's program is not successful, management believes that it has established
adequate contingency plans whereby the Company would rely on its own manual
systems, independent of external providers' Year 2000 compliance, maintain
increased inventory levels and adjust staffing levels for its business critical
systems. Management believes that such an event would not materially affect the
Company's financial position or results of operations. However, disruptions in
the general economy resulting from Year 2000 issues could adversely affect the
Company's financial condition or results of operations.
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CERTAIN FORWARD LOOKING INFORMATION
BUDGET PROJECTIONS
The Company does not, as a matter of course, make public projections as to
future financial results. However, WinsLoew management annually prepares
financial forecasts for internal use in capital budgeting and other management
decisions. The Company's Budget Projections for the fiscal years 1999 through
2002 were prepared by management in October through December 1998 for internal
use in capital budgeting and other management decisions and do not give effect
to the Merger or the related financing or to the pending Pompeii acquisition or
any other possible acquisitions or other transactions that might occur after the
Merger. In January 1999, management provided the Budget Projections to the
Special Committee and Mann Armistead. The Budget Projections were also provided
to Hancock Park.
A summary of the Budget Projections is set forth below:
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 2000 FISCAL 2001 FISCAL 2002
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales...................... $157,314 $169,113 $181,796 $195,431
Gross Margin................... 59,179 63,617 68,696 74,081
Operating Income............... 32,054 34,951 37,930 41,065
Net income..................... 19,371 21,751 23,980 26,235
Earnings per share............. 2.60 2.90 3.20 3.50
</TABLE>
The Budget Projections should be read together with the information
contained in WinsLoew's Consolidated Financial Statements and related Notes
included elsewhere herein and with the following assumptions made in preparing
such projections:
(a) The Budget Projections do not give effect to the Merger or related
financing.
(b) The Budget Projections do not give effect to the pending
acquisition of Pompeii or any other possible acquisitions or other
transactions that may occur after the Merger.
(c) Revenue would increase at a rate of 7.5% each year.
(d) Cost of goods sold would remain constant at 61.7% of net sales.
(e) Selling, general and administrative expenses would be 16.4% in
1999 and 16.2% in each of 2000, 2001 and 2002.
BEST CASE PROJECTIONS
In February 1999, in connection with the Purchaser's efforts to obtain
financing for the Merger, management prepared the Best Case Projections for the
fiscal years 1999 through 2002 based upon the financial results they believed
the Company could achieve under a "best case" scenario, which forecasts do not
give effect to the Merger or the related financing or to the Pompeii acquisition
or any other possible acquisitions or other transactions that might occur after
the Merger. In March 1999, the Company provided the Best Case Projections to
representatives of the Special Committee, including Mann Armistead, whereupon
representatives of the Special Committee forwarded the Best Case Projections to
Hancock Park.
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<PAGE> 123
A summary of the Best Case Projections is set forth below:
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 2000 FISCAL 2001 FISCAL 2002
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales...................... $159,684 $171,413 $184,269 $198,089
Gross Margin................... 61,604 66,248 71,128 76,613
Operating Income............... 34,368 38,709 41,839 45,572
Net income..................... 20,998 24,000 26,250 28,875
Earnings per share............. 2.80 3.20 3.50 3.85
</TABLE>
The Best Case Projections should be read together with the information
contained in WinsLoew's Consolidated Financial Statements and related Notes
included elsewhere herein and with the following assumptions made in preparing
such projections:
(a) The Best Case Projections do not give effect to the Merger or
related financing.
(b) The Best Case Projections do not give effect to the pending
acquisition of Pompeii or any other possible acquisitions or other
transactions that may occur after the Merger. For the year ended December
31, 1998, Pompeii reported net revenues of $14.5 million, net income of
$2.7 million and EBITDA (as defined) of $3.0 million. For the quarter ended
March 31, 1999, Pompeii reported, unaudited net revenues of $3.4 million,
unaudited net income of $664,000, and EBITDA (as defined) of $697,000.
Pompeii is organized as Subchapter S Corporation under the Internal Revenue
Code of 1986, as amended, and, consequently, in determining net income, no
deduction is made for income taxes; had Pompeii deducted income taxes,
using an effective rate of 38%, net income for the year ended December 31,
1998 would have been $1.7 million and unaudited net income for the quarter
ended March 31, 1999 would have been $412,000. In June 1999, WinsLoew's
management prepared certain pro forma financial information in connection
with its senior credit facility. See "THE MERGER -- Financing." These pro
formas show that, assuming that the Merger, the related financings by the
Purchaser and WinsLoew's pending acquisition of Pompeii had been
consummated on January 1, 1999, WinsLoew would have had, during the twelve
months ended December 31, 1999, pro forma net sales of $174.1 million and
pro forma gross margin of $67.5 million. The closing of the Pompeii
acquisition is expected to occur by the end of the first week of August
1999.
(c) Revenue would increase at a rate equal to 7.5% each year.
(d) Cost of goods sold would remain constant at 61.4% each year of net
sales.
(e) Selling, general and administrative expenses would be 16.3% in
1999, 15.4% in 2000, 15.4% in 2001 and 15.2% in 2002.
GENERAL
None of the foregoing projections were prepared with a view to public
disclosure or compliance with published guidelines of the Commission or the
guidelines established by the American Institute of Certified Public Accountants
regarding projections. Ernst & Young LLP, the Company's independent auditors,
have not performed any procedures with respect to the projections and assume no
responsibility for them.
None of the foregoing projections should be regarded as an accurate
prediction of future events. Such projections are subjective in many respects
and thus susceptible to
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<PAGE> 124
various interpretations and periodic revision based actual experience and
business developments. In addition, such projections are based on a number of
assumptions that are subject to risks and uncertainties which could cause actual
results to differ materially from those projected. Such risks and uncertainties
include the cyclical nature of the furniture manufacturing industry, significant
competition in the furniture manufacturing industry, WinsLoew's dependence on
key management and extensive environmental regulation. The projections have not
been and will not be revised or updated from the date of their preparation to
reflect subsequent events, facts or other information of which any person or
entity has become aware.
Inclusion of the foregoing forecasts should not be regarded as a
representation by WinsLoew, the Purchaser, any of their respective affiliates or
financial advisors or any other entity or person that the projected results
would be achieved or as to any future event, occurrence or non-occurrence and
none of the foregoing parties assumes any responsibility for the accuracy of
such information. There can be no assurance that the projections will be
realized, and actual results may be higher or lower than those shown, possibly
by material amounts.
Complete copies of the Budget Projections and the Best Case Projections
provided by management to the Special Committee and Mann Armistead for the
fiscal years 1999 through 2002 have been filed as exhibits to the Schedule 13E-3
filed with the Commission in connection with the Merger and are available for
inspection and copying at the principal executive offices of the Company during
its regular business hours by any shareholder or any representative of a
shareholder who has been so designated in writing. Copies of such projections
will be provided by the Company to any shareholder or any representative of a
shareholder who has been so designated in writing upon written request and at
the expense of the requesting shareholder or such representative. See "Available
Information."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF WINSLOEW
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Earl W. Powell....................... 60 Chairman of the Board
Bobby Tesney......................... 54 President, Chief Executive Officer and
Director
R. Craig Watts....................... 45 Executive Vice President -- Contract
Seating
Stephen C. Hess...................... 50 Executive Vice President -- Casual
Furniture
Vincent A. Tortorici, Jr............. 45 Vice President and Chief Financial Officer
Rick J. Stephens..................... 45 Vice President -- Operations
Jerry C. Camp........................ 33 Vice President -- Casual Furniture
Operations
William F. Kaczynski, Jr............. 39 Director
Phillip T. George, M.D............... 59 Director
Peter W. Klein....................... 43 Director
William H. Allen, Jr................. 63 Director
Sherwood M. Weiser................... 68 Director
M. Miller Gorrie..................... 63 Director
James S. Smith....................... 70 Director
Henry C. Cheek....................... 73 Director
</TABLE>
The Company was formed in September 1994, and in December 1994 the Company
merged with each of Winston and Loewenstein. Each of the Company's directors and
executive officers were also directors or officers of Winston and/or
Loewenstein, as described below. Prior to the merger, each of Winston and
Loewenstein were publicly held corporations whose common stock traded on the
Nasdaq National Market.
Mr. Powell, Chairman of the Board of the Company since October 1994, serves
as President and Chief Executive Officer of Trivest, which is a private
investment firm specializing in management services and acquisitions,
dispositions and leveraged buyouts, which was formed by Messrs. Powell and
George in 1981. Trivest is an affiliate of the Trivest Partnerships. Mr. Powell
has also served as Chairman of the Board of Atlantis Plastics, Inc., an American
Stock Exchange company whose subsidiaries are engaged in the plastics industry
("Atlantis"), since founding that company in February 1984, as Chief Executive
of Atlantis from its organization until February 1995 and as President of
Atlantis from November 1993 to February 1995. Mr. Powell has served as Chairman
of the Board of Biscayne Apparel, Inc., a company whose principal subsidiaries
are engaged in the apparel industry ("Biscayne"), since October 1985 and
presently serves as Chief Executive Officer of Biscayne. Biscayne filed a
voluntary Chapter 11 bankruptcy petition in February 1999. There is no
established trading market for the common stock of Biscayne. Mr. Powell also
served as Chairman of the Board of Winston from December 1988 to December 1994,
Chairman of the Board of Loewenstein from February 1985 to December 1994 and as
Loewenstein's President and Chief Executive Officer from May 1994 to December
1994. From 1971 until 1985, Mr. Powell was a partner with
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<PAGE> 126
KPMG Peat Marwick, Certified Public Accountants ("Peat Marwick"), where his
positions included serving as managing partner of Peat Marwick's Miami office.
Mr. Tesney, President, Chief Executive Officer and a director of the
Company since October 1994, served as President, Chief Executive Officer and a
director of Winston from December 1993 to December 1994, General Manager of
Winston from 1985 to December 1993 and as Senior Vice President-Operations of
Winston from January to December 1993. Mr. Tesney also served as Vice President
of Winston from 1979 until January 1992.
Mr. Watts, Executive Vice President-Contract Seating of the Company since
October 1994, served as a director of Loewenstein from December 1990 to December
1994, and was appointed Loewenstein's Executive Vice President-Contract Seating
in May 1993, after serving as Vice President since May 1991. Mr. Watts also
serves as the President and Chief Operating Officer of the Company's Loewenstein
and Gregson divisions, and has served in a number of management positions since
joining Loewenstein in April 1981.
Mr. Hess, the Company's Executive Vice President-Casual Furniture since
October 1994, served as Winston's Executive Vice President from December 1993 to
December 1994, Winston's Senior Vice President-Marketing and Sales from January
1992 to September 1993, and as Winston's Vice President-Marketing and Sales from
January 1983 until January 1992.
Mr. Tortorici, the Company's Vice President and Chief Financial Officer
since October 1994, served as Winston's Vice President-Finance and
Administration and Chief Financial Officer from March 1988 to December 1994. Mr.
Tortorici is a certified public accountant and was employed by Arthur Andersen &
Co. from 1976 until March 1988.
Mr. Stephens, the Company's Vice President-Operations since May 1999,
served as Vice President-Operations at Winston from January 1995 to May 1999 and
served as Vice President and General Manager at Winston from December 1993 to
January 1995.
Mr. Camp, the Company's Vice President -- Casual Furniture Operations since
May 1999, served as the Company's Vice President -- Operations from September
1998 to May 1999, served as the Company's Director of Safety, Environmental and
Human Resources from October 1994 to September 1998, served as Director of
Engineering at Winston from September 1988 to October 1994, and served in
various other capacities with Winston, including Project Engineer, from May 1984
to September 1988.
Mr. Kaczynski was elected director of the Company in January 1998. Mr.
Kaczynski has served as an executive officer of Trivest since January 1998 and
is presently a Managing Director. From July 1996 until December 1997, he was
Chief Financial Officer of WebSite Management Corp. d/b/a FlashNet
Communications, an Internet service provider. From June 1994 until June 1996, he
was Chief Financial Officer of Colorado Mountain Express, Inc., an airport
transportation company. Prior to that he was with Heller Financial, Inc. from
1986 until 1994, most recently as Senior Vice President-Corporate Finance Group,
Dallas, Texas.
Dr. George, a director of the Company since October 1994, served as a
director of Winston from October 1989 to December 1994 and as a director of
Loewenstein from February 1985 to December 1994. Dr. George also serves as the
Vice Chairman of the Board of Trivest, the Vice Chairman of the Board and
Chairman of the Executive
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<PAGE> 127
Committee of the Board of Directors of Atlantis, and as a Director of Biscayne.
Biscayne filed a voluntary Chapter 11 bankruptcy petition in February 1999. Dr.
George's executive position with Trivest has been his principal occupation since
retiring from the private practice of plastic and reconstructive surgery in
February 1986.
Mr. Klein, a director of the Company since October 1994, served as a
director of Winston from December 1988 to December 1994 and as a director of
Loewenstein from May 1993 to December 1994. Mr. Klein has served as an executive
officer of Trivest since May 1986 and is presently a Managing Director and the
General Counsel of Trivest. Prior to joining Trivest, Mr. Klein practiced law in
Chicago, Illinois and Cleveland, Ohio.
Mr. Allen, a director of the Company since October 1994, served as a
director of Loewenstein from September 1993 to December 1994. Mr. Allen serves
as Vice Chairman of NationsBank Florida, and served as Chairman of the Board and
Chief Executive Officer of Intercontinental Bank, a Nasdaq National Market
company headquartered in Miami, Florida, from April 1987 until its merger with
NationsBank South in December 1994. Mr. Allen also serves as a director of
American Bankers Insurance Group, a New York Stock Exchange company
headquartered in Miami, Florida, and Decorator Industries, Inc., traded on the
American Stock Exchange, headquartered in Hollywood, Florida.
Mr. Weiser, a director of the Company since October 1994, has been, since
1972, the Chairman of the Board, President and Chief Executive Officer of CHC
International, Inc., a leading hotel and casino development and management
company that does business as "Carnival Hotels and Casinos," and its
predecessors. Mr. Weiser also serves as a director of Carnival Corporation, a
cruise line traded on the New York Stock Exchange, Wyndam International, Inc.,
traded as a paired share real estate investment trust on the New York Stock
Exchange, and Mellon United National Bank, a New York Stock Exchange company.
Mr. Gorrie, a director of the Company since October 1994, served as a
director of Winston from February 1993 to December 1994 and from May 1986 to
December 1988. Mr. Gorrie has been Chairman of Brasfield & Gorrie General
Contractor, Inc., a diversified general contractor based in Birmingham, Alabama,
since 1964. Mr. Gorrie is a director of Colonial Properties Trust, a real estate
investment trust traded on the New York Stock Exchange.
Mr. Smith, a director of the Company since October 1994, served as a
director of Winston from February 1993 to December 1994, and as a director of
Biscayne from June 1986 to February 1992. Mr. Smith has been engaged in private
investment activities as his principal occupation for more than the prior five
years. Mr. Smith served as Executive Vice President of Stephens, Inc., an
investment banking firm based in Little Rock, Arkansas, from January 1985 until
May 1987. Mr. Smith has also served as President of the Arnold D. Frese
Foundation since March 1979.
Mr. Cheek, a director of the Company since October 1994, served as a
director of Winston from February 1993 to December 1994. Mr. Cheek has been
engaged in private investment activities as his principal occupation for more
than the prior five years. From 1951 until his retirement in 1984, Mr. Cheek was
Vice President of U.S. Industries, Inc., a diversified holding company and
served as Chief Executive Officer of its Furniture Group. Mr. Cheek served as a
director of Winston from May 1987 through December 1988.
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EXECUTIVE AND DIRECTOR COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation awarded to, earned by or paid
to the Company's Chief Executive Officer and each of the Company's other
executive officers whose total 1998 salary and bonus from the Company was
$100,000 or more (the Chief Executive Officer and such other executive officers
are referred to herein as the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------
ANNUAL COMPENSATION AWARDS
--------------------------------------------------- ---------------
OTHER ANNUAL NUMBER OF
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1) OPTIONS GRANTED
- --------------------------- ----------- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Bobby Tesney............. 1998 $250,150 $250,150 $88,471 --
President and Chief 1997 245,000 183,750 49,221 40,000
Executive Officer 1996 216,400 162,300 28,240 --
Stephen C. Hess.......... 1998 204,200 173,570 42,256 --
Executive Vice
President-Casual 1997 200,000 150,000 20,935 30,000
Furniture 1996 178,218 133,663 18,606 --
Vincent A. Tortorici,
Jr. ................... 1998 148,050 96,233 12,845 --
Vice President and Chief 1997 145,000 72,500 12,669 25,000
Financial Officer 1996 129,900 64,950 8,718 --
R. Craig Watts........... 1998 185,824 157,803 21,067 --
Executive Vice
President-Contract 1997 181,830 136,373 19,343 25,000
Seating 1996 166,138 121,103 20,357 --
Rick J. Stephens......... 1998 123,552 61,776 9,121 --
Vice President- 1997 120,240 48,096 7,567 7,500
Operations 1996 106,124 42,565 7,277 --
Jerry C. Camp............ 1998 94,096 28,800 7,820 --
Vice President-Casual 1997 85,770 8,900 5,908 5,000
Furniture Operations 1996 71,850 7,185 5,195 --
</TABLE>
- -------------------------
(1) "Other Annual Compensation" represents amount paid by the Company on behalf
of the Named Executive Officer under the Company's Non-Qualified
Supplemental Executive Retirement Plan established in October 1996. Under
the terms of this Plan, selected employees make after-tax contributions of
their salary to one or more investment alternatives available under such
Plan. The Company then matches the employee contribution (up to 10% of
compensation on an after-tax basis) depending on the employee's length of
service (up to 100% for 20 years of continuous service). The employee is
vested at all times in the deferred compensation and is vested immediately
in the matching contribution.
OPTION GRANTS
No stock options were granted to any Named Executive Officers in 1998.
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<PAGE> 129
AGGREGATED 1998 FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning unexercised
stock options held by the Named Executive Officers as of December 31, 1998. No
stock options were exercised by such persons during 1998. All "unexercisable"
options will become fully exercisable and canceled in exchange for cash payments
pursuant to the Merger. See "THE MERGER -- Cash-out of WinsLoew Stock Options."
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE MONEY OPTIONS
AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Bobby Tesney.............. 73,000 52,000 $1,263,625 $922,000
Stephen C. Hess........... 51,000 34,000 849,750 589,000
Vincent A. Tortorici,
Jr...................... 30,000 30,000 536,250 525,000
R. Craig Watts............ 55,175 30,000 1,020,335 525,000
Rick J. Stephens.......... 7,500 17,500 258,563 178,000
Jerry C. Camp............. 4,500 4,000 68,063 64,000
</TABLE>
401(K) PLAN
Effective January 1, 1997, the WinsLoew Furniture, Inc. 401(k) Plan (the
"Plan") was established. Employees of the Company and its subsidiaries are
eligible to participate in the Plan following the later to occur of (i) the
employee's completion of one year of service or (ii) the employee's 21st
birthday. Eligible employees may make salary reduction contributions to the Plan
on a pretax basis. For each calendar year, the Company and the other
participating employees may make matching contributions to the Plan based on a
discretionary matching percentage to be determined each year by the Company. In
addition, the Company and the other participating employers may make a
discretionary profit sharing contribution to the plan on behalf of each
participant who completes more than 500 hours of service during the year or who
is employed on the last day of the year. This latter contribution is allocated
proportionately based on each participant's compensation. An employee's vested
benefits are payable upon his retirement, death, disability, or other
termination of employment or upon the attainment of age 59 1/2. An employee is
always fully vested in his account balance attributable to his own contributions
to the Plan. The employee's interest in the account attributable to his
employers contributions and earnings thereon becomes fully vested upon the
earlier of the attainment of his normal retirement date (age 65), his death, his
permanent and total disability, or his completion of six years of service. If an
employee terminates employment for reasons other than retirement, death, or
disability, his vested interest is based on a graduated vesting schedule which
provides for 20% vesting after two years of service and 20% for each year
thereafter. Nonvested amounts are forfeited.
LONG TERM INCENTIVE AND PENSION PLANS
The Company has no Long Term Incentive or Pension Plans.
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<PAGE> 130
DIRECTOR COMPENSATION
During 1996 and the first quarter of 1997, the Company paid each director
who was neither an employee of the Company nor Trivest an annual retainer of
$10,000, an additional retainer of $2,500 for serving on the Compensation
Committee, a $500 fee for each meeting of the Board of Directors attended and,
unless held on the same day as a Board meeting, $500 for each committee meeting
attended. The Company also reimburses all directors for expenses incurred in
connection with their activities as directors.
Additionally, prior to 1997, on March 31 of each year, each director who
was neither an employee of the Company nor Trivest received automatic grants of
options to purchase 5,000 shares of Common Stock pursuant to the Company's 1994
Stock Option Plan. Such options become exercisable at the rate of 20% per year
on each anniversary of the date of grant, and have an exercise price equal to
the fair market value of Common Stock on the date of grant. The unexercised
portion of any such option will terminate upon the earliest to occur of the
following: (i) the expiration of 10 years from the date of grant of the option,
(ii) twelve months after the date on which the optionee ceases to be a director
by reason of the death or disability of the optionee, or (iii) three months
after the optionee ceases to be a director for any other reason. In addition,
each other director of the Company is eligible to receive discretionary grants
of options pursuant to such plan. These automatic grants were terminated in
connection with the adoption of the Amended and Restated 1994 Stock Option Plan
by the Board of Directors in January 1997.
The Board of Directors approved new compensation policies effective April
1, 1997. Directors who are neither employees of the Company nor Trivest are paid
a $2,500 cash fee for each meeting attended in person and a $500 cash fee for
each meeting attended by telephone. In addition, each member of the Compensation
and Audit Committee receives a $2,500 annual retainer, payable quarterly in
advance.
In addition, during 1998 each of the Company's directors was granted
options to purchase 2,500 shares of Common Stock pursuant to the Company's
Amended and Restated 1994 Stock Option Plan for each meeting of the Board of
Directors attended by him. There were two meetings of the Board of Directors in
1998. Such options become exercisable at the rate of 20% per year on each
anniversary of the date of grant and have an exercise price equal to the fair
market value of the Common Stock on the date of grant. The unexercised portion
of such options will terminate on the earliest to occur of the following (i) the
expiration of 10 years from the date of grant of the option, (ii) twelve months
after the date on which the optionee ceases to be a director by reason of the
death or disability of the optionee, or (iii) except as otherwise may be
determined by the Board, three months after the date on which the optionee
ceases to be a director for any other reason. The unvested portion of the
foregoing options will become fully vested in the event of a change in control
of the Company.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Effective January 1, 1995, the Company entered into five-year employment
agreements with each of Messrs. Tesney, Watts, Hess and Tortorici (as amended,
the "Employment Agreements"). The Employment Agreements provide for the Company
to pay Messrs. Tesney, Watts, Hess and Tortorici base salaries of $200,000,
$150,000, $165,000 and $120,000, respectively, in each case subject to annual
cost of living adjustments. The Employment Agreements also provide for annual
incentive compensation
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<PAGE> 131
payments of up to a specified portion of the executive's then base salary (100%
in the case of Mr. Tesney, 85% in the case of each of Messrs. Hess and Watts,
and 65% in the case of Mr. Tortorici) based on the operating earnings (adjusted
to exclude the effect of goodwill amortization) of (i) the Company, in the case
of Messrs. Tesney and Tortorici, (ii) the Company's Contract Seating divisions,
in the case of Mr. Watts,) and (iii) the Company's Casual Furniture divisions,
in the case of Mr. Hess. None of such officers will receive any incentive
compensation payment under his Employment Agreement for any particular year
unless the relevant operating earnings for such year are at least 75% of the
"target earnings" for such year. Target earnings for 1998 were set by the
Compensation Committee of the Board. Each Employment Agreement also provides
that the executive will receive six months base salary if his employment is
terminated without "cause" (as defined), and prohibits the executive from
directly or indirectly competing with the Company for one year after termination
of his employment (six months if he is terminated by the Company without
"cause"). The Employment Agreements were approved by the Compensation Committee
of the Company's Board of Directors.
Each of Messrs. Tesney, Watts, Hess and Tortorici will, prior to the
Merger, enter into a new employment agreement with WinsLoew replacing his
existing employment agreement. The new employment agreements will provide for
substantially the same base salaries and annual cash bonuses as their existing
employment agreements.
Each of the Named Executive Officers holds options to purchase Common Stock
under the Company's Amended and restated 1994 Stock Option Plan. To the extent
not already exercisable, such options generally become exercisable upon (i) a
reorganization, merger, consolidation or other form of corporate transaction
with respect to which ownership of a majority of the voting power of the Common
Stock is transferred, (ii) liquidation or dissolution of the Company or (iii)
the sale of all or substantially all of the Company's assets.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Powell, the Company's Chairman, also serves on the Board of Directors
of CHC International, Inc., a hotel and casino development and management
company. Mr. Weiser, a director and member of the Compensation Committee of the
Company, serves as Chairman of the Board, President and Chief Executive Officer
of CHC International, Inc. See "-- Directors and Executive Officers of
WinsLoew."
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PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date by (i) each person
known by the Company to beneficially own more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each "Named Executive Officer" of the Company (as defined below in "Executive
Compensation-Summary Compensation Table"), and (iv) all directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK(2)
------------------------------
NUMBER OF SHARES PERCENTAGE
---------------- ----------
<S> <C> <C>
Earl W. Powell(3)(4)............................... 2,000,687 27.7%
Phillip T. George, M.D.(3)(5)...................... 1,866,783 25.9%
Trivest Group, Inc.(3)(6).......................... 908,455 12.6%
FMR Corp.(7)....................................... 596,200 8.3%
Trivest Special Situations Fund 1985, L.P.(3)(8)... 542,816 7.6%
Cadence Capital Management(9)...................... 378,500 5.3%
Heartland Advisors, Inc.(10)....................... 229,300 3.2%
R. Craig Watts(11)................................. 178,237 2.5%
M. Miller Gorrie(12)............................... 157,450 2.2%
Bobby Tesney(13)................................... 142,693 2.0%
Stephen C. Hess(14)................................ 93,602 1.3%
Vincent A. Tortorici, Jr.(15)...................... 56,950 *
James S. Smith(16)................................. 36,500 *
Rick J. Stephens(17)............................... 33,478 *
Henry C. Cheek(18)................................. 22,500 *
Sherwood M. Weiser(19)............................. 18,675 *
William H. Allen, Jr.(20).......................... 12,050 *
Peter W. Klein(3)(21).............................. 9,550 *
Jerry C. Camp(22).................................. 7,262 *
William F. Kaczynski, Jr.(3)(23)................... 1,000 *
All directors and executive officers as a group (15
persons)(24)..................................... 2,933,990 38.6%
</TABLE>
- -------------------------
(*) Less than 1%
(1) Except as otherwise indicated below, the address of each beneficial owner
is 160 Village Street, Birmingham, Alabama 35242.
(2) Except as otherwise indicated below, all shares are owned directly and each
person has sole voting and investment power with respect to all shares. For
purposes of this table, a person is deemed to have "beneficial ownership"
of any shares as of a given date which the person has the right to acquire
within 60 days after such date. For purposes of computing the outstanding
shares held by each person named above on a given date, any shares which
such person has the right to acquire within 60 days
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<PAGE> 133
after such date are deemed to be outstanding, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person. However, the table does not reflect the acceleration of stock
options vesting that will result from the Merger. See "THE MERGER
-- Cash-out of WinsLoew Stock Options."
(3) The beneficial owner's address is 2665 South Bayshore Drive, Suite 800,
Miami, Florida 33133.
(4) Includes 259,135 shares owned directly, 38,125 shares subject to
exercisable options granted under the Company's stock option plan, 662,484
shares held of record by Trivest Fund I, Ltd., 245,971 shares held of
record by Trivest Equity Partners I, Ltd., 116,459 shares held of record by
Trivest Principals' Fund 1988, of which Mr. Powell is a general partner,
542,816 shares owned of record by Trivest Special Situations Fund 1985,
L.P. ("TSSF") (see note (8)) and 135,697 shares owned of record by Trivest
Annuity Fund, Ltd.("Annuity Fund"). Excludes 13,000 shares subject to
unvested options that will become fully vested and exercisable upon
consummation of the Merger. The General Partner of Annuity Fund is Trivest
Plan Sponsor, Inc. ("Trivest Plan Sponsor"). Messrs. Powell and George are
executive officers and directors of Trivest Plan Sponsor and beneficially
own 100% of its outstanding stock.
(5) Includes 136,641 shares owned directly, 1,965 shares held of record by Dr.
George as custodian for his minor children under the Florida Uniform Gifts
to Minors Act as to which Dr. George disclaims beneficial ownership, 24,750
shares subject to exercisable options under the Company's stock option
plan, 662,484 shares held of record by Trivest Fund I, Ltd., 245,971 shares
held of record by Trivest Equity Partners I, Ltd., 116,459 shares held of
record by Trivest Principals' Fund 1988, of which Dr. George is a general
partner, 542,816 shares of record owned by TSSF (See note (8)), and 135,697
shares owned of record by Annuity Fund. Excludes 11,000 shares subject to
unvested options that will become fully vested and exercisable upon
consummation of the Merger. The General Partner of Annuity Fund is Trivest
Plan Sponsor. Messrs. Powell and George are executive officers and
directors of Trivest Plan Sponsor and beneficially own 100% of its
outstanding stock.
(6) Trivest Group, Inc. serves as the sole general partner of Trivest 1988 Fund
Managers, Ltd., which in turn is the sole general partner of (i) Trivest
Fund I, Ltd., a privately held investment partnership that holds of record
662,484 shares of Common Stock, and (ii) Trivest Equity Partners I, Ltd., a
privately held investment partnership that holds of record 245,971 shares
of Common Stock. Messrs. Powell and George are executive officers and
directors of Trivest Group, Inc. and beneficially own 100% of its
outstanding capital stock.
(7) The address for FMR Corp. is 82 Devonshire Street, Boston, Massachusetts
02109.
(8) The general partner of TSSF is Trivest Associates, L.P. ("Associates"), a
Florida limited partnership whose general partner is Trivest, Inc. Messrs.
Powell and George are executive officers and directors of Trivest Inc. and
beneficially own 100% of its outstanding capital stock. Messrs. Powell and
George are also limited partners of Associates.
(9) The address for Cadence Capital Management is One Exchange Place, 29th
Floor, Boston, Massachusetts 02109.
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<PAGE> 134
(10) The address for Heartland Advisors, Inc. is 790 North Milwaukee Street,
Milwaukee, Wisconsin 53202.
(11) Includes 113,062 shares owned directly and 65,175 shares subject to
exercisable options granted under the Company's Stock Option Plan. Excludes
20,000 shares subject to unvested options that will become fully vested and
exercisable upon consummation of the Merger. Mr. Watts' address is 1801 N.
Andrews Avenue, Pompano Beach, Florida 33062.
(12) Includes 62,750 shares owned directly and 16,000 shares subject to
exercisable options granted under the Company's stock option plan and
78,700 shares owned by Brasfield & Gorrie, General Contractors,
Incorporated. Excludes 14,000 shares subject to unvested options that will
become fully vested and exercisable upon consummation of the Merger. Mr.
Gorrie's address is c/ o Brasfield and Gorrie, 729 South 30th Street,
Birmingham, Alabama 35233.
(13) Includes 51,693 shares owned directly and 91,000 shares subject to
exercisable options granted under the Company's stock option plan. Excludes
34,000 shares subject to unvested options that will become fully vested and
exercisable upon consummation of the Merger.
(14) Includes 31,602 shares owned directly and 62,000 shares subject to
exercisable options granted under the Company's stock option plan. Excludes
23,000 shares subject to unvested options that will become fully vested and
exercisable upon consummation of the Merger.
(15) Includes 16,950 shares owned directly and 40,000 shares subject to
exercisable options granted under the Company's stock option plan. Excludes
20,000 shares subject to unvested options that will become fully vested and
exercisable upon consummation of the Merger.
(16) Includes 20,000 shares owned directly and 16,500 shares subject to
exercisable options granted under the Company's stock option plan. Excludes
16,000 shares subject to unvested options that will become fully vested and
exercisable upon consummation of the Merger. Mr. Smith's address is Suite
916, 10 Rockefeller Plaza, New York, New York 10020.
(17) Includes 14,978 shares owned directly and 18,500 shares subject to
exercisable options granted under the Company's stock option plan. Excludes
6,500 options subject to unvested options that will become fully vested and
exercisable upon consummation of the Merger.
(18) Includes 6,000 shares owned directly and 16,500 shares subject to
exercisable options granted under the Company's stock option plan. Excludes
16,000 shares subject to unvested options that will become fully vested and
exercisable upon consummation of the Merger. Mr. Cheek's address is 3713
Fairway Drive, DCBE, Granbury, Texas 76049.
(19) Includes 5,675 shares held by Mr. Weiser's wife, 2,000 shares owned
directly and 11,000 shares subject to exercisable options granted under the
Company's stock option plan. Excludes 14,000 shares subject to unvested
options that will become fully vested and exercisable upon consummation of
the Merger. Mr. Weiser's address is 3250 Mary Street, 5th Floor, Miami,
Florida 33133.
(20) Includes 1,050 shares owned directly and 11,000 shares subject to
exercisable options granted under the Company's stock option plan. Excludes
14,000 shares subject to
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<PAGE> 135
unvested options that will become fully vested and exercisable upon
consummation of the Merger. Mr. Allen's address is c/o Nations Bank South,
200 S.E. 1st Street, Suite 800, Miami, Florida 33131.
(21) Represents 9,550 shares subject to exercisable options granted under the
Company's stock option plan. Excludes 13,000 shares subject to unvested
options that will become fully vested and exercisable upon consummation of
the Merger.
(22) Includes 1,762 shares owned directly and 5,500 shares subject to
exercisable options granted under the Company's stock option plan. Excludes
3,000 shares subject to unvested options that will become fully vested and
exercisable upon consummation of the Merger.
(23) Includes 1,000 shares subject to exercisable options. Excludes 6,500 shares
subject to unvested options that will become fully vested and exercisable
upon consummation of the Merger.
(24) Includes an aggregate of 426,600 shares subject to exercisable options
granted under the Company's stock option plan, 1,024,914 shares owned of
record by Trivest Fund I, Ltd., Trivest Equity Fund I, Ltd., and Trivest
Principals' Fund 1988 and 678,513 shares owned of record by TSSF and
Annuity Fund. See notes (4), (5), (6) and (7).
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<PAGE> 136
CERTAIN INFORMATION CONCERNING
THE PURCHASER AND OTHER AFFILIATES
Purchaser. The Purchaser is a newly-formed Florida corporation organized
at the direction of the Trivest Partnerships. The principal executive offices of
the Purchaser are located at 2665 South Bayshore Drive, Suite 800, Miami,
Florida 33133. The telephone number is (305) 858-2200.
Trivest Directors. The Trivest Directors are Earl W. Powell, Phillip T.
George, M.D., William F. Kaczynski, Jr. and Peter W. Klein. See
"MANAGEMENT -- Directors and Executive Officers of WinsLoew." The principal
business address of each of them is c/o Trivest, Inc., 2665 South Bayshore
Drive, Suite 800, Miami, Florida 33133. Each of the Trivest Directors is a
citizen of the United States. Each of their principal occupations is as a
director and/or executive officer of Trivest and associated entities.
Management Group. The members of the Management Group are the following
executive officers of WinsLoew: Bobby Tesney, President and Chief Executive
Officer, Stephen C. Hess, Executive Vice President, Casual Furniture, Vincent A.
Tortorici, Jr., Vice President and Chief Financial Officer, R. Craig Watts,
Executive Vice President, Contract Seating, Rick J. Stephens, Vice President,
Operations, and Jerry C. Camp, Vice President, Casual Furniture Operations. See
"MANAGEMENT -- Directors and Executive Officers of WinsLoew." The business
address for each member of the Management Group is the principal executive
offices of WinsLoew, located at 160 Village Street, Birmingham, Alabama 35242.
Each member of the Management Group is a citizen of the United States.
TRIVEST FURNITURE PARTNERS, LTD.
Trivest Furniture Partners, Ltd. Trivest Furniture Partners, Ltd., a
Florida limited partnership, is a privately held investment partnership
established for the purpose of providing equity financing for the Merger. Its
principal executive offices are located at 2665 South Bayshore Drive, Suite 800,
Miami, Florida 33133. Its sole general partner is TFP, Ltd.
TFP, Ltd. Trivest Furniture, Ltd. is a Florida limited partnership
established for the purpose of managing Trivest Furniture Partners, Ltd., of
which it is the sole general partner. Its principal executive offices are
located at 2665 South Bayshore Drive, Suite 800, Miami, Florida 33133. Its sole
general partner is Trivest.
Trivest. Trivest II, Inc., a Florida corporation, is a private investment
firm specializing in management services and acquisitions, dispositions and
leveraged layouts. It is the sole general partner of TFP, Ltd. Mr. Powell is the
controlling shareholder and sole director of Trivest. The following persons are
the executive officers of Trivest: Mr. Powell, Dr. George, Mr. Kaczynski, Mr.
Klein, Troy D. Templeton, Derek A. McDowell, B. Jay Anderson and Peter
Vandenberg, Jr. Each such person is a citizen of the United States. Each of
their principal occupations is as a director or executive officer of Trivest and
associated entities. See "MANAGEMENT -- Directors and Executive Officers of
WinsLoew." Set forth below is a brief description of the business experience
during at least the last five years of each of Messrs. Templeton, McDowell,
Anderson and
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Vandenberg. The principal executive offices of Trivest are located at 2665 South
Bayshore Drive, Suite 800, Miami, Florida 33133.
TROY D. TEMPLETON. Mr. Templeton has served as an executive officer of
Trivest since 1989 and is presently Senior Managing Director. Prior to joining
Trivest, Mr. Templeton served in various capacities with Southeast Bank, N.A. in
Miami, Florida.
DEREK A. MCDOWELL. Mr. McDowell has served as an executive officer of
Trivest since January 1998 and is presently a Managing Director. Prior to
joining Trivest, Mr. McDowell served in various capacities for eight years with
private equity and management consulting firms, including: H.I.G. Capital
Management, Continental Illinois Venture Corporation, and Corporate Value
Associates.
B. JAY ANDERSON. Mr. Anderson has served as an executive officer of
Trivest since 1987 and is presently Treasurer and Chief Financial Officer. Prior
to joining Trivest, Mr. Anderson served as Audit Manager with KPMG-Peat Marwick
in Miami from 1981 to 1987.
PETER VANDENBERG, JR. Mr. Vandenberg, a Certified Public Accountant, has
served as an executive officer of Trivest since January 1999 and is presently a
Managing Director. Mr. Vandenberg has served as President of Biscayne, one of
Trivest's associated entities, since November 1997 and as Chief Operating
Officer of Biscayne since March 1998. The common stock of Biscayne is quoted on
the NASD OTC Bulletin Board. Biscayne filed a Voluntary Chapter 11 bankruptcy
petition in February 1999. Mr. Vandenberg joined Biscayne in January 1987 and
has served as Vice President (Executive Vice President from December 1996 until
becoming President), Treasurer and Chief Financial Officer since such time
(except for the period from April 1991 to September 1991, when he served as a
Vice President of Biscayne and as an executive officer of Trivest). He was
appointed a director of Biscayne in November 1994. Prior to joining Trivest, Mr.
Vandenberg served in various capacities with Peat Marwick from December 1977
until January 1987, and was a senior manager of that firm from July 1984 until
joining the Company.
TRIVEST FUND II GROUP, LTD.
Trivest Fund II Group, Ltd. Trivest Fund II Group, Ltd., a Florida limited
partnership, is a privately held investment partnership established for the
purpose of providing equity financing for the Merger. Its principal executive
offices are located at 2665 South Bayshore Drive, Suite 800, Miami, Florida
33133. Its sole general partner is Trivest Equities, Inc.
Trivest Equities, Inc. Trivest Equities, Inc., a Florida corporation, is
principally engaged in the business of investing through partnerships in other
companies. It is the sole general partner of Trivest Fund II Group, Ltd. Mr.
Powell is the controlling shareholder of Trivest Equities, Inc., and Messrs.
Powell and George are its sole directors. The following persons are the
executive officers of Trivest Equities, Inc.: Messrs. Powell, George, Kaczynski,
Klein, Templeton, McDowell, Anderson and Vandenberg. Each such person is a
citizen of the United States. Each of their principal occupations is as a
director or executive officer of Trivest and associated entities, including
Trivest Equities, Inc. See "MANAGEMENT -- Directors and Executive Officers of
WinsLoew." Set forth above is a brief description of the business experience
during at least the last five years of each of Messrs. Templeton, McDowell,
Anderson and Vandenberg. The principal executive offices of Trivest Equities,
Inc. are located at 2665 South Bayshore Drive, Suite 800, Miami, Florida 33133.
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CERTAIN TRANSACTIONS
Investment Services Agreement. In December 1994, the Company entered into
a ten-year Investment Services Agreement with Trivest, pursuant to which Trivest
provides corporate finance, strategic and capital planning and other management
advice to the Company, including (i) conducting relations on behalf of the
Company with accountants, attorneys, financial advisors and other professionals,
(ii) providing reports to the Company with respect to the value of its assets,
and (iii) rendering advice with respect to acquisitions, dispositions,
financings and refinancings. Pursuant to the Investment Services Agreement,
Trivest receives a base annual fee of $500,000 (in 1994), subject to cost-of-
living increases. In addition, for each additional business acquired by the
Company, Trivest's base compensation will generally be increased by the greater
of (i) $100,000, and (ii) the sum of 5% of the additional business's projected
annual earnings before income taxes, interest expense and amortization of
goodwill ("EBITA") for the fiscal year in which it is acquired up to $2.0
million of EBITA, plus 3.5% of EBITA in excess of $2.0 million. Moreover,
subject to the approval of the Company's board (including a majority of
disinterested directors), for each acquisition or disposition of any business
operation by the Company introduced or negotiated by Trivest, Trivest will
generally receive a fee of up to 3% of the purchase price. The Company paid
Trivest an aggregate of approximately $604,000, $628,000 and $891,000 under the
Investment Services Agreement in each of 1996, 1997 and 1998, respectively. In
addition, the Company has agreed to pay Trivest a fee of approximately $375,000
million in connection with the closing of the Pompeii acquisition.
Pursuant to an amendment entered into between Trivest and the Company as of
March 5, 1999, the parties agreed that (i) no such fee would be payable to
Trivest with respect to the Merger, (ii) if the Termination Fee is paid in
connection with a Superior Proposal pursuant to the Merger Agreement, no such
fee shall be payable with respect to such Superior Proposal under the Investment
Services Agreement, and (iii) Trivest shall not be reimbursed under the
Investment Services Agreement for any expenses related to the Merger or a
Superior Proposal. See "SPECIAL FACTORS -- Background" and "THE
MERGER -- Termination."
Trivest Legal Department. Trivest maintains an internal legal department,
which accounts for its time on an hourly basis and bills Trivest and its
affiliates, including the Company, for services rendered at prevailing rates. In
1998, the Company paid Trivest $40,516.25 for services rendered by the legal
department. The Company believes that the fees charged by the Trivest legal
department in 1998 were no less favorable to the Company than fees charged by
unaffiliated third parties for similar services.
Trivest Financial Advisory Fee. Upon consummation of the Merger, the
Company will pay a financial advisory fee to Trivest of approximately $3.0
million in connection with the financing of the Merger and related transactions.
Trivest assisted WinsLoew in (i) reviewing, analyzing and negotiating the
financial and business terms of the Merger, (ii) negotiating with and selecting
the initial purchasers for the offering of senior subordinated notes and
preparing the related Offering Memorandum, (iii) obtaining and negotiating
WinsLoew's new senior credit facility, and (iv) reviewing the services provided
by WinsLoew's attorneys, accountants and other professionals.
Trivest Management Agreement. Effective upon the consummation of the
Merger, WinsLoew will enter into a new ten-year agreement (the "Management
Agreement") with Trivest. Pursuant to the Management Agreement, Trivest will
provide WinsLoew with
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<PAGE> 139
corporate finance, strategic and capital planning and other management advice
for an annual fee, payable quarterly in advance, of $350,000 (subject to
cost-of-living adjustments). Pursuant to the Management Agreement, for each
additional business operation acquired by WinsLoew which has EBITA of $2.0
million or more, Trivest's annual base compensation will generally increase by
an amount equal to the greater of (i) $50,000 and (ii) an amount determined in
good faith by Trivest and a majority of WinsLoew's disinterested directors. In
addition, for each acquisition of any business operation introduced or
negotiated by Trivest and for each disposition of any of WinsLoew's business
operations negotiated by Trivest, Trivest will generally receive a fee equal to
up to 3.0% of the purchase price.
MARKET PRICES OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "WLFI" since January 1, 1995. The following table sets forth,
for the period indicated, the high and low sales price per share of Common Stock
as reported by the Nasdaq National Market System:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter........................................... $11 7/8 $ 8 1/8
Second Quarter.......................................... $11 $ 8 3/8
Third Quarter........................................... $15 $10 15/16
Fourth Quarter.......................................... $16 13/16 $13 5/16
1998
First Quarter........................................... $20 5/8 $13 3/4
Second Quarter.......................................... $29 $20 11/16
Third Quarter........................................... $28 3/4 $15 1/2
Fourth Quarter.......................................... $26 1/2 $17 7/8
1999
First Quarter........................................... $28 3/4 $23
Second Quarter.......................................... $33 5/8 $27 5/8
Third Quarter (through July 27, 1999)................... $34 1/16 $32 9/16
</TABLE>
On January 6, the last trading day prior to the Board meeting at which Mr.
Powell stated that he, together with the other Trivest Investors and the
Management Group, would be willing to submit a proposal to purchase the Company,
the closing price per share of the Common Stock as reported by Nasdaq was
$24 3/8. On January 15, 1999, the last trading day prior to the announcement of
the delivery of Mr. Powell's initial proposal to the Special Committee, the
closing price per share of the Common Stock as reported by Nasdaq was $27. On
January 25, the last trading day prior to the announcement of the execution of
the Letter of Intent relating to the Merger, the closing price per share of the
Common Stock as reported by Nasdaq was $28 1/2. On March 4, 1999, the last
trading day prior to announcement of the First Amended Merger Agreement, the
closing price per share of Common Stock as reported by Nasdaq was $26 3/4. On
March 30, 1999, the last trading day prior to the announcement of the First
Amended Merger Agreement increasing
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<PAGE> 140
the per share purchase price from $30.00 to $33.00, the closing price per share
of the Common Stock as reported by Nasdaq was $27 1/2. On May 4, 1999, the last
trading day prior to the announcement of the Merger Agreement increasing the per
share purchase price from $33.00 to $34.75, the closing price per share of the
Common Stock as reported by Nasdaq was $32 1/4. On July 27, 1999, the last
trading day prior to the printing of this Proxy Statement, the closing price per
share of Common Stock as reported by Nasdaq was $33 1/2.
As of the Record Date, there were approximately 103 holders of record of
Common Stock and approximately 2,300 persons or entities holding Common Stock in
nominee name.
The Company has not declared nor paid any cash dividends on its Common
Stock, does not anticipate that any dividends will be declared nor paid in the
foreseeable future, and intends to retain earnings to finance the development
and expansion of the Company's operations. Under the Merger Agreement, the
company has agreed not to pay any dividends on the Common Stock prior to the
Effective Date. In addition, the Company's payment of dividends is also
restricted under the terms of its credit facilities (see Note 4 of Notes to the
Company's Consolidated Financial Statements).
In January 1998, the Board approved a plan to acquire up to 1,000,000
shares of Common Stock. The purchases commenced in May 1998 and were funded by
the Company's senior credit facility. As of the date of this Proxy Statement,
the Company had acquired 112,500 shares for approximately $3.2 million under the
plan at prices ranging from $27 5/8 to $28 1/2 per share, and the last purchase
of Common Stock by the Company under such plan was on February 25, 1999 of
20,000 shares at a per share price of $27 5/8. All such purchases were effected
through brokers on the Nasdaq National Market System. The average price per
share for such purchases during each fiscal quarter since January 1998 were as
follows:
<TABLE>
<S> <C>
1998
First Quarter............................................... N/A
Second Quarter.............................................. $27 1/2
Third Quarter............................................... $17 3/4
Fourth Quarter.............................................. $19
1999
First Quarter............................................... $28 1/3
</TABLE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains certain forward-looking statements regarding
the intent, belief and current expectations of the Company's management.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Generally, these statements relate to
business plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies, or projections involving anticipated
revenues, expenses, earnings, levels of capital expenditures or other aspects of
operating results. The operations of the Company are subject to a number of
uncertainties, risks and other influences, many of which are outside the control
of the Company and any
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<PAGE> 141
one of which, or a combination of which, could materially affect the results of
the Company's operations and whether the forward-looking statements made by the
Company ultimately prove to be accurate. The Company assumes no obligation to
update any forward-looking statements.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP, certified public accountants, served as the Company's
independent auditors for the fiscal year ended December 31, 1998. The
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997, and
the related Consolidated Statements of Income, Shareholders' Equity and Cash
Flows for each of the three fiscal years in the period ended December 31, 1998
included in this Proxy Statement have been audited by Ernst & Young LLP,
independent auditors, as stated in their report. A representative of Ernst &
Young LLP will be present at the Special Meeting to answer appropriate questions
from shareholders and will have the opportunity to make a statement if so
desired.
INFORMATION CONCERNING SHAREHOLDER PROPOSALS
WinsLoew's annual meeting of shareholders is normally held in June of each
year. Management has postponed the date of the 1999 annual meeting of
shareholders pending the Special Meeting. If the proposal to approve the Merger
is not approved at the Special Meeting, then the 1999 annual meeting of
shareholders will be held in November 1999. In order to be considered for
inclusion in the Company's proxy statement and form of proxy for the 1999 annual
meeting of shareholders, proposals of shareholders intended to be presented at
the meeting must be submitted to the Company in accordance with the procedures
prescribed in Rule 14a-8 under the Exchange Act and must be received by the
Company at its principal executive offices by August 31, 1999. Pursuant to the
Company's Articles of Incorporation, in order to be considered at such meeting,
proposals of shareholders must be received by the Company at its principal
executive offices by the tenth day following the date on which notice of the
date of the meeting is given to shareholders or made public, whichever occurs
first. The Company's proxy statement for the 1999 annual meeting of
shareholders, if held, will confer discretionary authority to vote on any
shareholder proposal presented at the meeting unless the Company receives notice
of such proposal by such date.
OTHER BUSINESS
The Board knows of no other business to be brought before the Special
Meeting. If, however, any other business should properly come before the Special
Meeting, it is the intention of the persons named in the accompanying proxy to
vote proxies as in their discretion they may deem appropriate, unless they are
directed by a proxy to do otherwise.
DOCUMENTS INCORPORATED BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the Special Meeting and any adjournment or postponement thereof, shall
be deemed to be
131
<PAGE> 142
incorporated by reference in this Proxy Statement and to be a part hereof for
purposes of the Exchange Act from the date of the filing of such documents. Any
statement contained in this Proxy Statement, in a supplement to this Proxy
Statement or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein or in any
subsequently filed supplement to this Proxy Statement or in any document that
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements, and other
information with the Commission. The reports, proxy statements, and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the following Regional Offices of
the Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company. The same information is also available on the
Internet at http://www.FreeEDGAR.com.
The Affiliates (consisting of the Purchaser, the members of the Management
Group, the Trivest Partnerships and the Trivest Directors), have filed a
Schedule 13E-3 with the Commission with respect to the transactions contemplated
by the Merger Agreement. As permitted by the rules and regulations of the
Commission, this Proxy Statement omits certain information and exhibits
contained in the Schedule 13E-3. The Schedule 13E-3 (including exhibits) and any
amendments thereto may be inspected and copied at, or obtained from, the
Commission's offices as set forth above. For further information, reference is
hereby made to the Schedule 13E-3 and the exhibits thereto. Statements contained
in this Proxy Statement concerning documents filed with the Commission as
exhibits to the Schedule 13E-3 or attached as Appendices to this Proxy Statement
are not necessarily complete and, in each instance, reference is made to the
copy of the document filed as an exhibit to the Schedule 13E-3 or attached as an
Appendix to this Proxy Statement. Each statement in this Proxy Statement
concerning such a document is qualified in its entirety by reference to such
document.
Certain documents discussed in this Proxy Statement, including, without
limitation, the Schedule 13E-3 and all exhibits thereto, are also available for
inspection and copying at the principal executive offices of the Company at 160
Village Street, Birmingham, Alabama 35242, telephone (205) 408-7600, during its
regular business hours, by any
132
<PAGE> 143
shareholder or his or her representative so designated in writing. Upon the
written request of a shareholder directed to the Secretary of the Company at the
above address, the Company will mail to such shareholder a copy of any such
document at the expense of such shareholder.
If the Merger is consummated, the Company will deregister the Common Stock
and will no longer be subject to the requirements of the Exchange Act. See
"SPECIAL FACTORS -- Certain Effects of the Merger."
No person has been authorized to give any information or make any
representation in connection with the solicitation of proxies made hereby other
than those contained or incorporated by reference in this Proxy Statement, and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or the Purchaser. This Proxy Statement
does not constitute a solicitation of a proxy in any jurisdiction where, or to
or from any person to whom, it is unlawful to make such proxy solicitation in
such jurisdiction. The delivery of this Proxy Statement shall not, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
or incorporated by reference herein is correct as of any time subsequent to its
date. Information in this Proxy Statement about the Company has been provided by
the Company and information about the Purchaser has been provided by the
Purchaser.
By Order of the Board of Directors
/s/ Bobby Tesney
Bobby Tesney
President and Chief Executive Officer
Birmingham, Alabama
July 29, 1999
133
<PAGE> 144
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Income For the Years Ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Stockholders' Equity For the
Years Ended December 31, 1998, 1997 and 1996.............. F-5
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1998, 1997 and 1996.......................... F-6
Notes to Consolidated Financial Statements.................. F-8
Consolidated Balance Sheets as of June 25, 1999 and December
31, 1998 (Unaudited)...................................... F-25
Consolidated Statements of Income For the Six Months Ended
June 25, 1999 and June 26, 1998 (Unaudited)............... F-26
Consolidated Statements of Cash Flows For the Six Months
Ended June 25, 1999 and June 26, 1998 (Unaudited)......... F-27
Notes to Consolidated Financial Statements (Unaudited)...... F-28
</TABLE>
F-1
<PAGE> 145
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders of WinsLoew Furniture, Inc.
We have audited the accompanying consolidated balance sheets of WinsLoew
Furniture, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of WinsLoew
Furniture, Inc. and Subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Birmingham, Alabama
January 29, 1999
F-2
<PAGE> 146
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
--------- ---------
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 475 $ 707
Cash in escrow.............................................. 1,000 --
Accounts receivable, less allowances for doubtful accounts
of $1,694 and $788 at December 31, 1998 and 1997,
respectively.............................................. 23,647 22,031
Inventories................................................. 12,206 10,433
Prepaid expenses and other current assets................... 4,638 7,409
Net assets of discontinued operations....................... -- 1,470
------- -------
Total current assets................................... 41,966 42,050
Net assets of discontinued operations....................... -- 4,548
Property, plant and equipment, net.......................... 13,948 12,023
Goodwill, net............................................... 27,176 21,021
Other assets, net........................................... 1,463 772
------- -------
$84,553 $80,414
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt........................... $ 47 $ 515
Accounts payable............................................ 4,377 3,395
Other accrued liabilities................................... 9,952 8,203
Net liabilities of discontinued operations.................. 1,750 --
------- -------
Total current liabilities.............................. 16,126 12,113
Long-term debt, net of current portion...................... 1,400 15,908
Deferred income taxes....................................... 801 1,367
------- -------
Total liabilities...................................... 18,327 29,388
------- -------
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, par value $.0l per share, 5,000,000 shares
authorized, none issued................................... -- --
Common stock -- par value $.0l per share, 20,000,000 shares
authorized, 7,294,408 and 7,526,508 shares issued and
outstanding at December 31, 1998 and 1997, respectively... 73 75
Additional paid-in capital.................................. 19,797 24,926
Retained earnings........................................... 46,356 26,025
------- -------
Total stockholders' equity.................................. 66,226 51,026
------- -------
$84,553 $80,414
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 147
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales................................................. $141,360 $122,145 $117,405
Cost of sales............................................. 87,232 79,431 78,029
-------- -------- --------
Gross profit............................................ 54,128 42,714 39,376
Selling, general and administrative expenses.............. 23,124 21,427 21,472
Amortization.............................................. 1,122 992 1,444
-------- -------- --------
Operating income........................................ 29,882 20,295 16,460
Interest expense.......................................... 635 2,296 3,083
-------- -------- --------
Income from continuing operations before income taxes... 29,247 17,999 13,377
Provision for income taxes................................ 10,947 6,838 4,834
-------- -------- --------
Income from continuing operations....................... 18,300 11,161 8,543
Loss from discontinued operations, net of taxes........... -- (718) (259)
Gain (loss) from sale of discontinued operations, net of
taxes................................................... 2,031 (8,200) --
-------- -------- --------
Net income........................................... $ 20,331 $ 2,243 $ 8,284
======== ======== ========
Basic earnings (loss) per share:
Income from continuing operations....................... $ 2.46 $ 1.49 $ 0.98
Loss from discontinued operations, net of taxes......... -- (0.09) (0.03)
Gain (loss) from sale of discontinued operations, net of
taxes................................................ 0.27 (1.10) --
-------- -------- --------
Net income........................................... $ 2.73 $ 0.30 $ 0.95
======== ======== ========
Weighted average number of shares....................... 7,450 7,484 8,724
======== ======== ========
Diluted earnings (loss) per share:
Income from continuing operations....................... $ 2.40 $ 1.48 $ 0.98
Loss from discontinued operations, net of taxes......... -- (0.10) (0.03)
Gain (loss) from sale of discontinued operations, net of
taxes................................................ 0.27 (1.08) --
-------- -------- --------
Net income........................................... $ 2.67 $ 0.30 $ 0.95
======== ======== ========
Weighted average number of shares and common stock
equivalents.......................................... 7,624 7,563 8,730
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 148
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- -------- -------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995.... 8,967,112 $90 $37,640 $15,498 $53,228
Exercise of stock options..... 25,100 -- 187 -- 187
Repurchase and cancellation of
stock....................... (576,925) (6) (3,958) -- (3,964)
Repurchase and cancellation of
stock from affiliated
company..................... (933,504) (9) (9,326) -- (9,335)
Net income.................... -- -- -- 8,284 8,284
--------- --- ------- ------- -------
BALANCE, DECEMBER 31, 1996.... 7,481,783 75 24,543 23,782 48,400
Exercise of stock options..... 94,725 1 872 -- 873
Repurchase and cancellation of
stock....................... (50,000) (1) (489) -- (490)
Net income.................... -- -- -- 2,243 2,243
--------- --- ------- ------- -------
BALANCE, DECEMBER 31, 1997.... 7,526,508 75 24,926 26,025 51,026
Exercise of stock options..... 63,900 1 924 -- 925
Repurchase and cancellation of
stock....................... (296,000) (3) (6,053) -- (6,056)
Net income.................... -- -- -- 20,331 20,331
--------- --- ------- ------- -------
BALANCE, DECEMBER 31, 1998.... 7,294,408 $73 $19,797 $46,356 $66,226
========= === ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 149
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $20,331 $ 2,243 $ 8,284
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 2,618 2,634 2,979
Provision for losses on accounts receivable.... 1,331 42 1,759
Change in net assets held for sale............. 6,743 14,710 1,591
Changes in operating assets and liabilities,
net of effects from acquisitions and
dispositions:
Accounts receivable.......................... (2,210) 1,875 (617)
Inventories.................................. (1,164) 1,182 288
Prepaid expenses and other current assets.... 2,779 (3,871) 50
Other assets................................. 843 691 (144)
Accounts payable............................. 792 (591) 1,841
Other accrued liabilities.................... (357) 3,386 (497)
Deferred income taxes........................ (566) (310) 690
------- -------- --------
Total adjustments......................... 10,809 19,748 7,940
------- -------- --------
Net cash provided by operating
activities.............................. 31,140 21,991 16,224
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of disposals......... (942) (425) (1,351)
Proceeds from disposition of business.......... -- 2,119 --
Proceeds from disposition of business held in
escrow....................................... (1,000) -- --
Investment in subsidiary....................... (9,323) -- --
------- -------- --------
Net cash provided by (used in) investing
activities.............................. (11,265) 1,694 (1,351)
------- -------- --------
</TABLE>
F-6
<PAGE> 150
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under revolving credit
agreements................................... (10,837) (19,872) (65)
Payments on long-term debt..................... (4,139) (4,386) (4,225)
Proceeds from issuance of common stock, net.... 925 873 187
Repurchase and cancellation of stock........... (6,056) (490) (3,964)
Repurchase and cancellation of stock from
affiliated company........................... -- -- (9,335)
Proceeds from issuance of long-term debt....... -- -- 3,030
------- -------- --------
Net cash used in financing activities..... (20,107) (23,875) (14,372)
------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................. (232) (190) 501
Cash and cash equivalents at beginning of
year......................................... 707 897 396
------- -------- --------
Cash and cash equivalents at end of year....... $ 475 $ 707 $ 897
======= ======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid.................................. $ 695 $ 2,318 $ 3,296
Income taxes paid.............................. $ 9,579 $ 6,048 $ 3,937
======= ======== ========
Investing activities included the acquisition
of Tropic Craft in 1998.
Assets acquired, liabilities assumed and
consideration paid was as follows:
Fair value of assets acquired................ $10,078
Cash acquired................................ (43)
Liabilities assumed.......................... (712)
-------
$ 9,323
=======
</TABLE>
See accompanying notes.
F-7
<PAGE> 151
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of WinsLoew
Furniture, Inc. ("WinsLoew") and its subsidiaries (the "Company"). All material
intercompany balances and transactions have been eliminated.
BUSINESS
WinsLoew is comprised of companies engaged in the design, manufacture and
distribution of casual, contract seating and ready-to-assemble ("RTA")
furniture. WinsLoew's casual furniture products are distributed through
independent manufacturer's representatives, and are constructed of extruded and
tubular aluminum, wrought iron and cast aluminum. These products are distributed
through fine patio stores, department stores and full line furniture stores
nationwide. WinsLoew's contract seating products are distributed to a customer
base which includes architectural design firms, restaurant and lodging chains.
WinsLoew's RTA products include promotionally priced coffee and end tables, wall
units and rolling carts. Distribution of RTA furniture products is primarily
through mass merchandisers, catalogue wholesalers and specialty retailers. The
Company performs periodic credit evaluations of its customers' financial
condition and determines if collateral is needed on a customer by customer
basis.
CASH AND CASH EQUIVALENTS
The Company classifies as cash and cash equivalents all highly liquid
investments which have maturities at the date of purchase of three months or
less. The Company maintains its cash in bank deposit accounts which, at times,
may exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
utilizing the first-in, first-out ("FIFO") and weighted average methods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company provides for
depreciation on a straight-line basis over the following estimated useful lives:
building and improvements, 8 to 40 years; manufacturing equipment, 2 to 10
years; office furniture and equipment, 3 to 7 years; and vehicles, 3 to 5 years.
GOODWILL
Goodwill is amortized on a straight-line basis over forty years from the
date of the respective acquisition. The carrying value of goodwill is reviewed
if the facts and circumstances suggest it may be impaired. If the review, using
undiscounted cash flows
F-8
<PAGE> 152
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
over the remaining amortization period, indicates that the cost of goodwill will
not be recoverable, the Company's carrying value are reduced.
DEFERRED COSTS (OTHER ASSETS)
Loan acquisition costs and related legal fees, included in other assets,
are deferred and amortized over the respective terms of the related debt.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
basis of assets and liabilities for financial reporting purposes and the related
basis for income tax purposes in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to SFAS No. 128 requirements.
The numerators for the earnings per share calculation are set forth on the
face of the accompanying income statements. The only difference between the
denominator for the basic and dilutive calculations are the number of shares
added to basic for the dilutive effect of employee stock options.
REVENUE RECOGNITION
Sales are recorded at time of shipment from the Company's facilities to
customers.
USE OF ESTIMATES
The preparation of the consolidated financial statements requires the use
of estimates in the amounts reported. Actual results could differ from those
estimates.
ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS
The Company follows the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees and related
Interpretations to account for its stock option plan. Under provisions of APB
No. 25, no compensation expense has been recognized for stock option grants.
F-9
<PAGE> 153
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY FORWARD CONTRACTS
The Company has exposure to losses which may result from settlement of
certain raw materials purchases denominated in a foreign currency. To reduce
this exposure, the Company has entered into forward contracts to buy foreign
currency. These forward contracts are accounted for as hedges, therefore, gains
and losses from settlement of the forward contracts are used to offset gains and
losses from settlement of the liability for the purchased raw materials. Gains
and losses are recognized in the same period in which gains or losses from the
raw material purchases are recognized. The Company is exposed to losses on the
forward contracts in the event it does not purchase the raw materials; however,
the Company does not anticipate this event.
At December 31, 1998 the Company did not have any forward contracts
outstanding. There were no significant deferred gains or (losses) and actual
gains (losses) included in cost of sales were ($12,000), $30,000 and $15,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The standard establishes principles for the
disclosure of information about operating segments in financial statements. The
adoption did not have any effect on the Company's primary financial statements,
but did effect the disclosure of segment information contained in Note 9.
2. DISCONTINUED OPERATIONS
During 1997, the Company adopted a plan to dispose of its RTA operations.
WinsLoew's RTA products included ergonomically-designed computer workstations,
which the Company denoted as "space savers", promotionally-priced coffee and end
tables, wall units and rolling carts and an extensive line of futons, futon
frames and related accessories. Distribution of RTA furniture products was
primarily through mass merchandisers, catalogue wholesalers and specialty
retailers. As a result of this decision, the Company recorded a pre-tax non-cash
charge totaling $12.4 million ($8.2 million net of taxes) in the fourth quarter
of 1997 relating to the disposal of the RTA operations. The charge can be
summarized as follows:
<TABLE>
<S> <C>
Write-off of goodwill in connection with sale of assets... $ 3,902,000
Reduction of inventory value.............................. 2,791,000
Reduction of property to net realizable value............. 2,067,000
Reduction of accounts receivable value.................... 1,390,000
Other liabilities/reserves................................ 1,050,000
Accrual for losses through disposition.................... 1,200,000
-----------
Total................................................ $12,400,000
===========
</TABLE>
F-10
<PAGE> 154
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company planned to sell two of the businesses and liquidate the assets
related to the futon business. During 1998 the Company sold one of the
businesses and completed the liquidation of the futon business. At the end of
1997 and during 1998, the Company attempted to sell its remaining RTA facility
but was unable to obtain a satisfactory offer. The Company devoted significant
management time to the operation resulting in improved profitability by the end
of 1998. Due to the recovery, the Company decided, during the fourth quarter of
1998, to retain Southern Wood.
As a condition of the sale mentioned above, WinsLoew is required to hold in
escrow $1.0 million of the sales proceeds to provide indemnification to the
purchaser for claims arising from the date of purchase to December 31, 1999.
The operating results of the discontinued operations are summarized as
follows (dollars in thousands, except for per share amounts):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Net sales......................................... $4,432 $15,921 $26,574
Income before taxes............................... -- (1,178) (385)
Net loss.......................................... -- (718) (259)
Net loss per share -- diluted..................... $ -- $ (0.10) $ (0.03)
</TABLE>
The net assets of the discontinued operations at December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current assets............................................. $ -- $ 3,449
Current liabilities, including reserve for estimated losses
through disposal date.................................... (1,750) (1,979)
------- -------
Net assets/liabilities of discontinued operations,
current.................................................. $(1,750) $ 1,470
======= =======
Property, net.............................................. $ -- $ 478
Goodwill, net.............................................. -- 4,018
Other assets............................................... -- 52
------- -------
Net assets of discontinued operations, non-current......... $ -- $ 4,548
======= =======
</TABLE>
Under the provisions of SFAS No. 5, Accounting for Contingencies, the
Company has evaluated the contingencies related to the sale of its discontinued
RTA operation and the liquidation of its discontinued futon operations. This
evaluation resulted in a net liability of $1,750,000 which is comprised of
$1,160,000 for the settlement of warranty claims and product returns in
accordance with the Company's warranty policy and contractual indemnity related
to the sale of the RTA operations, $200,000 in contingent liabilities related to
the closing of the sale of the RTA operations, $250,000 of litigation involving
a
F-11
<PAGE> 155
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disputed trade name and $140,000 of miscellaneous items. The contingent amounts
are expected to be finalized by December 31, 1999 and settled during 2000.
The total assets and liabilities of the subsequently retained Southern Wood
operation for the period classified as a discontinued operation were $4.0
million and $1.1 million, respectively, at December 31, 1997.
The operating results of the subsequently retained Southern Wood operation
for each of the years the operation was reported as a discontinued operation are
summarized as follows (dollars in thousands, except for per share amounts):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Net sales......................................... $11,689 $7,396 $10,710
Income before taxes............................... 1,004 399 30
Net income........................................ 611 247 18
Net income per share -- diluted................... $ 0.08 $ 0.03 $ --
</TABLE>
During 1998, the Company recorded pre-tax income from the disposition of
discontinued operations totaling $3.2 million ($2.0 million net of taxes). The
components are as follows:
<TABLE>
<S> <C>
Gain on liquidation of Futon operations................... $ 2,425,000
Reversal of reserves related to Southern Wood............. 1,857,000
Loss on sale of remaining RTA operation................... (1,093,000)
-----------
Total................................................ $ 3,189,000
===========
</TABLE>
The reversal of reserves is comprised of $1,157,000 related to the
write-down of assets to net realizable values, $400,000 estimated loss from
operations, and $300,000 for estimated costs of disposal. The amounts were a
reversal of the amounts accrued in 1997 for discontinued operations related to
Southern Wood.
The loss on the sale of the remaining RTA operation is the actual loss
incurred on the sale of the business in 1998.
As a result of the Board's decision to retain Southern Wood, the
consolidated financial statements for 1997 and 1996 have been reclassified to
reflect the results of operations and assets and liabilities, net of reserves
for discontinued operations, of Southern Wood as a continuing operation.
3. ACQUISITION AND DISPOSITION
During the third quarter of 1997, the Company disposed of certain assets of
its wrought iron business in the casual furniture product line. The sale
generated proceeds of $2.1 million. This business accounted for net sales of
$5.7 million and $11.0 million in the years ended December 31, 1997 and 1996,
respectively. The operating income of this
F-12
<PAGE> 156
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
business was not material to consolidated operating income. During the third
quarter of 1997, the Company recorded approximately $230,000 of costs associated
with the sale in selling, general and administrative expenses.
In June 1998, the Company purchased all of the stock of Villella, Inc.
d/b/a Tropic Craft Aluminum Furniture Manufacturers ("Tropic Craft") for $9.3
million. In addition, the seller will be entitled to receive a contingent
purchase price payment of up to $1.0 million upon achievement of targeted
earning performance with respect to the years ending June 30, 1999 and June 30,
2000. Tropic Craft is engaged in the design and manufacture of contract casual
furniture. The acquisition resulted in goodwill of $6.9 million. Funds for the
acquisition were provided under WinsLoew's credit facility. The acquisition was
accounted for under the purchase method and, accordingly, the operating results
of Tropic Craft have been included in the consolidated operating results since
the date of acquisition.
The following unaudited pro forma information has been prepared assuming
that the acquisition of Tropic Craft occurred on January 1, 1997. Permitted pro
forma adjustments include only the effects of events directly attributable to
the transaction that are factually supportable and expected to have a continuing
impact. The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the entire period
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net sales................................................ $144,752 $127,108
Income from continuing operations........................ $ 18,946 $ 11,298
Net income............................................... $ 20,977 $ 2,380
Income from continuing operations per share -- diluted... $ 2.49 $ 1.49
Net income per share -- diluted.......................... $ 2.76 $ 0.32
</TABLE>
F-13
<PAGE> 157
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Revolving line of credit.................................... $1,400 $ 1,546
Term loan................................................... -- 2,287
Acquisition line of credit.................................. -- 12,500
Other....................................................... 47 90
------ -------
1,447 16,423
Less: current portion....................................... 47 515
------ -------
$1,400 $15,908
====== =======
</TABLE>
SENIOR CREDIT FACILITIES
The Company's senior credit facility, as amended, provides for $62.5
million which matures in February 2001, and is collateralized by substantially
all of the assets of the Company. The facility consists of a working capital
revolving line of credit (maximum of $40 million), a term loan (originally $10
million) and an acquisition line of credit (maximum of $12.5 million). The
working capital revolving line of credit allows the Company to borrow funds up
to a certain percentage of eligible inventories and accounts receivable. The
term loan requires quarterly repayments. The acquisition line of credit converts
to a term loan with principal payments due in quarterly installments.
Additionally, a payment equal to 50% of cash flow, as defined, is required for
each year within 90 days of year-end. WinsLoew's amended senior credit facility
provides the Company with a variable amount available under the revolving line
of credit. Effective each June 30, the maximum amount available under its
revolving line of credit is $20 million. The Company may, at its option, elect
to increase the revolving line of credit at each December 31 through the
following June 30 to a maximum of $40 million. As of December 31, 1998, WinsLoew
elected to increase the revolving line of credit to $35 million.
The WinsLoew's senior credit facility allows the Company to borrow up to
$10 million under its line of credit to purchase shares of the Company's common
stock (see Note 5 below). At December 31, 1998 there was $6.1 million available
for this purpose.
The interest rates on the components of the senior credit facility are
either the base rate plus a spread, or the LIBOR rate plus a spread, as elected
by the Company. The spread is determined by the leverage ratio, as defined, for
the twelve month period ending each quarter. At December 31, 1998, the loans are
priced at the base rate plus 0.25% (8.25% at December 31, 1998). If any LIBOR
loans had been outstanding at December 31, 1998 they would have been priced at
the LIBOR rate plus 1.25%. In addition, WinsLoew pays an unused facility fee of
.375% per annum on a quarterly basis in arrears.
F-14
<PAGE> 158
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The agreement requires the Company to meet certain financial ratios for
leverage, interest coverage, tangible net worth and includes other provisions
generally common in such agreements including restrictions on dividends,
additional indebtedness and capital expenditures. At December 31, 1998, the
Company was in compliance with its debt covenants. The carrying value of the
revolving line of credit approximated its fair value at December 31, 1998.
5. CAPITAL STOCK
On January 23, 1998, the Board approved a plan authorizing the repurchase
of 1,000,000 shares of the Company's stock in the open market at times and
prices deemed advantageous. During 1998, the Company retired 296,000 shares of
common stock purchased for $6.1 million. Subsequent to December 31, 1998 the
Company has purchased 92,500 shares at a cost of $2.6 million. Currently, under
the Board approved repurchase plan, there are 611,500 shares available for
repurchase.
6. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1998 1997 1996
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for taxes related to continuing
operations....................................... $10,947 $6,838 $4,834
Benefit for taxes related to discontinued
operations....................................... -- (375) (126)
Provision (benefit) for taxes related to loss on
sale of discontinued operations.................. 1,158 (4,200) --
------- ------ ------
Total provision for taxes..................... $12,105 $2,263 $4,708
======= ====== ======
Federal:
Current.......................................... $10,128 $3,985 $4,478
Deferred......................................... 856 (1,936) (251)
State:
Current.......................................... 989 496 542
Deferred......................................... 132 (282) (61)
------- ------ ------
$12,105 $2,263 $4,708
======= ====== ======
</TABLE>
F-15
<PAGE> 159
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998 and 1997, deferred tax assets and liabilities
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Capitalized inventory costs.............................. $ 173 $ 415
Reserves and accruals.................................... 2,894 3,660
State net operating loss carryforwards................... 304 344
------- -------
Deferred tax assets........................................ 3,371 4,419
------- -------
Deferred tax liabilities:
Intangible asset basis difference........................ (191) (98)
Excess of tax over book depreciation..................... (611) (1,194)
Prepaid expenses......................................... (94) (93)
Other.................................................... (504) (75)
------- -------
Deferred tax liabilities................................. (1,400) (1,460)
------- -------
Deferred income taxes, net................................. $ 1,971 $ 2,959
======= =======
Included in:
Other current assets/liabilities......................... $ 2,772 $ 4,326
Deferred income taxes.................................... (801) (1,367)
------- -------
$ 1,971 $ 2,959
======= =======
</TABLE>
The following table summarizes the differences between the federal income
tax rate and the Company's effective income tax rate for financial statement
purposes:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate................................... 35.0% 34.0% 34.0%
State income taxes........................................ 3.4% 4.7% 2.2%
Goodwill amortization..................................... 2.1% 9.3% 2.0%
Other..................................................... (3.4)% 2.2% (2.0)%
---- ---- ----
Effective tax rate........................................ 37.1% 50.2% 36.2%
==== ==== ====
</TABLE>
7. RELATED PARTY TRANSACTIONS
In October 1994, WinsLoew entered into a ten-year agreement (the
"Investment Services Agreement") with Trivest, Inc. ("Trivest"). Trivest and the
Company have
F-16
<PAGE> 160
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain common shareholders, officers and directors. Pursuant to the Investment
Services Agreement, Trivest provides corporate finance, financial relations,
strategic and capital planning and other management advice to the Company. The
base compensation is $500,000, subject to cost of living increases and increases
for additional businesses acquired. For 1998, 1997 and 1996, the amount expensed
was $641,000, $628,000 and $604,000, respectively. In 1996, the Company retired
933,504 shares of its common stock purchased from an affiliated company at $10
per share.
8. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain office space, manufacturing facilities and
various items of equipment under operating leases. Some leases for office and
manufacturing space contain renewal options and provisions for increases in
minimum payments based on various measures of inflation. Rental expense amounted
to approximately $830,000, $769,000, and $792,000 for the years ended December
31, 1998, 1997 and 1996, respectively. Operating lease agreements in effect at
December 31, 1998, have the following remaining minimum payment obligations:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999............................................. $765
2000............................................. 740
2001............................................. 744
2002............................................. 714
2003............................................. 306
2004 - 2007...................................... 757
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain employees. The
agreements provide for minimum salary levels and bonuses based on a percentage
of pre-tax operating income, as defined in the agreements.
EMPLOYEE BENEFIT PLANS
The Company has an employee benefit plan established under the provisions
of Section 401(k) of the Internal Revenue Code. Full-time employees who meet
various eligibility requirements may voluntarily participate in the plan. The
plan provides for voluntary employee contributions through salary reduction, as
well as discretionary employer contributions. Company contributions were
$161,000 and $143,000 in 1998 and 1997, respectively.
F-17
<PAGE> 161
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLAN
In 1994, the Company established a Stock Option Plan (the "Plan") as a
means to retain and motivate key employees and directors. The Compensation
Committee of the Board of Directors administers and interprets the Plan and is
authorized to grant options to all eligible employees of the Company and
non-employee directors. The Plan provides for both incentive stock options and
non-qualified stock options. Options are granted under the Plan on such terms
and at such prices as determined by the Compensation Committee, except that the
per share exercise price of incentive stock options cannot be less than the fair
market value of the Company's common stock on the date of grant. The Company has
reserved 1,500,000 shares of common stock for issuance upon exercise of stock
options. All options which have been granted have a term of ten years and vest
ratably over five years.
Pro forma net income and earnings per share have been determined as if the
Company had accounted for its employee stock options as compensation expense
based on their fair value. Fair value was estimated at the date of grant using a
Black-Scholes option pricing model for 1998, 1997 and 1996 assuming a risk-free
interest rate of 4.83%, 6.45% and 6.2% for 1998, 1997 and 1996, respectively, a
volatility factor for the Company's common stock of .608, .411 and .532 in 1998,
1997 and 1996, respectively and a weighted-average expected life of the options
of six years. The pro forma information is not likely to be representative of
the effects of options on pro forma net income in future years because the
Company is required to include only options granted since 1994 in the pro forma
information.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1998 1997 1996
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Pro forma net income............................... $20,035 $2,068 $8,198
Pro forma income (loss) per share, diluted:
Income from continuing operations................ $ 2.36 $ 1.45 $ 0.97
Loss from discontinued operations, net of
taxes......................................... -- (0.09) (0.03)
Gain (loss) from sale of discontinued operations,
net of taxes.................................. 0.27 (1.08) --
------- ------ ------
Net income.................................... $ 2.63 $ 0.28 $ 0.94
======= ====== ======
</TABLE>
F-18
<PAGE> 162
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information with respect to WinsLoew's Plan is as follows:
<TABLE>
<CAPTION>
1998
---------------------------------
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE 1997 1996
-------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Options outstanding
at January 1....... 784,850 $ 9.19 671,550 738,450
Granted.............. 40,000 $20.62 250,000 25,000
Exercised............ (63,900) $ 8.25 (94,725) (25,100)
Canceled............. (18,050) $ 9.29 (41,975) (66,800)
-------------- -------------- --------------
Options outstanding
at December 31..... 742,900 $ 9.89 784,850 671,550
============== ============== ==============
Exercise prices per
share.............. $5.88 - $23.44 $5.88 - $16.06 $5.88 - $11.63
Options exercisable
at December 31..... 422,060 $ 9.20 407,100 480,400
============== ============== ==============
Options available for
grant at December
31................. 573,375 595,325 803,350
============== ============== ==============
</TABLE>
Information with regard to options outstanding and exercise price at
December 31 is as follows:
<TABLE>
<CAPTION>
WEIGHTED OPTIONS EXERCISABLE AT
WEIGHTED AVERAGE DECEMBER 31, 1998
AVERAGE OPTIONS OUTSTANDING REMAINING ----------------------
EXERCISE ------------------------- LIFE AT WEIGHTED
EXERCISE PRICE PRICE 1998 1997 1996 12/31/98 SHARES AVERAGE PRICE
- -------------- ------------- ------- ------- ------- --------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$5.88 - $6.67 $ 6.16 255,800 291,850 356,250 6.1 160,240 $ 6.20
8.66 8.66 8,200 10,250 10,250 6.2 4,920 8.66
10.00 - 10.50 10.35 240,900 284,750 158,550 7.3 104,900 10.16
11.13 - 11.63 11.56 163,000 163,000 146,500 5.4 145,000 11.61
12.63 12.63 20,000 20,000 -- 8.6 4,000 12.63
16.06 16.06 15,000 15,000 -- 8.9 3,000 16.06
17.00 17.00 17,500 -- -- 9.0 -- --
23.44 23.44 22,500 -- -- 9.4 -- --
------- ------- ------- -------
Total 9.89 742,900 784,850 671,550 7.0 422,060 9.20
======= ======= ======= =======
</TABLE>
The estimated weighted average fair value of options granted in 1998 is
$12.51 per option. The weighted average remaining contractual life for options
granted in 1998 is 9.3 years.
F-19
<PAGE> 163
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION AND LIABILITY CLAIMS
The Company is, from time to time, involved in routine litigation including
general liability and worker's compensation claims. It is the opinion of
management that sufficient insurance has been purchased to cover current and
potential general liability and worker's compensation claims. None of such
litigation in which the Company is presently involved is believed to be material
to its liquidity, financial position or results of operations.
9. OPERATING SEGMENTS
The Company has three segments organized and managed based on the products
sold. These reportable segments are described in Note 1.
The Company evaluates performance and allocates resources based on gross
profit. The accounting policies are the same as those described in the summary
of significant accounting policies. There are no intersegment sales/transfers.
Export revenues are not material.
F-20
<PAGE> 164
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Casual products............................... $ 59,733 $ 56,363 $ 58,066
Contract seating products..................... 69,938 58,386 48,629
Ready to assemble products.................... 11,689 7,396 10,710
-------- -------- --------
Total revenues.............................. $141,360 $122,145 $117,405
======== ======== ========
SEGMENT GROSS PROFIT:
Casual products............................... $ 28,227 $ 24,164 $ 23,812
Contract seating products..................... 23,439 17,256 14,126
Ready to assemble products.................... 2,462 1,294 1,438
-------- -------- --------
Total segment gross profit.................. 54,128 42,714 39,376
Reconciling items:
Selling and general and administrative
expenses.................................... 23,124 21,427 21,472
Amortization.................................. 1,122 992 1,444
Operating income.............................. 29,882 20,295 16,460
Interest expense, net......................... 635 2,296 3,083
-------- -------- --------
Income from continuing operations before
income taxes................................ $ 29,247 $ 17,999 $ 13,377
======== ======== ========
DEPRECIATION AND AMORTIZATION:
Casual products............................... $ 1,550 $ 1,532 $ 1,956
Contract seating products..................... 425 411 360
Ready to assemble products.................... 309 341 349
-------- -------- --------
Total....................................... 2,284 2,284 2,665
Reconciling items:
Corporate..................................... 334 350 314
-------- -------- --------
Total depreciation and amortization......... $ 2,618 $ 2,634 $ 2,979
======== ======== ========
EXPENDITURES FOR (DISPOSAL OF) LONG LIVED
ASSETS, NET:
Casual products............................... $ (24) $ 790 $ 629
Contract seating products..................... 129 236 162
Ready to assemble products.................... 103 (576) 61
-------- -------- --------
Total....................................... 208 450 852
</TABLE>
F-21
<PAGE> 165
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Reconciling items:
Corporate..................................... 734 (25) 499
-------- -------- --------
Total expenditures for long lived assets,
net...................................... $ 942 $ 425 $ 1,351
======== ======== ========
SEGMENT ASSETS:
Casual products............................... $ 51,880 $ 41,964 $ 48,086
Contract seating products..................... 23,486 21,836 22,372
Ready to assemble products.................... 6,496 3,974 6,246
-------- -------- --------
Total....................................... 81,862 67,774 76,704
Reconciling items:
Corporate..................................... 2,691 6,622 2,518
Assets held for sale.......................... -- 6,018 20,728
-------- -------- --------
Total consolidated assets................... $ 84,553 $ 80,414 $ 99,950
======== ======== ========
</TABLE>
The Company has one contract seating customer that accounted for 17%, 16%
and 10% of consolidated revenues in the years ended December 31, 1998, 1997 and
1996, respectively.
F-22
<PAGE> 166
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUPPLEMENTAL INFORMATION
The following balance sheet captions are comprised of the items specified
below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials............................................ $ 9,288 $ 8,146
Work in process.......................................... 1,521 1,089
Finished goods........................................... 1,397 1,198
------- -------
$12,206 $10,433
======= =======
Property, plant and equipment:
Land..................................................... $ 2,628 $ 1,834
Building and improvements................................ 10,838 9,273
Manufacturing equipment.................................. 9,464 9,146
Office equipment......................................... 1,953 1,776
Construction in progress................................. 81 74
Vehicles................................................. 176 141
------- -------
25,140 22,244
Accumulated depreciation................................... (11,192) (10,221)
------- -------
$13,948 $12,023
======= =======
Other accrued liabilities:
Compensation, commissions and employee benefits.......... $ 3,063 $ 2,324
Customer deposits........................................ 1,749 1,559
Income taxes............................................. 1,546 971
Interest................................................. 24 88
Other.................................................... 3,570 3,261
------- -------
$ 9,952 $ 8,203
======= =======
</TABLE>
Depreciation expense for continuing operations was $1,496,000, $1,642,000,
and $1,535,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Accumulated amortization at December 31, 1998 and 1997 related to goodwill
was $6,348,000 and $5,564,000, respectively. Accumulated amortization at
December 31, 1998 and 1997 related to other intangible assets was $1,110,000 and
$773,000, respectively.
F-23
<PAGE> 167
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENTS
In January 1999, the Company entered into a non-binding letter of intent
(the "letter") to pursue a potential merger in which the Company's public
shareholders would receive $30.00 per share in cash. The purchasing entity would
be formed by the Chairman of the Board of Directors and other members of
management. A Special Committee of the Company's Board of Directors was
established to review the proposal and it has recommended the letter.
The letter permits the Company to solicit and consider superior proposals
subject to the payment of a termination fee to the management group upon the
acceptance of another offer. The proposed merger is subject to, among other
things, approval by the Company's shareholders and the Special Committee.
Accordingly, there can be no assurance that the merger will be consummated.
F-24
<PAGE> 168
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 25 DECEMBER 31,
1999 1998
--------- --------------
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................... $13,881 $ 475
Cash in escrow.......................................... 1,000 1,000
Accounts receivable, less allowances for doubtful
accounts.............................................. 24,037 23,647
Inventories............................................. 11,239 12,206
Prepaid expenses and other current assets............... 4,271 4,638
------- -------
Total current assets............................... 54,428 41,966
Property, plant and equipment, net...................... 13,443 13,948
Goodwill, net........................................... 26,733 27,176
Other assets............................................ 1,863 1,463
------- -------
$96,467 $84,553
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt....................... $ 24 $ 47
Accounts payable........................................ 6,660 4,377
Other accrued liabilities............................... 12,694 9,952
Net liabilities of discontinued operations.............. 1,603 1,750
------- -------
Total current liabilities.......................... 20,981 16,126
Long-term debt, net of current portion.................. -- 1,400
Deferred income taxes................................... 912 801
------- -------
Total liabilities.................................. 21,893 18,327
------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share, 5,000,000
shares authorized, none issued..................... -- --
Common stock; par value $.01 per share, 20,000,000
shares authorized, 7,181,908 and 7,294,408 shares
issued and outstanding at June 25, 1999 and
December 31, 1998.................................. 72 73
Additional paid-in capital.............................. 16,612 19,797
Retained earnings....................................... 57,890 46,356
------- -------
Total stockholders' equity......................... 74,574 66,226
------- -------
$96,467 $84,553
======= =======
</TABLE>
See accompanying notes.
F-25
<PAGE> 169
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JUNE 25, JUNE 26, JUNE 25, JUNE 26,
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales............................. $47,679 $42,892 $80,589 $70,468
Cost of sales......................... 27,983 26,152 48,014 44,098
------- ------- ------- -------
Gross profit..................... 19,696 16,740 32,575 26,370
Selling, general and administrative
expenses............................ 7,545 6,215 13,270 10,730
Amortization.......................... 318 243 634 487
------- ------- ------- -------
Operating income................. 11,833 10,282 18,671 15,153
Interest expense (income)............. (46) 354 77 687
------- ------- ------- -------
Income before income taxes....... 11,879 9,928 18,594 14,466
Provision for income taxes............ 4,529 3,729 7,060 5,394
------- ------- ------- -------
Net income....................... $ 7,350 $ 6,199 $11,534 $ 9,072
======= ======= ======= =======
Basic earnings per share.............. $ 1.02 $ 0.83 $ 1.60 $ 1.21
======= ======= ======= =======
Weighted average number of shares... 7,200 7,513 7,200 7,513
======= ======= ======= =======
Diluted earnings per share............ $ 0.99 $ 0.80 $ 1.55 $ 1.17
======= ======= ======= =======
Weighted average number of shares
and common stock equivalents..... 7,444 7,722 7,444 7,722
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-26
<PAGE> 170
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------
JUNE 25 JUNE 26,
1999 1998
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $11,534 $ 9,072
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 1,381 1,203
Provision for losses on accounts receivable........... 460 427
Change in net assets held for sale.................... -- 844
Changes in operating assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable................................. (850) (1,362)
Inventories......................................... 967 (682)
Prepaid expenses and other current assets........... 367 2,647
Other assets........................................ (591) (658)
Accounts payable.................................... 2,283 2,275
Other accrued liabilities........................... 2,595 5,308
Deferred income taxes............................... 111 (622)
------- --------
Total adjustments................................ 6,723 9,380
------- --------
Net cash provided by operating activities........ 18,257 18,452
------- --------
Cash flows from investing activities:
Capital expenditures, net of disposals.............. (242) (560)
------- --------
Net cash used in investing activities............ (242) (560)
------- --------
Cash flows from financing activities:
Net payments under revolving credit agreements...... (1,423) (13,453)
Proceeds from issuance of common stock, net......... -- 610
Repurchase and cancellation of stock................ (3,186) (2,090)
------- --------
Net cash used in financing activities............ (4,609) (14,933)
------- --------
Net increase in cash and cash equivalents........ 13,406 2,959
Cash and cash equivalents at beginning of year........ 475 707
Cash and cash equivalents at end of period............ $13,881 $ 3,666
======= ========
SUPPLEMENTAL DISCLOSURES:
Interest paid......................................... $ 186 $ 245
Income taxes paid..................................... $ 5,125 $ 1,644
======= ========
</TABLE>
See accompanying notes.
F-27
<PAGE> 171
WINSLOEW FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of WinsLoew
Furniture, Inc. and subsidiaries (the "Company" or "WinsLoew") that are for
interim periods do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the annual consolidated financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1998, as filed with the Securities and
Exchange Commission.
All material intercompany balances and transactions have been eliminated.
The preparation of the consolidated financial statements requires the use of
estimates in the amounts reported.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the results for the interim
periods. The results of operations are presented for the Company's three-and
six-month periods ended June 25, 1999. The results of operations for these
periods are not necessarily indicative of the results to be expected for the
full year.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 25, DECEMBER 31,
1999 1998
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials........................................... $ 8,311 $ 9,288
Work in process......................................... 1,246 1,521
Finished goods.......................................... 1,682 1,397
------- -------
$11,239 $12,206
</TABLE>
3. LONG-TERM DEBT
WinsLoew's amended senior credit facility provides the Company with a
variable amount available under the revolving line of credit. The amount
available under its revolving credit line is $20 million from July 1 through
December 31 of each year. The Company may, at its option, elect to increase the
revolving credit line at January 1 through the following June 30 to a maximum of
$40 million. At January 1, 1999, the Company elected to set the maximum amount
available under the revolving credit line at $35 million.
4. CAPITAL STOCK
In January 1998, WinsLoew's Board of Directors approved a plan to acquire
up to 1,000,000 shares of the Company's common stock. The purchases are being
funded by the Company's senior credit facility (see Note 3 above). At December
31, 1998, there were
F-28
<PAGE> 172
WINSLOEW FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
704,000 shares available under the plan. Since December 31, 1998 and as of June
25, 1999, the Company has acquired 112,500 shares for $3.2 million.
5. DISCONTINUED OPERATIONS
At June 25, 1999, there have not been any material changes in the net
liabilities of discontinued operations as compared to December 31, 1998.
6. SEGMENT INFORMATION
The Company has three segments organized and managed based on the products
sold. The Company evaluates performance and allocates resources based on gross
profit. There are no intersegment sales/transfers. Export revenues are not
material.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JUNE 25, JUNE 26, JUNE 25, JUNE 26,
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Casual products....................... $26,005 $21,895 $39,639 $31,525
======= ======= ======= =======
Contract seating products............. 17,687 17,904 33,572 33,402
======= ======= ======= =======
Ready to assemble products............ 3,987 3,093 7,378 5,541
======= ======= ======= =======
Total revenues...................... $47,679 $42,892 $80,589 $70,468
======= ======= ======= =======
SEGMENT GROSS PROFIT:
Casual products....................... $12,561 $10,362 $19,028 $14,716
======= ======= ======= =======
Contract seating products............. 6,190 5,478 11,809 10,517
======= ======= ======= =======
Ready to assemble products............ 945 630 1,738 1,137
======= ======= ======= =======
Total segment gross profit.......... 19,698 16,740 32,575 26,370
======= ======= ======= =======
Reconciling items:
Selling, general and administrative
expenses............................ 7,545 6,215 13,270 10,730
======= ======= ======= =======
Amortization.......................... 318 243 634 487
======= ======= ======= =======
Operating income.................... 11,833 4,871 18,671 15,153
======= ======= ======= =======
Interest expense-net.................. (46) 354 77 687
------- ------- ------- -------
Income before income taxes............ $11,879 $ 9,928 $18,594 $14,466
======= ======= ======= =======
</TABLE>
F-29
<PAGE> 173
WINSLOEW FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JUNE 25, DEC. 31,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SEGMENT ASSETS:
Casual products............................................ $49,762 $51,880
======= =======
Contract seating products.................................. 23,941 23,486
======= =======
Ready to assemble products................................. 8,018 6,496
======= =======
Total.................................................... 81,721 81,862
Reconciling item:
Corporate.................................................. 14,746 2,691
======= =======
Total consolidated assets................................ $96,467 $84,553
======= =======
</TABLE>
7. MERGER
On March 30, 1999, WinsLoew and Trivest Furniture Corporation (the
"Purchaser"), a Florida corporation formed by Earl W. Powell of Trivest, Inc.,
who is also the Chairman of the Company's Board of Directors, amended their
Agreement and Plan of Merger to, among other things, (1) increase the per share
cash purchase price from $30.00 per share to $33.00 per share, (2) increase the
"break-up" fee, and (3) eliminate the Purchaser's financing condition. The
amendment to the Agreement and Plan of Merger was approved by WinsLoew's Board
of Directors, as well as the Special Committee of the Board appointed to
evaluate the initial Trivest proposal and possible strategic alternatives.
On May 4, 1999, WinsLoew and the Purchaser entered into a Second Amended
and Restated Agreement and Plan of Merger pursuant to which, among other things,
(1) increase the per share cash purchase price from $33.00 per share to $34.75
per share, (2) the Purchaser deposited $3.0 million in escrow, which deposit
would be paid to the Company in the event that it terminates the agreement on
the basis of certain breaches by the Purchaser. The amendment to the Agreement
and Plan of Merger was approved by WinsLoew's Board of Directors, as well as the
Special Committee of the Board appointed to evaluate the initial Trivest
proposal and possible strategic alternatives.
Pursuant to the amended agreement, the proposed merger is subject, among
other things, to (1) shareholder approval and (2) compliance with all applicable
regulatory and governmental requirements. Accordingly, there can be no assurance
that the merger will be consummated.
F-30
<PAGE> 174
APPENDIX A
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BETWEEN
TRIVEST FURNITURE CORPORATION
AND
WINSLOEW FURNITURE, INC.
DATED AS OF MAY 4, 1999
<PAGE> 175
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
SECTION 1.01 The Merger........................................... A-3
SECTION 1.02 Closing.............................................. A-3
SECTION 1.03 Effective Time....................................... A-3
SECTION 1.04 Effects of the Merger................................ A-4
SECTION 1.05 Articles of Incorporation and Bylaws................. A-4
SECTION 1.06 Directors............................................ A-4
SECTION 1.07 Officers............................................. A-4
ARTICLE II
SECTION 2.01 Effect on Capital Stock.............................. A-4
SECTION 2.02 Exchange of Certificates............................. A-5
ARTICLE III
SECTION 3.01 Organization......................................... A-6
SECTION 3.02 Subsidiaries......................................... A-7
SECTION 3.03 Capitalization....................................... A-7
SECTION 3.04 Authority............................................ A-7
SECTION 3.05 Consents and Approvals; No Violations................ A-8
SECTION 3.06 SEC Reports and Financial Statements................. A-9
SECTION 3.07 Absence of Certain Changes or Events................. A-9
SECTION 3.08 No Undisclosed Liabilities........................... A-10
SECTION 3.09 Information Supplied................................. A-10
SECTION 3.10 Benefit Plans........................................ A-11
SECTION 3.11 Other Compensation Arrangements...................... A-12
SECTION 3.12 Litigation........................................... A-12
SECTION 3.13 Permits; Compliance with Law......................... A-12
SECTION 3.14 Tax Matters.......................................... A-13
SECTION 3.15 State Takeover Statutes.............................. A-14
SECTION 3.16 Brokers; Fees and Expenses........................... A-14
SECTION 3.17 Intellectual Property................................ A-14
SECTION 3.18 Vote Required........................................ A-15
SECTION 3.19 Labor Matters........................................ A-15
SECTION 3.20 Title to Property.................................... A-15
SECTION 3.21 Environmental Matters................................ A-16
SECTION 3.22 Accounts Receivable.................................. A-16
SECTION 3.23 Customers............................................ A-17
SECTION 3.24 Interested Party Transactions........................ A-17
SECTION 3.25 Absence of Certain Payments.......................... A-17
SECTION 3.26 Insurance............................................ A-17
SECTION 3.27 Product Liability and Recalls........................ A-17
SECTION 3.28 Inventory............................................ A-18
SECTION 3.29 Full Disclosure...................................... A-18
ARTICLE IV
SECTION 4.01 Organization......................................... A-18
SECTION 4.02 Authority............................................ A-18
</TABLE>
A-1
<PAGE> 176
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 4.03 Consents and Approvals; No Violations................ A-18
SECTION 4.04 Information Supplied................................. A-19
SECTION 4.05 Purchaser's Financing Capability..................... A-19
SECTION 4.06 Surviving Corporation Solvency....................... A-19
SECTION 4.07 Brokers.............................................. A-20
SECTION 4.08 Board Determination.................................. A-20
SECTION 4.09 Full Disclosure...................................... A-20
ARTICLE V
SECTION 5.01 Covenants of the Company............................. A-20
SECTION 5.02 No Solicitation...................................... A-22
SECTION 5.03 Other Actions........................................ A-24
SECTION 5.04 Financing Covenants of Purchaser and Sub............. A-25
SECTION 5.05 Solvency............................................. A-25
SECTION 5.06 Amendment of Management Agreement.................... A-25
ARTICLE VI
SECTION 6.01 Shareholder Approval; Preparation of Proxy
Statement.......................................... A-25
SECTION 6.02 Access to Information................................ A-26
SECTION 6.03 Reasonable Efforts................................... A-27
SECTION 6.04 Company Stock Options; Plans......................... A-27
SECTION 6.05 Confidentiality...................................... A-28
SECTION 6.06 Fees and Expenses.................................... A-28
SECTION 6.07 Indemnification; Insurance........................... A-28
SECTION 6.08 Employment and Benefit Arrangements.................. A-29
ARTICLE VII
SECTION 7.01 Conditions to Each Party's Obligation to Effect the
Merger............................................. A-29
SECTION 7.02 Conditions to Obligations of Purchaser to Effect the
Merger............................................. A-30
SECTION 7.03 Conditions to Obligations of the Company to Effect
the Merger......................................... A-30
ARTICLE VIII
SECTION 8.01 Termination.......................................... A-31
SECTION 8.02 Effect of Termination................................ A-32
SECTION 8.03 Amendment............................................ A-32
SECTION 8.04 Extension; Waiver.................................... A-33
ARTICLE IX
SECTION 9.01 Nonsurvival of Representations and Warranties........ A-33
SECTION 9.02 Notices.............................................. A-33
SECTION 9.03 Interpretation....................................... A-34
SECTION 9.04 Counterparts......................................... A-35
SECTION 9.05 Entire Agreement; Third Party Beneficiaries.......... A-35
SECTION 9.06 Governing Law........................................ A-35
SECTION 9.07 Publicity............................................ A-35
SECTION 9.08 Assignment........................................... A-35
SECTION 9.09 Enforcement.......................................... A-35
</TABLE>
A-2
<PAGE> 177
SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER is made and
entered into as of May 4, 1999, between Trivest Furniture Corporation, a Florida
corporation ("Purchaser"), and WinsLoew Furniture, Inc., a Florida corporation
(the "Company").
WHEREAS the respective Boards of Directors of Purchaser and the Company
have approved the acquisition of the Company by Purchaser on the terms and
subject to the conditions set forth in this Agreement; and
WHEREAS the respective Boards of Directors of Purchaser and the Company
have each approved the merger of Purchaser into the Company (the "Merger"), upon
the terms and subject to the conditions set forth in this Agreement, whereby
each outstanding share of Common Stock, par value $0.01 per share, of the
Company (the "Company Common Stock"; the outstanding shares of Company Common
Stock being hereinafter collectively referred to as the "Shares"), other than
shares of Company Common Stock owned directly or indirectly by Purchaser or the
Company, will be converted into the right to receive $34.75 in cash; and
WHEREAS Purchaser and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Purchaser and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Corporation Law (as
defined below), Purchaser shall be merged with and into the Company at the
Effective Time (as defined in Section 1.03). Following the Effective Time, the
separate corporate existence of Purchaser shall cease and the Company shall
continue as the surviving corporation (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of Purchaser in accordance
with the Florida Business Corporation Act (the "Corporation Law"). At the
election of Purchaser, any direct or indirect wholly owned subsidiary (as
defined in Section 9.03) of Purchaser may be substituted for Purchaser as a
constituent corporation in the Merger. In such event, the parties agree to
execute an appropriate amendment to this Agreement in order to reflect the
foregoing.
SECTION 1.02. CLOSING. The closing of the Merger will take place at 10:00
a.m. (Miami time) on a date to be specified by Purchaser which shall be no later
than the tenth business day following the satisfaction or waiver of the
conditions set forth in Sections 7.01 and 7.02 (the "Closing Date"), at the
offices of Greenberg, Traurig, P.A., counsel to Purchaser (or, at Purchaser's
request, the offices of counsel to any lender providing financing in connection
with the Merger), unless another date, time or place is agreed to in writing by
the parties hereto.
SECTION 1.03. EFFECTIVE TIME. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file articles of merger or
A-3
<PAGE> 178
other appropriate documents (in any such case, the "Articles of Merger")
executed in accordance with the relevant provisions of the Corporation Law and
shall make all other filings or recordings required under the Corporation Law.
The Merger shall become effective at such time as the Articles of Merger are
duly filed with the Florida Secretary of State, or at such other time as
Purchaser and the Company shall agree should be specified in the Articles of
Merger (the time the Merger becomes effective being hereinafter referred to as
the "Effective Time").
SECTION 1.04. EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the applicable provisions of the Corporation Law.
SECTION 1.05. ARTICLES OF INCORPORATION AND BYLAWS.
(a) The Articles of Incorporation of Purchaser as in effect
immediately prior to the Effective Time shall be the articles of
incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law; provided that Article I
thereof shall be amended to provide that the corporate name of the
Surviving Corporation is "WinsLoew Furniture, Inc.".
(b) The bylaws of Purchaser as in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.06. DIRECTORS. The directors of Purchaser immediately prior to
the Effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
SECTION 1.07. OFFICERS. The officers of the Company immediately prior to
the Effective Time and such other persons as Purchaser shall designate shall be
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 CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. EFFECT ON CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
Shares or any shares of capital stock of Purchaser:
(a) Capital Stock of Purchaser. Each issued and outstanding share of
capital stock of Purchaser shall be converted into and become one fully
paid and nonassessable share of Common Stock, par value $.01 per share, of
the Surviving Corporation.
(b) Cancellation of Purchaser Owned Stock. Each share of Company
Common Stock that is owned by Purchaser or any subsidiary of Purchaser
shall automatically be canceled and retired and shall cease to exist, and
no consideration shall be delivered in exchange therefor.
(c) Cancellation of Company Owned Stock. All Shares (if any) that are
held in the treasury of the Company or by any wholly owned subsidiary of
the Company
A-4
<PAGE> 179
and any Shares owned by Purchaser or any wholly owned subsidiary of
Purchaser shall be cancelled and no consideration shall be delivered in
exchange therefor.
(d) Conversion of Company Common Stock. Each Share issued and
outstanding (other than Shares to be canceled in accordance with Section
2.01(b)) shall be converted into the right to receive from the Surviving
Corporation in cash, without interest, $34.75 (the "Merger Consideration").
As of the Effective Time, all such Shares shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such Shares shall cease
to have any rights with respect thereto, except the right to receive the
Merger Consideration, without interest.
SECTION 2.02. EXCHANGE OF CERTIFICATES.
(a) Paying Agent. Prior to the Effective Time, Purchaser shall
designate American Stock Transfer & Trust Company or other bank or trust
company acceptable to the Company to act as paying agent in the Merger (the
"Paying Agent"), and, prior to the Effective Time, Purchaser shall make
available, or cause the Surviving Corporation to make available, to the
Paying Agent funds in amounts necessary for the payment of the Merger
Consideration upon surrender of certificates representing Shares as part of
the Merger pursuant to Section 2.01 (it being understood that any and all
interest earned on funds made available to the Paying Agent pursuant to
this Agreement shall be turned over to Purchaser).
(b) Exchange Procedure. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented Shares (the "Certificates"), other than Shares to be cancelled
in accordance with Section 2.01(b) hereof, (i) 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 delivery of the
Certificates to the Paying Agent and shall be in form and have such other
provisions as Purchaser and the Company may reasonably specify) and (ii)
instructions, in form reasonably acceptable to the Company, for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the
Paying Agent or to such other agent or agents as may be appointed by
Purchaser, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Paying Agent, the
holder of such Certificate shall be entitled to receive in exchange
therefor the amount of cash into which the Shares theretofore represented
by such Certificate shall have been converted pursuant to Section 2.01, and
the Certificate so surrendered shall forthwith be canceled. In the event of
a transfer of ownership of Shares that is not registered in the transfer
records of the Company, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of such Certificate or establish to the satisfaction of
the Surviving Corporation that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.02, each Certificate
shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the amount of cash, without interest,
into which the Shares theretofore represented by such Certificate shall
have been converted pursuant to Section 2.01. No interest will be paid or
will accrue on the cash payable
A-5
<PAGE> 180
upon the surrender of any Certificate. In the event any Certificate shall
have been lost, stolen or destroyed, Purchaser may, in its discretion and
as a condition precedent to the payment of the Merger Consideration in
respect of the shares represented by such Certificate, require the owner of
such lost, stolen or destroyed Certificate to deliver a bond in such sum as
it may reasonably direct as indemnity against any claim that may be made
against Purchaser, the Surviving Corporation or the Paying Agent.
(c) No Further Ownership Rights in Company Common Stock. All cash
paid upon the surrender of Certificates in accordance with the terms of
this Article II shall be deemed to have been paid in full satisfaction of
all rights pertaining to the Shares theretofore represented by such
Certificates. At the Effective Time, the stock transfer books of the
Company shall be closed, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
Shares that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation or the Paying Agent for any reason, they shall be canceled and
exchanged as provided in this Article III.
(d) No Liability. At any time following the expiration of six months
after the Effective Time, the Surviving Corporation shall be entitled to
require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying
Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to the Surviving
Corporation (subject to any applicable abandoned property, escheat or
similar law) only as general creditors thereof with respect to the Merger
Consideration payable upon due surrender of their Certificates, without any
interest thereon. Notwithstanding the foregoing, none of Purchaser, the
Company or the Paying Agent shall be liable to any person in respect of any
cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser as follows:
SECTION 3.01. ORGANIZATION. The Company and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power
and authority could not be reasonably expected to (i) prevent or materially
delay the consummation of the Merger, or (ii) have a Material Adverse Effect (as
defined in Section 9.03) on the Company. The Company and each of its
subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing could not reasonably be expected to
have a Material Adverse Effect on the Company or prevent or materially delay the
consummation of the Merger. The Company has made available to Purchaser complete
and correct copies of its Articles of Incorporation and Bylaws and the
certificates of incorporation and bylaws (or similar organizational documents)
of its subsidiaries.
A-6
<PAGE> 181
SECTION 3.02. SUBSIDIARIES. The only subsidiaries of the Company are
Winston Furniture Company of Alabama, Inc., an Alabama corporation, Lowenstein
Furniture Group, Inc., a Florida corporation, Texacraft, Inc., a Texas
corporation, and Tropic Craft, Inc., a Florida corporation (the "Subsidiaries").
All the outstanding shares of capital stock of each such subsidiary are owned by
the Company, by another wholly owned subsidiary of the Company or by the Company
and another wholly owned subsidiary of the Company, free and clear of all
pledges, claims, liens, charges, encumbrances and security interests of any kind
or nature whatsoever (collectively, "Liens"), except for a first priority lien
granted to Heller Financial, Inc. upon the capital stock of the Subsidiaries
pursuant to a Credit Agreement dated as of February 2, 1995, as amended, and are
duly authorized, validly issued, fully paid and nonassessable. Except for the
capital stock of its subsidiaries and the Company's ownership interest in
certain incidental investments (the aggregate book value of which do not exceed
$5,000), the Company does not own, directly or indirectly, any capital stock or
other ownership interest in any corporation, partnership, joint venture or other
entity.
SECTION 3.03. CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock and 5,000,000 shares of
preferred stock, par value $0.01 per share ("Company Preferred Stock"). At the
close of business on April 28, 1999, (i) 7,181,908 shares of Company Common
Stock were issued and outstanding, (ii) 765,400 shares of Company Common Stock
were reserved for issuance upon exercise of outstanding Company Stock Options
(as defined in Section 6.04), and (iii) no shares of Company Preferred Stock
were issued and outstanding. Except as set forth above, and except for shares
issued upon the exercise of Company Stock Options since April 28, 1999, as of
the date of this Agreement, no shares of capital stock or other voting
securities of the Company were issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of the Company are, and all shares which may
be issued will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of the Company may vote. Except as set
forth above, as of the date of this Agreement, there are not any securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its subsidiaries is a
party or by which any of them is bound obligating the Company or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other voting securities of the
Company or of any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking. Except
as disclosed in Section 3.03 of the Disclosure Schedule, there are not any
outstanding contractual obligations (i) of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or (ii) of the Company to vote or to dispose of any shares
of the capital stock of any of its subsidiaries. Except as set forth in Section
3.03 of the disclosure schedule annexed hereto (the "Disclosure Schedule"),
there are no restrictions on the right of the Company to vote or dispose of any
shares of the capital stock of its subsidiaries.
SECTION 3.04. AUTHORITY.
(a) The Company has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby (other than, with respect to the Merger, the approval
and adoption of the terms of
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this Agreement by the holders of a majority of the Shares (the "Company
Shareholder Approval")). The execution, delivery and performance of this
Agreement and the consummation by the Company of the Merger and of the
other transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company and no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the transactions so contemplated (in each
case, other than, with respect to the Merger, the Company Shareholder
Approval). This Agreement has been duly executed and delivered by the
Company and, assuming this Agreement constitutes a valid and binding
obligation of Purchaser, constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally.
(b) The Board of Directors of the Company, as well as a special
committee (the "Special Committee") comprised of five independent members
of the Company's Board of Directors, at meetings duly called and held on
May 4, 1999, duly and unanimously adopted resolutions (i) approving this
Agreement and the Merger (and such approval is sufficient to render
inapplicable the provisions of Sections 607.0901 and 607.0902 of the
Corporation Law), (ii) determining that the Merger is substantively and
procedurally fair to, and in the best interests of, the Company's
shareholders, and (iii) recommending that the Company's shareholders
approve and adopt this Agreement.
(c) The Company's Board of Directors and the Special Committee have
received the oral opinion of Mann, Armistead and Epperson, Ltd. ("Mann,
Armistead") that the proposed consideration to be received by the holders
of Shares (other than Shares to be cancelled in accordance with Section
2.01(b) hereof) pursuant to the Merger is fair, from a financial point of
view, to such holders, and Mann, Armistead has advised the Special
Committee that it will deliver a complete and correct signed copy of such
opinion to the Company and to Purchaser, as well as a draft of the
description of such opinion and Mann Armistead's related analyses to be
included in the Proxy Statement (as hereinafter defined), not later than
May 7, 1999.
SECTION 3.05. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder (including the filing with the Securities and Exchange Commission
(the "SEC") of a proxy statement relating to any required approval by the
Company's shareholders of this Agreement (the "Proxy Statement")), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and Sections 607.1103 -- 607.1105 of the Corporation Law, neither the
execution, delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the Articles of
Incorporation or Bylaws of the Company or of the similar organizational
documents of any of its subsidiaries, (ii) require any filing with, or permit,
authorization, consent or approval of, any Federal, state or local government or
any court, tribunal, administrative agency or commission or other governmental
or other regulatory authority or agency, domestic, foreign or supranational (a
"Governmental Entity") (except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings could not
reasonably be
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expected to have a Material Adverse Effect on the Company or prevent or
materially delay the consummation of the Merger), (iii) except as set forth in
Section 3.05 of the Disclosure Schedule, result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which any of
them or any of their properties or assets may be bound; provided, however, that
certain contracts and agreements, the material ones of which are listed in
Section 3.05 of the Disclosure Schedule, (A) provide for their termination upon
a change of control of the Company or (B) contain provisions restricting their
assignment, or (iv) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to the Company, any of its subsidiaries or any of their
properties or assets, except in the case of clauses (iii) or (iv) for
violations, breaches or defaults that could not reasonably be expected to have a
Material Adverse Effect on the Company or prevent or materially delay the
consummation of the Merger.
SECTION 3.06. SEC REPORTS AND FINANCIAL STATEMENTS. The Company has filed
with the SEC, and has heretofore made available to Purchaser true and complete
copies of, all forms, reports, schedules, statements and other documents (other
than preliminary materials) required to be filed by it under the Exchange Act or
the Securities Act of 1933 (the "Securities Act") from and after December 31,
1997 (such forms, reports, schedules, statements and other documents, including
any financial statements or schedules included therein, are referred to as the
"Company SEC Documents"). The Company SEC Documents, at the time filed, (a) did
not contain any untrue statement of a material fact or omit to state a 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, and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. The financial
statements of the Company included in the Company SEC Documents as well as the
Company's financial statements as of and for the year ended December 31, 1998
heretofore delivered to Purchaser, as of the dates thereof comply as to form in
all material respects with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Rule 10-01 of Regulation S-X promulgated
by the SEC) and fairly present (subject, in the case of the unaudited
statements, to normal adjustments, none of which will be material) the
consolidated financial position of the Company and its consolidated subsidiaries
as at the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended.
SECTION 3.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the Company SEC Documents, as contemplated by Section 6.04 or as set forth in
Section 3.07 of the Disclosure Schedule, since December 31, 1998, the Company
and its subsidiaries have conducted their respective businesses only in the
ordinary course consistent with past practice, and there has not been any
material adverse change (as defined in Section 9.03) with respect to the
Company. Except as disclosed in the Company SEC Documents, as contemplated by
Section 6.04 or as set forth in Section 3.07 of the Disclosure Schedule, since
December 31, 1998, there has not been (i) any declaration, setting aside or
payment of any dividend or other distribution with respect to the Company's
capital stock or any
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redemption, purchase or other acquisition of any of its capital stock, (ii) any
split, combination or reclassification of any of the Company's capital stock or
any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, (iii)
any material change in accounting methods, principles or practices by the
Company, (iv) (w) any granting by the Company or any of its subsidiaries to any
executive officer of the Company or any of its subsidiaries of any increase in
compensation, except in the ordinary course of business (including in connection
with promotions) consistent with past practice or as was required under
employment agreements in effect as of December 31, 1998, (x) any granting by the
Company or any of its subsidiaries to any such officer of any increase in
severance or termination pay, except as part of a standard employment package to
any person promoted or hired, or as was required under employment, severance or
termination agreements in effect as of December 31, 1998, (y) except employment
arrangements in the ordinary course of business consistent with past practice
with employees other than any executive officer of the Company, any entry by the
Company or any of its subsidiaries into any employment, severance or termination
agreement with any such employee or executive officer, or (z) except as
contemplated by Section 6.04, any increase in or establishment of any bonus,
insurance, deferred compensation, pension, retirement, profit-sharing, stock
option (including the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards or the amendment of any existing
stock options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan or agreement or
arrangement, (v) any damage, destruction or loss, whether or not covered by
insurance, that has or reasonably could be expected to have a Material Adverse
Effect on the Company, (vi) any amendments or changes in the Articles of
Incorporation or Bylaws of the Company, or (vii) any material revaluation by the
Company of any of its assets, including writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business.
SECTION 3.08. NO UNDISCLOSED LIABILITIES. Except as and to the extent set
forth in the Company SEC Documents or in Section 3.08 of the Disclosure
Schedule, as of December 31, 1998, neither the Company nor any of its
subsidiaries had any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that would be required by generally accepted
accounting principles to be reflected on a consolidated balance sheet of the
Company and its subsidiaries (including the notes thereto). Since December 31,
1998, except as and to the extent set forth in the Company SEC Documents or in
Section 3.08 of the Disclosure Schedule and except for liabilities or
obligations incurred in the ordinary course of business consistent with past
practice, neither the Company nor any of its subsidiaries has incurred any
liabilities of any nature, whether or not accrued, contingent or otherwise, that
could be reasonably expected to have a Material Adverse Effect on the Company,
or would be required by generally accepted accounting principles to be reflected
on a consolidated balance sheet of the Company and its subsidiaries (including
the notes thereto).
SECTION 3.09. INFORMATION SUPPLIED. None of the information supplied or
to be supplied by the Company specifically for inclusion or incorporation by
reference in the Proxy Statement or Schedule 13E-3 (as hereinafter defined),
will, at the time the Proxy Statement is first mailed to the Company's
shareholders or at the time of the Shareholders Meeting (as defined in Section
6.01), contain any untrue statement of a 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 are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the
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requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation or warranty is made by the Company with respect to
statements made or incorporated by reference therein based on information
supplied by Purchaser specifically for inclusion or incorporation by reference
therein.
SECTION 3.10. BENEFIT PLANS.
(a) Except as set forth in Section 3.10 of the Disclosure Schedule,
each "employee pension benefit plan" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (a
"Pension Plan"), "employee welfare benefit plan" (as defined in Section
3(1) of ERISA) (a "Welfare Plan") and each other plan, arrangement or
policy (written or oral) relating to stock options, stock purchases,
compensation, deferred compensation, bonuses, severance, fringe benefits or
other employee benefits, in each case maintained or contributed to, or
required to be maintained or contributed to, by the Company or its
subsidiaries for the benefit of any present or former employee, officer or
director (each of the foregoing, a "Benefit Plan") has been administered in
all material respects in accordance with its terms. The Company and its
subsidiaries and all the Benefit Plans are in compliance in all material
respects with the applicable provisions of ERISA, the Internal Revenue Code
of 1986, as amended (the "Code"), all other applicable laws and all
applicable collective bargaining agreements. Except as set forth in the
Company SEC Filings, Section 3.10 of the Disclosure Schedule sets forth a
list of all material Benefit Plans. Except as set forth in Section 3.10(a)
of the Disclosure Schedule, none of the Welfare Plans promises or provides
retiree medical or other retiree welfare benefits to any person. To the
Best Knowledge (as defined below) of the Company, no fiduciary of a Benefit
Plan has breached any of the responsibilities or obligations imposed upon
fiduciaries under Title I of ERISA, which breach would reasonably be
expected to result in any material liability to the Company. Each Benefit
Plan intended to qualify under section 401(a) of the Code and each trust
intended to qualify under section 501(a) of the Code is the subject of a
favorable determination letter from the IRS, and nothing has occurred which
would reasonably be expected to impair such determination. All
contributions required to be made with respect to any Benefit Plan pursuant
to the terms of the Benefit Plan or any collective bargaining agreement,
have been made on or before their due dates.
(b) None of the Pension Plans is subject to Title IV of ERISA and none
of the Company or any other person or entity that, together with the
Company, is or was treated as a single employer under Section 414 of the
Code or pursuant to Title IV of ERISA (each, including the Company, a
"Commonly Controlled Entity") has any liability under Title IV of ERISA
(whether actual or contingent) with respect to a Pension Plan, or to any
other employee pension benefit plan that is or was maintained, contributed
to or required to be contributed to by a Commonly Controlled Entity (other
than for contributions not yet due) or to the Pension Benefit Guaranty
Corporation (other than for payment of premiums not yet due), which
liability has not been fully paid.
(c) No Commonly Controlled Entity is required to contribute to any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or has
withdrawn from any multiemployer plan where such withdrawal has resulted or
would result in any "withdrawal liability" (within the meaning of Section
4201 of ERISA) that has not been fully paid or as to which a commonly
controlled entity would have liability pursuant to Section 4212(c) of
ERISA.
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(d) Each Benefit Plan that is a Welfare Plan may be amended or
terminated at any time after the Effective Time without material liability
to the Company or its subsidiaries.
SECTION 3.11. OTHER COMPENSATION ARRANGEMENTS. Except as disclosed in the
Company SEC Documents or in Section 3.11 of the Disclosure Schedule, and except
as provided in this Agreement, as of the date of this Agreement, neither the
Company nor any of its subsidiaries is a party to any oral or written (i)
consulting agreement not terminable on not more than 60 calendar days notice and
involving the payment of more than $100,000 per annum, (ii) agreement with any
executive officer or other key employee of the Company or any of its
subsidiaries (x) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
of the nature contemplated by this Agreement, or (y) providing any term of
employment or compensation guarantee extending for a period longer than two
years or the payment of more than $100,000 per year, or (iii) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
SECTION 3.12. LITIGATION. Except as disclosed in the Company SEC
Documents or Section 3.12 of the Disclosure Schedule, there is no suit, claim,
action, proceeding or investigation pending before any Governmental Entity or,
to the Best Knowledge of the Company, threatened against the Company or any of
its subsidiaries that could reasonably be expected to have a Material Adverse
Effect on the Company or prevent or materially delay the consummation of the
Merger. Except as disclosed in the Company SEC Documents or Section 3.12 of the
Disclosure Schedule, neither the Company nor any of its subsidiaries is subject
to any outstanding order, writ, injunction or decree that could reasonably be
expected to have a Material Adverse Effect on the Company or prevent or
materially delay the consummation of the Merger.
SECTION 3.13. PERMITS; COMPLIANCE WITH LAW. The Company and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Company Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals that could not
reasonably be expected to have a Material Adverse Effect on the Company. The
Company and its subsidiaries are in compliance with the terms of the Company
Permits, except where the failure so to comply could not reasonably be expected
to have a Material Adverse Effect on the Company. Except as disclosed in the
Company SEC Documents or in the Disclosure Schedule, the businesses of the
Company and its subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except for violations that
could not reasonably be expected to have a Material Adverse Effect on the
Company or prevent or materially delay the consummation of the Merger. As of the
date of this Agreement, no investigation or review by any Governmental Entity
with respect to the Company or any of its subsidiaries is pending or, to the
Best Knowledge of the Company, threatened, nor has any Governmental Entity
indicated an intention to conduct any such investigation or review, other than,
in each case, those the outcome of which could not be reasonably expected to
have a Material Adverse Effect on the Company or prevent or materially delay the
consummation of the Merger.
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SECTION 3.14. TAX MATTERS.
(a) The Company and each of its subsidiaries has filed all Federal
income tax returns and all other material tax returns and reports required
to be filed by it. All such returns are complete and correct in all
material respects (except to the extent a reserve has been established on
the Company's financial statements as of and for the year ended December
31, 1998 (the "Most Recent Financial Statements"). Each of the Company and
each of its subsidiaries has paid (or the Company has paid on its
subsidiaries' behalf) all taxes required to be paid by it (without regard
to whether a tax return is required or to the amount shown on any tax
return), except taxes for which an adequate reserve has been established on
the Most Recent Financial Statements. The Most Recent Financial Statements
reflect an adequate reserve for all taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof through the date
of such financial statements.
(b) Except as set forth in Section 3.14 of the Disclosure Schedule, no
material tax return of the Company or any of its subsidiaries is under
audit or examination by any taxing authority, and no written or unwritten
notice of such an audit or examination has been received by the Company or
any of its subsidiaries. Each material deficiency resulting from any audit
or examination relating to taxes by any taxing authority has been paid,
except for deficiencies being contested in good faith. No material issues
relating to taxes were raised in writing by the relevant taxing authority
during any presently pending audit or examination, and no material issues
relating to taxes were raised in writing by the relevant taxing authority
in any completed audit or examination that can reasonably be expected to
recur in a later taxable period. The Federal income tax returns of the
Company and each of its subsidiaries consolidated in such returns have not
been examined by and settled with the Internal Revenue Service.
(c) There is no agreement or other document extending, or having the
effect of extending, the period of assessment or collection of any taxes
and no power of attorney with respect to any taxes has been executed or
filed with any taxing authority.
(d) No material liens for taxes exist with respect to any assets or
properties of the Company or any of its subsidiaries, except for liens for
taxes not yet due.
(e) None of the Company or any of its subsidiaries is liable for taxes
of any other person (other than taxes of the Company and its subsidiaries)
or is a party to or is bound by any tax sharing agreement, tax indemnity
obligation or similar agreement, arrangement or practice with respect to
taxes (including any advance pricing agreement, closing agreement or other
agreement relating to taxes with any taxing authority).
(f) None of the Company or any of its subsidiaries shall be required
to include in a taxable period ending after the Effective Time taxable
income attributable to income that accrued in a prior taxable period but
was not recognized in any prior taxable period as a result of the
installment method of accounting, the completed contract method of
accounting, the long-term contract method of accounting, the cash method of
accounting or Section 481 of the Code or comparable provisions of state,
local or foreign tax law.
(g) As used in this Agreement, "taxes" shall include all Federal,
state, local and foreign income, property, sales, excise, withholding and
other taxes, tariffs or
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governmental charges of any nature whatsoever, together with all interest,
penalties and additions imposed with respect to such amounts.
(h) Neither the Company nor, to the Best Knowledge of the Company, any
of its subsidiaries has filed a consent pursuant to or agreed to the
application of Section 341(f) of the Code.
(i) Neither the Company nor any of its subsidiaries is a party to any
joint venture, partnership, or other arrangement or contract which could
reasonably be expected to be treated as a partnership for federal income
tax purposes.
(j) Except as set forth in Section 3.14 of the Disclosure Schedule,
neither the Company nor any of its subsidiaries is a party to any
agreement, contract, arrangement or plan that would result (taking into
account the transactions contemplated by this Agreement), separately or in
the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(k) Except as set forth in Section 3.14 of the Disclosure Schedule,
neither the Company nor any of its subsidiaries has ever been a Subchapter
S corporation (as defined in Section 1361(a)(1) of the Code).
SECTION 3.15. STATE TAKEOVER STATUTES. The Board of Directors of the
Company has approved the Merger and this Agreement and such approval is
sufficient to render inapplicable to the Merger, this Agreement and the
transactions contemplated by this Agreement, the provisions of Sections 607.0901
and 607.0902 of the Corporation Law.
SECTION 3.16. BROKERS; FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than Mann, Armistead, 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 based upon arrangements
made by or on behalf of the Company. The Company has furnished to Purchaser true
and complete copies of all written agreements or arrangements, and reduced to
writing and furnished to Purchaser the terms of all unwritten agreements or
arrangements, providing for any such broker's, finder's financial advisor's or
similar fee or commission between the Company and Mann, Armistead.
SECTION 3.17. INTELLECTUAL PROPERTY.
(a) Except to the extent that the inaccuracy of any of the following
(or the circumstances giving rise to such inaccuracy) could not reasonably
be expected to have a Material Adverse Effect on the Company:
(1) the Company and each of its subsidiaries owns, or is licensed
or otherwise has the legally enforceable right to use (in each case,
clear of any liens or encumbrances of any kind), all Intellectual
Property (as hereinafter defined) used in or necessary for the conduct
of its business as currently conducted;
(2) no claims are pending or, to the Best Knowledge of the Company,
threatened that the Company or any of its subsidiaries is infringing on
or otherwise violating the rights of any person with regard to any
Intellectual Property used by, owned by and/or licensed to the Company
or its subsidiaries and, to the Best Knowledge of the Company, there are
no valid grounds for any such claims;
(3) to the Best Knowledge of the Company, no person is infringing
on or otherwise violating any right of the Company or any of its
subsidiaries with
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respect to any Intellectual Property owned by and/or licensed to the
Company or its subsidiaries.
(4) to the Best Knowledge of the Company, there are no valid
grounds for any claim challenging the ownership or validity of any
Intellectual Property owned by the Company or any of its subsidiaries or
challenging the Company's or any of its subsidiaries' license or legally
enforceable right to use any Intellectual Property licensed by it; and
(5) to the Best Knowledge of the Company, all patents, registered
trademarks, service marks and copyrights held by the Company and each of
its subsidiaries are valid and subsisting.
(b) For purposes of this Agreement, "Intellectual Property" means
trademarks (registered or unregistered), service marks, brand names,
certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction
to register, the foregoing, including any extension, modification or
renewal of any such registration or application; inventions, discoveries
and ideas, whether patented, patentable or not in any jurisdiction; trade
secrets and confidential information and rights in any jurisdiction to
limit the use or disclosure thereof by any person; writings and other
works, whether copyrighted, copyrightable or not in any jurisdiction;
registration or applications for registration of copyrights in any
jurisdiction, and any renewals or extensions thereof; any similar
intellectual property or proprietary rights and computer programs and
software (including source code, object code and data); licenses,
immunities, covenants not to sue and the like relating to the foregoing;
and any claims or causes of action arising out of or related to any
infringement or misappropriation of any of the foregoing.
SECTION 3.18. VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock is the only vote of
the holders of any class of capital stock necessary to approve this Agreement
and the Merger.
SECTION 3.19. LABOR MATTERS. Except as set forth in Section 3.19 of the
Disclosure Schedule or the Company SEC Documents, (i) there is no unfair labor
practice complaint pending or, to the knowledge of the Company or any of its
subsidiaries, threatened, between the Company or any of its subsidiaries and any
of their respective employees, which have had, or could reasonably be expected
to have, a Material Adverse Effect on the Company; (ii) neither the Company nor
any of its subsidiaries is a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by the Company or its
subsidiaries, nor does the Company or any of its subsidiaries know of any
activities or proceedings of any labor union to organize any such employees; and
(iii) to the Best Knowledge of the Company, there are no strikes, slowdowns,
work stoppages, lockouts, or threats thereof, by or with respect to any
employees of the Company or any of its subsidiaries which could reasonably be
expected to have a Material Adverse Effect on the Company.
SECTION 3.20. TITLE TO PROPERTY. Except as set forth in Section 3.20 of
the Disclosure Schedule or which could not reasonably be expected to have a
Material Adverse Effect on the Company, the Company and each of its subsidiaries
have good and defensible title to all of their properties and assets, free and
clear of all liens, charges and encumbrances, except liens for taxes not yet due
and payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or materially
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interfere with the present use of the property affected thereby; and, to the
knowledge of the Company, all leases pursuant to which the Company or any of its
subsidiaries lease from others material amounts of real or personal property are
in good standing, valid and effective in accordance with their respective terms,
and there is not, to the knowledge of the Company, under any of such leases, any
existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default), except where the lack of such good
standing, validity and effectiveness or the existence of such default or event
of default could not reasonably be expected to have a Material Adverse Effect on
the Company.
SECTION 3.21. ENVIRONMENTAL MATTERS. Except as set forth in Section 3.21
of the Disclosure Schedule or the Company SEC Documents, and except in all cases
as have not had and could not reasonably be expected to have a Material Adverse
Effect on the Company, to the Best Knowledge of the Company, the Company and
each of its subsidiaries (i) have obtained all applicable permits, licenses and
other authorizations which are required to be obtained under all applicable
Federal, state or local laws or any regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder ("Environmental Laws") relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or hazardous or toxic material
or wastes into ambient air, surface water, ground water or land or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or hazardous or
toxic materials or wastes by the Company or its subsidiaries (or their
respective agents); (ii) are in compliance with all terms and conditions of such
required permits, licenses and authorization, and also are in compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in applicable
Environmental Laws; (iii) as of the date hereof, are not aware of nor have
received notice of any past or present violations of Environmental Laws or any
event, condition, circumstance, activity, practice, incident, action or plan
which is reasonably likely to interfere with or prevent continued compliance
with or which would give rise to any common law or statutory liability, or
otherwise form the basis of any claim, action, suit or proceeding against the
Company or any of its subsidiaries based on or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
handling, emission, discharge or release into the environment of any pollutant,
contaminant, or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by the Company or its subsidiaries (or
any of their respective agents) thereunder.
SECTION 3.22. ACCOUNTS RECEIVABLE. The accounts receivable of the Company
and its subsidiaries as reflected in the most recent financial statements
contained in the Company SEC Documents, to the extent uncollected on the date
hereof, and the accounts receivable reflected on the books of the Company and
its subsidiaries, are valid and existing and represent monies due, and the
Company has made reserves reasonably considered adequate for receivables not
collectible in the ordinary course of business, and (subject to the aforesaid
reserves) are subject to no refunds or other adjustments and to no defenses,
rights of setoff, assignments, restrictions, encumbrances or conditions
enforceable by third parties on or affecting any thereof, except for such
refunds, adjustments, defenses, rights of setoff, assignments, restrictions,
encumbrances or conditions as would not reasonably be expected to have a
Material Adverse Effect on the Company.
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SECTION 3.23. CUSTOMERS. Section 3.23 of the Disclosure Schedule sets
forth a list of the Company's twenty five (25) largest customers (detailed, in
the case of government agencies, by separate government agency) in terms of
gross sales for the fiscal year ended December 31, 1998. Except as set forth in
Section 3.23 of the Disclosure Schedule, since December 31, 1998, there have not
been any changes in the business relationships of the Company with any of the
customers named therein that would constitute a Material Adverse Effect on the
Company.
SECTION 3.24. INTERESTED PARTY TRANSACTIONS. Except as set forth in
Section 3.24 of the Disclosure Schedule or the Company SEC Documents, since
December 31, 1997, no event has occurred that would be required to be reported
as a Certain Relationship or Related Transaction, pursuant to Item 404 of
Regulation S-K promulgated by the SEC, except for contracts with terms no less
favorable to the Company than would reasonably be expected in a similar
transaction with an unaffiliated third party.
SECTION 3.25. ABSENCE OF CERTAIN PAYMENTS. To the Best Knowledge of the
Company, neither the Company nor any of its subsidiaries or any of their
respective affiliates, officers, directors, employees or agent or other people
acting on behalf of any of them have (i) engaged in any activity prohibited by
the United States Foreign Corrupt Practices Act of 1977 or any other similar
law, regulation, decree, directive or order of any other country and (ii)
without limiting the generality of the preceding clause (i), used any corporate
or other funds for unlawful contributions, payments, gifts or entertainment, or
made any unlawful expenditures relating to political activity to government
officials or others, in each case except to the extent that such activities,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company. To the Best Knowledge of the Company, neither the Company nor any
of its subsidiaries or any of their respective affiliates, directors, officers,
employees or agents of other persons acting on behalf of any of them, has
accepted or received any unlawful contributions, payments, gifts or expenditures
that could reasonably be expected to have a Material Adverse Effect on the
Company.
SECTION 3.26. INSURANCE. All material fire and casualty, general
liability, business interruption, product liability and sprinkler and water
damage insurance policies maintained by the Company or any of its subsidiaries
are with reputable insurance carriers, provide coverage of all normal risks
incident to the business of the Company and its subsidiaries and their
respective properties and assets, except as could not reasonably be expected to
have a Material Adverse Effect on the Company.
SECTION 3.27. PRODUCT LIABILITY AND RECALLS.
(a) Except a disclosed in Section 3.27 of the Disclosure Schedule or
the Company SEC Documents to the Best Knowledge of the Company, there is no
claim, or the basis of any claim, against the Company or any of this
subsidiaries for injury to person or property of employees or any third
parties suffered as a result of the sale of any product or performance of
any service by the Company or any of its subsidiaries, including claims
arising out of any alleged defective nature of its products or services,
which could reasonably be expected to have a Material Adverse Effect on the
Company.
(b) Except as disclosed in Section 3.27 of the Disclosure Schedule or
the Company SEC Documents, there is not pending or, to the knowledge of the
Company, threatened recall or investigation of any product sold by the
Company,
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which recall or investigation could reasonably be expected to have a
Material Adverse Effect on the Company.
SECTION 3.28. INVENTORY. The inventories of the Company and its
subsidiaries as reflected in the most recent financial statements contained in
the Company SEC Documents, or acquired by the Company or any of its subsidiaries
after the date thereof, to the extent it does not constitute a Material Adverse
Effect on the Company, (i) are carried at an amount not in excess of the lower
of cost or net realizable value, and (ii) do not include any inventory which is
obsolete, surplus or not usable or saleable in the lawful and ordinary course of
business of the Company and its subsidiaries as heretofore conducted, in each
case net of reserves provided therefor.
SECTION 3.29. FULL DISCLOSURE. No statement contained in any certificate
or schedule furnished or to be furnished by the Company or its subsidiaries to
Purchaser in, or pursuant to the provisions of, this Agreement contains any
untrue statement of a material fact or omits to state any material fact
necessary, in the light of the circumstances under which it was made, in order
to make the statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company as follows:
SECTION 4.01. ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of Florida and has all
requisite corporate power and authority to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority could not be reasonably expected to
prevent or materially delay the consummation of the Merger. Purchaser is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
in such jurisdictions where the failure to be so duly qualified or licensed and
in good standing could not reasonably be expected to prevent or materially delay
the consummation of the Merger. Purchaser has made available to the Company
complete and correct copies of its articles of incorporation and bylaws.
SECTION 4.02. AUTHORITY. Purchaser has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Purchaser
and no other corporate proceedings on the part of Purchaser are necessary to
authorize this Agreement or to consummate such transactions. No vote of
Purchaser shareholders is required to approve this Agreement or the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Purchaser and, assuming this Agreement constitutes a valid and binding
obligation of the Company, constitutes a valid and binding obligation of each of
Purchaser enforceable against it in accordance with its terms, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights generally.
SECTION 4.03. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other
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applicable requirements of, the Exchange Act (including the filing with the SEC
of a Rule 13E-3 Transaction Statement on Schedule 13E-3 (together with all
supplements and amendments thereto, the "Schedule 13E-3"), the HSR Act and
Sections 607.1103 -- 607.1105 of the Corporation Law, neither the execution,
delivery or performance of this Agreement by Purchaser nor the consummation by
Purchaser of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the respective articles of
incorporation or bylaws of Purchaser, (ii) require any filing with, or permit,
authorization, consent or approval of, any Governmental Entity (except where the
failure to obtain such permits, authorizations, consents or approvals or to make
such filings could not be reasonably expected to prevent or materially delay the
consummation of the Merger), (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, lease, contract, agreement or other instrument or obligation
to which Purchaser or any of its subsidiaries is a party or by which any of them
or any of their properties or assets may be bound or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Purchaser,
any of its subsidiaries or any of their properties or assets, except in the case
of clauses (iii) and (iv) for violations, breaches or defaults which could not,
individually or in the aggregate, be reasonably expected to prevent or
materially delay the consummation of the Merger.
SECTION 4.04. INFORMATION SUPPLIED. None of the information supplied or
to be supplied by Purchaser specifically for inclusion or incorporation by
reference in the Proxy Statement or the Schedule 13E-3 will, at the time the
Proxy Statement is first mailed to the Company's shareholders or at the time of
the Shareholders Meeting, contain any untrue statement of a 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 are made, not misleading. The Schedule 13E-3 to be filed by Purchaser in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations thereunder, except that no representation or warranty is made by
Purchaser with respect to statements made or incorporated by reference therein
based on information supplied by the Company specifically for inclusion or
incorporation by reference therein.
SECTION 4.05. PURCHASER'S FINANCING CAPABILITY. Purchaser has heretofore
provided the Company with true and correct copies of (i) a proposal letter with
respect to Purchaser's expected senior debt financing sources for the funding
(the "Senior Debt Financing") of a portion of the Merger Consideration, and (ii)
a term sheet with respect to Purchaser's expected subordinated debt financing
sources for the funding (the "Subordinated Debt Financing") of a portion of the
Merger Consideration. Purchaser is reasonably satisfied that it will have
sufficient funds (including equity capital, Senior Debt Financing and
Subordinated Debt Financing) to enable it to purchase the Shares pursuant to the
Merger in accordance with terms hereof, pay all related fees and expenses and
effect all other transactions contemplated hereby.
SECTION 4.06. SURVIVING CORPORATION SOLVENCY. Immediately after the
Effective Time and after giving effect to any changes in the Surviving
Corporation's assets and liabilities as a result of the Merger and the financing
for the Merger Consideration, the Surviving Corporation will not (i) be
insolvent (either because its financial condition is such that the sum of its
debts is greater than the fair value of its assets or because the fair saleable
value of its assets is less than the amount required to pay its probable
liability on its existing debts as they mature), (ii) have unreasonably small
capital with which to
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engage in its business, or (iii) have incurred debts beyond its ability to pay
as they become due; provided, that for purposes of making the representation and
warranty set forth in this Section 4.06 Purchaser has relied on the accuracy of
(i) all information provided to them by the Company, and (ii) all information
set forth in the Company's SEC Documents.
SECTION 4.07. BROKERS. No broker, investment banker, financial advisor or
other person, other than Trivest II, Inc., the fees and expenses of which will
be paid by Purchaser, 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 based upon arrangements made by or on behalf of
Purchaser.
SECTION 4.08. BOARD DETERMINATION. The Board of Directors of Purchaser at
a meeting duly called and held, duly and unanimously adopted resolutions
approving this Agreement and the Merger.
SECTION 4.09. FULL DISCLOSURE. No statement contained in any certificate
or schedule furnished or to be furnished by Purchaser to the Company in, or
pursuant to the provisions of, this Agreement contains or shall contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in the light of the circumstances under which it was made, in
order to make the statements herein or therein not misleading.
ARTICLE V
COVENANTS
SECTION 5.01. COVENANTS OF THE COMPANY. The Company agrees as to itself
and its subsidiaries that (except as expressly contemplated or permitted by this
Agreement, as set forth in the Disclosure Schedule or to the extent that
Purchaser shall otherwise consent in advance, which consent shall not be
unreasonably withheld and shall subsequently be confirmed in writing):
(a) Ordinary Course. The Company shall, and shall cause its
subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course and the Company shall, and shall cause its subsidiaries
to, use all reasonable efforts to preserve intact their present business
organizations, keep available the services of their present officers and
employees and preserve their relationships with customers, suppliers and
others having business dealings with the Company and its subsidiaries.
(b) Dividends; Changes in Stock. The Company shall not, and shall not
permit any of its subsidiaries to, (i) declare or pay any dividends on or
make other distributions in respect of any of its capital stock, except for
dividends by a direct or indirect wholly owned subsidiary of the Company to
its Purchaser, (ii) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
or (iii) repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or its subsidiaries or any other securities thereof.
(c) Issuance of Securities. The Company shall not, and shall not
permit any of its subsidiaries to, issue, deliver, sell, pledge or
encumber, or authorize or propose the issuance, delivery, sale, pledge or
encumbrance of, any shares of its capital stock of any class or any
securities convertible into, or any rights, warrants, calls, subscriptions
or options to acquire, any such shares or convertible securities, or any
other ownership interest (including stock appreciation rights or phantom
stock) other than (i) the
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issuance of shares of Company Common Stock upon the exercise of Company
Stock Options outstanding on the date of this Agreement and in accordance
with the terms of such Company Stock Options, or (ii) issuances by a
wholly-owned subsidiary of the Company of its capital stock to its
Purchaser.
(d) Governing Documents. The Company shall not, and shall not permit
any of its subsidiaries to, amend or propose to amend its articles or
certificate of incorporation or bylaws (or similar organizational
documents) in any way which would be adverse to Purchaser's rights under
this Agreement.
(e) No Acquisitions. The Company shall not, and shall not permit any
of its subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing any equity interest in or any
substantial assets of (other than inventory and equipment in the ordinary
course consistent with past practice, to the extent not otherwise
prohibited by this Agreement), or by any other manner, any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof.
(f) No Dispositions. Other than dispositions in the ordinary course
of business consistent with past practice, the Company shall not, and shall
not permit any of its subsidiaries to, sell, lease, license, encumber or
otherwise dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of its assets.
(g) Indebtedness. The Company shall not, and shall not permit any of
its subsidiaries to, (i) incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Company or any of
its subsidiaries, guarantee any debt securities of others, enter into any
"keep-well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for working capital
borrowings incurred in the ordinary course of business consistent with past
practice under the Company's credit facility existing and in effect on the
date of this Agreement, or (ii) make any loans, advances or capital
contributions to, or investments in, any other person, other than, with
respect to both clause (i) and (ii) above, (A) to the Company or any direct
or indirect wholly owned subsidiary of the Company, or (B) any advances to
employees in accordance with past practice.
(h) Advice of Changes; Filings. The Company shall confer with
Purchaser on a regular and frequent basis as reasonably requested by
Purchaser, report on operational matters and promptly advise Purchaser
orally and, if requested by Purchaser, in writing of any change or event to
the Best Knowledge of the Company having, or which, insofar as can
reasonably be foreseen, is likely to have, a Material Adverse Effect on the
Company. The Company shall promptly provide to Purchaser (or its counsel)
copies of all filings made by the Company with any Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
(i) Accounting Changes. The Company shall not make any material
change, other than in the ordinary course of business, consistent with past
practice, or as required by the SEC or law, with respect to any accounting
methods, principles or practices used by the Company (except insofar as may
be required by a change in generally accepted accounting principles).
(j) Discharge of Liabilities. Except for fees and expenses related to
the transactions contemplated herein, the Company shall not, and shall not
permit any of
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its subsidiaries to, pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of (i) liabilities recognized
or disclosed in the Most Recent Financial Statements, or (ii) liabilities
incurred since the date of such financial statements in the ordinary course
of business consistent with past practice. The Company shall not, and shall
not permit any of its subsidiaries to, waive the benefits of, or agree to
modify in any manner, any confidentiality, standstill or similar agreement
to which the Company or any of its subsidiaries is a party.
(k) Compensation of Company Employees. Except as provided in Section
3.07 of the Disclosure Schedule or in Sections 6.04 or 6.08, the Company
and its subsidiaries will not, without the prior written consent of
Purchaser, which shall not be unreasonably withheld, except as may be
required by law, (i) enter into, adopt, amend or terminate any Company
Benefit Plan or other employee benefit plan or any agreement, arrangement,
plan or policy for the benefit of any director, executive officer or
current or former key employee, (ii) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any director,
executive officer or key employee, except as required by any Company
Benefit Plan or agreement with such employees existing on the date of this
Agreement, (iii) enter into, adopt, amend or terminate any Company Benefit
Plan or other benefit plan or agreement, arrangement, plan or policy for
the benefit of any employees who are not directors, executive offices or
current or former key employees of the Company, other than increases in the
compensation of employees made in the ordinary course of business
consistent with past practice, or (iv) pay any benefit not required by any
plan or arrangement as in effect as of the date hereof (including the
granting of, acceleration of exercisability of or vesting of stock options,
stock appreciation rights or restricted stock).
(l) Material Contracts. Except in the ordinary course of business
consistent with past practices, neither the Company nor any of its
subsidiaries shall (i) modify, amend or terminate any material contract or
agreement to which the Company or such subsidiary is a party, or (ii)
waive, release or assign any material rights or claims.
(m) No Dissolution, Etc. The Company shall not authorize, recommend,
propose or announce an intention to adopt a plan of complete or partial
liquidation of the Company or any of its subsidiaries.
(n) Tax Election. Except as set forth in Section 3.14 of the
Disclosure Schedule, the Company shall not make any tax election or settle
or compromise any material income tax liability.
(o) General. The Company shall not, and shall not permit any of its
subsidiaries to, authorize any of, or commit or agree to take any of, the
foregoing actions described in this Section 5.01.
SECTION 5.02. NO SOLICITATION.
(a) The Company and its officers, directors, employees, representatives and
agents shall immediately cease any discussions or negotiations with any parties
that may be ongoing with respect to an Acquisition Proposal (as hereinafter
defined). From and after the date hereof until the termination of this
Agreement, the Company shall not, nor shall
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it permit any of its subsidiaries to, authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its subsidiaries to,
directly or indirectly, (i) solicit, initiate or knowingly encourage (including
by way of furnishing non-public information or assistance), or knowingly take
any other action to facilitate, any inquiries or the making of any proposal
which constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding any
Acquisition Proposal; provided, however, that if, at any time the Board of
Directors of the Company determines in good faith, based upon the opinion of
independent legal counsel (who may be the Company's regularly engaged
independent counsel), that it is necessary to do so in order to comply with its
fiduciary duties to the Company's shareholders under applicable law, the Company
may, in response to an unsolicited Superior Proposal (as hereinafter defined),
and subject to compliance with Section 5.02(c), (x) furnish information with
respect to the Company to the person making such unsolicited Superior Proposal
pursuant to a confidentiality agreement in a form approved by the Company and
Purchaser (such approval not to be unreasonably withheld or delayed), and (y)
participate in discussions or negotiations regarding such Superior Proposal. For
purposes of this Agreement, "Acquisition Proposal" means any inquiry, proposal
or offer from any person relating to any direct or indirect acquisition or
purchase of 20% or more of the assets of the Company and its subsidiaries or 20%
or more of any class of equity securities of the Company or any of its
subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 20% or more of any class of equity
securities of the Company or any of its subsidiaries, any merger, consolidation,
business combination, sale of all or substantially all the assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries (other than the transactions between the
parties hereto contemplated by this Agreement), or any other transaction the
consummation of which could reasonably be expected to impede, interfere with,
prevent or materially delay the Merger or which could reasonably be expected to
dilute materially the benefits to Purchaser of the transactions contemplated
hereby. For purposes of this Agreement, a "Superior Proposal" means any bona
fide proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the shares
of Company Common Stock then outstanding or all or substantially all the assets
of the Company and otherwise on terms which the Board of Directors of the
Company reasonably determines in its good faith judgment (based on the advice of
Mann, Armistead) to be more favorable to the Company's shareholders than the
Merger.
(b) Except as set forth in this Section 5.02, neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Purchaser,
the approval or recommendation by such Board of Directors or committee of
this Agreement or the Merger, (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal, or (iii) cause the Company
to enter into any agreement with respect to any Acquisition Proposal.
Notwithstanding the foregoing, in the event that the Board of Directors of
the Company determines in good faith, based upon the opinion of independent
legal counsel (who may be the Company's regularly engaged independent
counsel), that it is necessary to do so in order to comply with its
fiduciary duties to the Company's shareholders under applicable law, the
Board of Directors of the Company may (subject to the other provisions of
Section 5.02) withdraw or modify its approval or recommendation of this
Agreement and the Merger, approve or recommend a Superior Proposal, cause
the Company to enter into an agreement with
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respect to a Superior Proposal or terminate this Agreement, but in each
case only at a time that is after the fifth business day following
Purchaser's receipt of written notice (a "Notice of Superior Proposal")
advising Purchaser that the Board of Directors of the Company has received
a Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal.
In addition, if the Company proposes to enter into an agreement with
respect to any Acquisition Proposal, it shall concurrently with entering
into such agreement pay, or cause to be paid, to Purchaser the Termination
Fee (as such term is defined in Section 6.06(b)).
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 5.02, the Company shall promptly
advise Purchaser orally and in writing of any request for information or of
any Acquisition Proposal, the material terms and conditions of such request
or Acquisition Proposal and, unless the Company is contractually prohibited
from making such disclosure (it being agreed that the Company shall use its
good faith, reasonable efforts to not be subject to such contractual
prohibition), the identity of the person making such request or Acquisition
Proposal.
(d) Nothing contained in this Section 5.02 shall prohibit the Company
from taking and disclosing to its shareholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's shareholders if, in the good faith judgment of
the Board of Directors of the Company, after consultation with independent
legal counsel (who may be the Company's regularly engaged independent
counsel), failure so to disclose would be inconsistent with its fiduciary
duties to the Company's shareholders under applicable law; provided,
however, neither the Company nor its Board of Directors nor any committee
thereof shall, except as permitted by Section 5.02(b), withdraw or modify,
or propose to withdraw or modify, its position with respect to this
Agreement or the Merger or approve or recommend, or propose to approve or
recommend, an Acquisition Proposal.
SECTION 5.03. OTHER ACTIONS.
(a) Except as contemplated by Section 5.02 or the other provisions of
this Agreement, the Company shall not, and shall not permit any of its
subsidiaries to, take any action that could reasonably be expected to
result in (i) any of the representations and warranties of the Company set
forth in this Agreement that are qualified as to materiality becoming
untrue, (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect, or (iii) any of the
conditions to the Merger set forth in Article VII hereof not being
satisfied in all material respects.
(b) Except as contemplated by Section 5.02 or the other provisions of
this Agreement, Purchaser shall not, and shall not permit any of its
subsidiaries to, take any action that could reasonably be expected to
result in (i) any of the representations and warranties of Purchaser set
forth in this Agreement that are qualified as to materiality becoming
untrue, (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect, or (iii) any of the
conditions to the Merger set forth in Article VII hereof not being
satisfied in all material respects.
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SECTION 5.04. FINANCING COVENANTS OF PURCHASER AND SUB.
(a) Purchaser will use its good faith and reasonable commercial
efforts to obtain all debt and/or equity financing reasonably expected to
be required to accomplish the Merger and the payment for Shares pursuant to
this Agreement and to pay Purchaser's related fees and expenses. Purchaser
shall promptly (x) forward to the Company copies of all written commitment
letters, letters of intent and/or other agreements in principle with
respect to all debt and/or equity financing reasonably expected to be
obtained in connection with the Merger (collectively the "Commitments"),
and (y) advise the Company orally, and if requested by Company, in writing
of (i) any significant change in the status of any such financing
arrangements, or (ii) to the knowledge of Purchaser, any other event which
could reasonably be expected to materially delay or prevent the Merger.
Purchaser shall promptly provide Company with copies of any written changes
or termination of the Commitments and any written commitments for alternate
financing.
(b) Purchaser shall pay the Merger Consideration to the Paying Agent
not later than the tenth business day following the satisfaction or waiver
of the conditions set forth in Sections 7.01 and 7.02; provided, that
references to the Effective Time contained in Sections 7.02 and 7.03 shall,
for purposes of this Section 5.04(b), refer to the date on which the last
condition contained in Section 7.01 shall have been satisfied.
SECTION 5.05. SOLVENCY. Purchaser agrees to provide to the Special
Committee any opinions (and supporting documentation) regarding the matters
referred to in Section 4.06 as are provided to any banks or other lenders in
connection with the Merger at the same time that they are provided to such banks
or other lenders.
SECTION 5.06. AMENDMENT OF MANAGEMENT AGREEMENT. Purchaser shall cause
Trivest II, Inc. ("Trivest") to promptly execute an amendment to its existing
Investment Services Agreement with the Company (the "Management Agreement") in
order to provide to the effect that, (x) no Fee shall be payable to Trivest
pursuant to Section 6.3 of the Management Agreement with respect to the Merger,
(y) if the Termination Fee is paid in connection with a Superior Proposal
pursuant to the terms hereof, no fee shall be payable to Trivest pursuant to
Section 6.3 of the Management Agreement with respect to such Superior Proposal,
and (z) Trivest shall not be reimbursed pursuant to Section 4 of the Management
Agreement for any expenses related to the Merger or a Superior Proposal, which
amendment shall be in form reasonably acceptable to the Special Committee.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. SHAREHOLDER APPROVAL; PREPARATION OF PROXY STATEMENT.
(a) Subject to the receipt of the written fairness opinion of Mann,
Armistead contemplated by Section 3.04(c) hereof, the Company shall, (i) as
soon as practicable, duly call, give notice of, convene and hold a meeting
of its shareholders (the "Shareholders Meeting") for the purpose of
obtaining the Company Shareholder Approval, (ii) through its Board of
Directors, recommend to its shareholders that the Company Shareholder
Approval be given, and (iii) at the direction of Purchaser, solicit from
holders of Shares entitled to vote at the Shareholder Meeting proxies in
favor of the Company Shareholder Approval and shall take all other action
necessary
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or, in the judgment of Purchaser, helpful to secure the vote or consent of
such holders required by the Corporation Law or this Agreement to effect
the Merger.
(b) Purchaser and the Company shall, as soon as practicable, jointly
prepare and the Company shall file a preliminary Proxy Statement (or, if
requested by Purchaser and applicable, an information statement in lieu of
a proxy statement pursuant to Rule 14C under the Exchange Act, with all
references herein to the Proxy Statement being deemed to refer to such
information statement, to the extent applicable) with the SEC and shall use
its best efforts to respond to any comments of the SEC or its staff and to
cause the Proxy Statement to be mailed to the Company's shareholders as
promptly as practicable after responding to all such comments to the
satisfaction of the staff. The Company shall notify Purchaser promptly of
the receipt of any comments from the SEC or its staff and of any request by
the SEC or its staff for amendments or supplements to the Proxy Statement
or for additional information and shall supply Purchaser with copies of all
correspondence between the Company or any of its representatives, on the
one hand, and the SEC or its staff, on the other hand, with respect to the
Proxy Statement or the Merger. If at any time prior to the Shareholders
Meeting there shall occur any event that should be set forth in an
amendment or supplement to the Proxy Statement, the Company shall promptly
prepare and mail to its shareholders such an amendment or supplement. The
Company shall not mail any Proxy Statement, or any amendment or supplement
thereto, to which Purchaser reasonably objects unless required by law. The
Company and its counsel shall permit Purchaser and its counsel to
participate in all communications with the SEC and its staff, including all
meetings and telephone conferences, relating to the Proxy Statement, the
Merger or this Agreement.
(c) Purchaser agrees to cause all Shares owned by Purchaser or any
subsidiary of Purchaser to be voted in favor of the Company Shareholder
Approval.
(d) The Company hereby consents to the inclusion in the Proxy
Statement of the recommendation of the Company's Board and the
recommendation of the Board's Special Committee described in Section 3.04,
subject to any modification, amendment or withdrawal thereof; provided,
however, that in no event shall the Company be required to mail the Proxy
Statement to its shareholders prior to the receipt of the written fairness
opinion of Mann, Armistead contemplated by Section 3.04(c) hereof.
(e) In connection with the Merger, the Company shall cause its
transfer agent to furnish Purchaser promptly with mailing labels containing
the names and addresses of the record holders of Shares as of a recent date
and of those persons becoming record holders subsequent to such date,
together with copies of all lists of shareholders, security position
listings and computer files and all other information in the Company's
possession or control regarding the beneficial owners of Shares, and shall
furnish to Purchaser such information and assistance (including updated
lists of shareholders, security position listings and computer files) as
Purchaser may reasonably request.
SECTION 6.02. ACCESS TO INFORMATION. Upon reasonable notice and subject
to restrictions contained in confidentiality agreements to which the Company is
subject, the Company shall, and shall cause each of its subsidiaries to, afford
to Purchaser and to the officers, employees, accountants, counsel and other
representatives of Purchaser access, during normal business hours to all their
respective properties, books, contracts, commitments and records and, during
such period, the Company shall (and shall cause each of its subsidiaries to)
furnish promptly to Purchaser (a) a copy of each report,
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schedule, registration statement and other document filed or received by it
during such period pursuant to SEC requirements, and (b) all other information
concerning its business, properties and personnel as Purchaser may reasonably
request. Subject to the requirements of applicable law, and except for such
steps as are necessary to disseminate the documents necessary to consummate the
Merger, Purchaser and its agents shall hold in confidence all non-public
information received from the Company, shall use such information only in
connection with the Merger and, if this Agreement shall be terminated, shall,
upon request, deliver, and shall use their best efforts to cause Its agents to
deliver, to the Company all copies of such non-public information then in their
possession or control.
SECTION 6.03. REASONABLE EFFORTS. Each of the Company and Purchaser
agrees to use its reasonable efforts to take, or cause to be taken, all actions
necessary to comply promptly with all legal requirements which may be imposed on
itself with respect to the Merger (which actions shall include furnishing all
information required under the HSR Act and in connection with approvals of or
filings with any other Governmental Entity) and shall promptly cooperate with
and furnish information to each other in connection with any such requirements
imposed upon any of them or any of their subsidiaries in connection with the
Merger. Each of the Company and Purchaser will, and shall cause its subsidiaries
to, use its reasonable efforts to take all reasonable actions necessary to
obtain (and will cooperate with each other in obtaining) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity or other public or private third party required to be obtained or made by
Purchaser, the Company or any of their subsidiaries in connection with the
Merger or the taking of any action contemplated by this Agreement, except that
no party need waive any substantial rights or agree to any substantial
limitation on its operations or to dispose of or hold separate any material
assets.
SECTION 6.04. COMPANY STOCK OPTIONS; PLANS.
(a) Purchaser and the Company shall, effective as of the Effective
Time, (i) cause each outstanding option to purchase Company Common Stock (a
"Company Stock Option") issued pursuant to the Company's 1994 Stock Option
Plan, as Amended and Restated Effective January 23, 1997 (the "Company
Stock Option Plan"), whether or not exercisable or vested, to become fully
exercisable and vested, (ii) cause each Company Stock Option that is
outstanding to be canceled, and (iii) in consideration of such cancellation
and, except to the extent that Purchaser and the holder of any such Company
Stock Option otherwise agree, cause the Company (or, at Purchaser's option,
Purchaser) to pay such holders of Company Stock Options an amount in
respect thereof equal to the product of (x) the excess, if any, of the
Merger Consideration over the exercise price of each such Company Stock
Option, and (y) the number of shares of Company Common Stock subject to the
Company Stock Option immediately prior to its cancellation (such payment to
be net of applicable withholding taxes).
(b) Except as may otherwise be agreed by Purchaser and the Company,
the Company Stock Option Plan shall terminate as of the Effective Time, and
no holder of Company Stock Options or any participant in the Company Stock
Option Plan shall have any rights thereunder to acquire any equity
securities of the Company, the Surviving Corporation or any subsidiary
thereof.
(c) Except as may otherwise be agreed by Purchaser and the Company,
all other plans, programs or arrangements providing for the issuance or
grant of any other interest in respect of the capital stock of the Company
or any of its subsidiaries shall terminate as of the Effective Time, and no
participant in any such plans, programs or
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arrangements shall have any rights thereunder to acquire any equity
securities of the Company, the Surviving Corporation or any subsidiary
thereof.
SECTION 6.05. CONFIDENTIALITY. Prior to the Closing, Purchaser shall, and
shall cause its Affiliates and its and their employees, agents, accountants,
legal counsel and other representatives and advisers to, hold in strict
confidence all, and not divulge or disclose any information of any kind
concerning the Company and its business; provided, however, that the foregoing
obligation of confidence shall not apply to (i) information that is or becomes
generally available to the public other than as a result of a disclosure by
Purchaser, any of its Affiliates or any of their respective employees, agents,
accountants, legal counsel or other representatives or advisers, (ii)
information that is or becomes available to Purchaser, any of its Affiliates or
any of their respective employees, agents, accountants, legal counsel or other
representatives or advisers on a nonconfidential basis, and (iii) information
that is required to be disclosed by Purchaser, any of its Affiliates or any of
their respective employees, agents, accountants, legal counsel or other
representatives or advisers as a result of any applicable law, rule or
regulation of any Governmental Authority; and provided further that Purchaser
promptly shall notify the Company of any disclosure pursuant to clause (iii) of
this Section 6.05. Promptly after any termination of this Agreement, Purchaser
and its representatives shall return to the Company or destroy all copies of
documentation with respect to the Company that were supplied by or on behalf of
the Company pursuant to this Agreement, without retaining any copy thereof, and
destroy any notes or analyses Purchaser and/or its representatives may have
prepared containing information derived from such materials.
SECTION 6.06. FEES AND EXPENSES.
(a) Except as provided below in this Section 6.06, all fees and
expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
Notwithstanding the foregoing, the Purchaser shall pay all filing fees
required under the HSR Act in connection with the Merger and the
transactions contemplated hereby.
(b) If (i) Purchaser terminates this Agreement under Section 8.01(d)
or Section 8.01(e), or (ii) the Company terminates this Agreement pursuant
to Section 8.01(f), the Company shall assume and pay to Purchaser, or cause
to be paid, a termination fee in an amount equal to the sum of (i) all
expenses incurred by Purchaser in connection with the transactions
contemplated hereby, up to a maximum total of $1,500,000, plus (ii)
$10,000,000 (such sum is referred to herein as the "Termination Fee").
SECTION 6.07. INDEMNIFICATION; INSURANCE.
(a) Purchaser agrees that all rights to indemnification for acts or
omissions occurring prior to the Effective Time now existing in favor of
the current or former directors or officers (the "Indemnified Parties") of
the Company and its subsidiaries as provided in their respective
certificates or articles of incorporation or bylaws (or similar
organizational documents) or existing indemnification contracts shall
survive the Merger and shall continue in full force and effect in
accordance with their terms.
(b) In addition, Purchaser will provide, or cause the Surviving
Corporation to provide, for a period of not less than two years after the
Effective Time, the Company's current directors and officers an insurance
and indemnification policy that provides coverage for events occurring at
or prior to the Effective Time (the "D&O
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Insurance") that is no less favorable than the Company's existing D&O
Insurance policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; provided, however, that Purchaser
and the Surviving Corporation shall not be required to pay an annual
premium for the D&O Insurance in excess of 200% of the annual premium
currently paid by the Company for such insurance, but in such case shall
purchase as much such coverage as possible for such amount.
(c) This Section 6.07 shall survive the consummation of the Merger at
the Effective Time, is intended to benefit the Company, Purchaser, the
Surviving Corporation and the Indemnified Parties and their respective
heirs, personal representatives, successors and assigns, and shall be
binding on all successors and assigns of Purchaser and the Surviving
Corporation.
SECTION 6.08. EMPLOYMENT AND BENEFIT ARRANGEMENTS.
(a) From and after the Effective Time, Purchaser shall cause the
Surviving Corporation to honor all employment, severance, termination and
retirement agreements to which the Company is a party, as such agreements
are in effect on the date hereof.
(b) For a one-year period following the Effective Time, Purchaser
shall cause the Surviving Corporation to provide those employees who are
employees of the Surviving Corporation at the Effective Time with benefits
that are, in the aggregate, no less favorable to such employees as are the
benefits of the Company available to such employees immediately prior to
the Effective Time.
(c) The provisions of this Section 6.08 are not intended to create
rights of third party beneficiaries.
ARTICLE VII
CONDITIONS
SECTION 7.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) This Agreement and the Merger shall have been approved and adopted
by the affirmative vote or consent of the holders of at least a majority of
the outstanding shares of Company Common Stock;
(b) All consents, authorizations, orders and approvals of (or filings
or registrations with) any Governmental Authority or other regulatory body
required in connection with the execution, delivery and performance of this
Agreement, the failure to obtain which would prevent the consummation of
the Merger or have a Material Adverse Effect on the Company, shall have
been obtained without the imposition of any condition having a Material
Adverse Effect on the Company;
(c) Early termination shall have been granted or applicable waiting
periods shall have expired under the HSR Act, if applicable;
(d) No Governmental Authority or other regulatory body (including any
court of competent jurisdiction) shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of
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making illegal, materially restricting or in any way preventing or
prohibiting the Merger or the transactions contemplated by this Agreement;
(e) All authorizations, consents, waivers and approvals from parties
to contracts or other agreements to which any of the Company or its
subsidiaries is a party, or by which any of them is bound, as may be
required to be obtained by them in connection with the performance of this
Agreement, the failure to obtain which would prevent the consummation of
the Merger or have, individually or in the aggregate, a Material Adverse
Effect on Company, shall have been obtained; and
(f) The Company shall have received the written fairness opinion of
Mann, Armistead contemplated by Section 3.04(c) hereof.
SECTION 7.02. CONDITIONS TO OBLIGATIONS OF PURCHASER TO EFFECT THE
MERGER. The obligations of Purchaser to effect the Merger are further subject
to satisfaction or waiver at or prior to the Effective Time of the following
conditions.
(a) There shall not have occurred any change, condition, event or
development that has resulted in, or could reasonably be expected to result
in, a Material Adverse Effect on the Company;
(b) The representations and warranties of the Company in this
Agreement that are qualified by materiality shall be true and correct in
all respects as of the date of this Agreement and as of the Effective Time;
(c) the representations and warranties of the Company in this
Agreement that are not qualified by materiality shall be true and correct
in all material respects as of the date of this Agreement and as of the
Effective Time;
(d) the Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement;
(e) an officer of the Company shall have delivered to Purchaser a
certificate to the effect that each of the conditions specified in Sections
7.02(b), (c) and (d) is satisfied in all respects; and
(f) Purchaser shall have received an opinion, dated the Effective
Time, of Balch & Bingham L.L.P., counsel to the Company, in form and
substance reasonably satisfactory to Purchaser, with respect to the matters
set forth in Sections 3.01, 3.02, 3.03, 3.04 and 3.05 hereof.
SECTION 7.03. CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE
MERGER. The obligations of the Company to effect the Merger are further subject
to satisfaction or waiver at or prior to the Effective Time of the following
conditions:
(a) The representations and warranties of Purchaser in this Agreement
that are qualified by materiality shall be true and correct in all respects
as of the date of this Agreement and as of the Effective Time;
(b) The representations and warranties of the Purchaser in this
Agreement that are not qualified by materiality shall be true and correct
in all material respects as of the date of this Agreement and as of the
Effective Time;
(c) Purchaser shall have performed in all material respects all
obligations required to be performed by it under this Agreement;
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(d) Purchaser shall have delivered to the Company a certificate to the
effect that each of the conditions specified in Sections 7.03(a), (b) and
(c) is satisfied in all respects;
(e) The Company shall have received an opinion, dated the Effective
Time, of Greenberg Traurig, P.A., counsel to Purchaser, in form reasonably
satisfactory to the Company, with respect to the matters set forth in
Sections 4.01, 4.02 and 4.03 hereof; and
(f) Purchaser shall have executed definitive documentation in
connection with their financing of the Merger Consideration and shall have
sufficient funds available to consummate the Merger, to pay all related
expenses and to refinance the Company's existing indebtedness to Heller
Financial, Inc.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the terms of
this Agreement by the shareholders of the Company:
(a) by mutual written consent of Purchaser and the Company;
(b) by either Purchaser or the Company if any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the acceptance
for payment of, or payment for, shares of Company Common Stock pursuant to
the Merger and such order, decree or ruling or other action shall have
become final and nonappealable; provided, however, that the right to
terminate this Agreement pursuant to this Section 8.01(b) shall not be
available to any party that has failed to perform its obligations under
Section 6.03;
(c) by either Purchaser or the Company if the Effective Time shall not
have occurred on or before August 31, 1999, unless extended by agreement of
the parties.
(d) by Purchaser, if
(i) (A) the representations and warranties of the Company in
Section 3.03 shall not have been true and correct in all material
respects when made, or (B) any other representation or warranty of the
Company shall not have been true and correct in all material respects
when made, except in any case where such failure to be true and correct
would not, in the aggregate, (x) have a Material Adverse Effect on the
Company, or (y) prevent or materially delay consummation of the Merger;
(ii) the Company shall have failed to comply in any material
respect with any of its material obligations or covenants contained
herein, except in any case where such failure would not, in the
aggregate, (x) have a Material Adverse Effect on the Company, or (y)
prevent or materially delay consummation of the Merger; or
(iii) there shall have been a Material Adverse Change with respect
to the Company;
provided that the Company shall, if curable, have a reasonable period in
which to cure any failure described in clause (i), (ii) or (iii) above.
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(e) by Purchaser, if
(i) the Board of Directors of the Company or the Special Committee
shall have failed to approve and recommend or shall have withdrawn or
modified in a manner adverse to Purchaser its approval or recommendation
of the Merger or this Agreement, or approved or recommended any
Acquisition Proposal;
(ii) the Company shall have entered into any agreement with respect
to any Superior Proposal in accordance with Section 5.02(b); or
(iii) the Board of Directors of the Company or the Special
Committee shall have resolved to take any of the foregoing actions;
(f) by the Company in connection with entering into a definitive
agreement in accordance with Section 5.02(b), provided it has complied with
all provisions thereof, including the notice provisions therein and the
payment of the Termination Fee, and provided that the Company shall not
have breached in any material respect the provisions of Section 5.02(a); or
(g) by the Company, if
(i) any representation or warranty of Purchaser shall not have been
true and correct in all material respects when made or shall have ceased
at any later date to be true and correct in all material respects as if
made at such later date;
(ii) Purchaser fails to comply in any material respect with any of
its material obligations or covenants contained herein; or
(iii) Purchaser fails to comply with its covenant contained in
Section 5.04(b);
provided that Purchaser shall, if curable, have a reasonable period in
which to cure any failure described in clause (i) or (ii) above.
SECTION 8.02. EFFECT OF TERMINATION.
(a) In the event of a termination of this Agreement by either the
Company or Purchaser as provided in Section 8.01, this Agreement shall
forthwith become void and there shall be no liability or obligation on the
part of Purchaser, the Company or their respective officers, directors,
shareholders or affiliates, except with respect to Section 3.16, Section
4.06, Section 6.05, Section 6.06, this Section 8.02 and Article IX;
provided, however, that nothing herein shall relieve any party for
liability for any breach hereof.
(b) Purchaser has delivered to SunTrust Bank, Atlanta, as Escrow
Agent, $3,000,000 in cash (the "Escrow Fund"). In the event the Company
terminates this Agreement pursuant to Section 8.01(g), in addition to any
other remedies it may have in respect of such termination, the Company
shall be entitled to draw upon the Escrow Fund in full against presentment
to such Escrow Agent of a certificate of an officer of the Company to the
effect that this Agreement has been terminated pursuant to such section.
SECTION 8.03. AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after obtaining the Company Shareholder Approval, but,
after any such approval, no amendment shall be made which by law requires
further approval by such shareholders (or which reduces the amount or changes
the Merger Consideration to be delivered to
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such shareholders) without obtaining such further approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
SECTION 8.04. EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto or (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument 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 those rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. 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 or, in the case of
the Company, shall survive the acceptance for payment of, and payment for,
Shares pursuant to the Merger.
SECTION 9.02. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed), sent by overnight courier (providing proof of
delivery) or mailed by registered or certified mail (return receipt requested)
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 Purchaser, to
Trivest Furniture Corporation
2655 South Bayshore Drive, Suite 800
Miami, Florida 33131
Attn: General Counsel
Telecopy No.: (305) 858-1629
Confirm No.: (305) 858-2200
with a copy to:
Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Bruce E. Macdonough, Esq.
Telecopy No.: (305) 579-0717
Confirm No.: (305) 579-0500
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and
(b) if to the Company, to
WinsLoew Furniture, Inc.
160 Village Street
Birmingham, Alabama 35242
Attn: James S. Smith
Telecopy No.: (205) 408-7028
Confirm No.: (205) 408-7600
with copies to:
Balch & Bingham, LLP
1901 Sixth Avenue North
Suite 2600
Birmingham, Alabama 35203
Attn: James F. Hughey, Jr.
Telecopy No.: (205) 226-8799
Confirm No.: (205) 226-3469
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attn: James M. Dubin
Telecopy No.: (212) 373-2393
Confirm No.: (212) 373-3026
SECTION 9.03. INTERPRETATION. (i) When a reference is made in this
Agreement to an Article or a Section, such reference shall be to an Article or a
Section of 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". The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available. As used in this Agreement, the term "subsidiary" of any
person means another person, an amount of the voting securities, other voting
ownership or voting partnership interests of which is sufficient to elect at
least a majority of its Board of Directors or other governing body (or, if there
are no such voting interests, 50% or more of the equity interests of which) is
owned directly or indirectly by such first person, and the term "affiliate"
shall have the meaning set forth in Rule 12b-2 promulgated under the Exchange
Act. As used in this Agreement, "Material Adverse Change" or "Material Adverse
Effect" means, when used in connection with the Company, any change or effect,
except those relating to general economic conditions or the furniture industry
generally (or any development that, insofar as can reasonably be foreseen, is
likely to result in any change or effect) that, individually or in the aggregate
with any such other changes or effects, is materially adverse to the business,
prospects, assets (including intangible assets), financial condition or results
of operations of the Company and its subsidiaries taken as a whole; and (ii)
"Best Knowledge" of the Company or any of its
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Subsidiaries shall be limited to the knowledge of the following designated
officers: Earl W. Powell, Vincent A. Tortorici, Jr., Bobby Tesney and Stephen C.
Hess. An individual shall be deemed to have "knowledge" of or to have "known" a
particular fact or other matter if (i) such individual is actually aware of such
fact or other matter, or (ii) a prudent individual should have known such fact
or other matter in the course of performing the responsibilities of his or her
job position.
SECTION 9.04. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
SECTION 9.05. ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement
(including the documents and the instruments referred to herein) (a) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) except as provided in Section 6.07 and Section 6.08, are not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
SECTION 9.06. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Florida and, to the extent
provided herein, the Corporation Law, without regard to any applicable conflicts
of law.
SECTION 9.07. PUBLICITY. Except as otherwise required by law or the rules
of the Nasdaq National Market, for so long as this Agreement is in effect,
neither the Company nor Purchaser shall, or shall permit any of its subsidiaries
to, issue or cause the publication of any press release or other public
announcement with respect to the transactions contemplated by this Agreement
without the consent of the other party, which consent shall not be unreasonably
withheld or delayed.
SECTION 9.08. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Purchaser may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to any
direct or indirect wholly owned subsidiary of Purchaser. 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 9.09. ENFORCEMENT. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement. In addition, each of the parties
hereto (i) consents to submit such party to the personal jurisdiction of any
Federal court located in the State of Florida in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (iii)
agrees that such party will not bring any action relating to this Agreement or
any of the transactions contemplated hereby in any court other than a Federal
court sitting in the State of Florida.
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IN WITNESS WHEREOF, Purchaser and the Company have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
TRIVEST FURNITURE CORPORATION
By: /s/ EARL W. POWELL
-----------------------------------
Earl W. Powell
President
WINSLOEW FURNITURE, INC.
By: /s/ WILLIAM F. KACZYNSKI, JR.
-----------------------------------
William F. Kaczynski, Jr.
Vice President
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APPENDIX B
MANN, ARMISTEAD & EPPERSON, LTD.
INVESTMENT BANKERS AND ADVISORS
May 4, 1999
Special Committee of the Board of Directors
WinsLoew Furniture, Inc.
160 Village Street
Birmingham, Alabama 35242
Gentlemen:
WinsLoew Furniture, Inc. (the "Company") and Trivest Furniture Corporation
(the "Purchaser") have entered into that certain Second Amended and Restated
Plan of Merger dated as of May 4, 1999 (the "Agreement") whereby the Purchaser
would be merged into the Company (the "Merger") pursuant to the terms and
subject to the conditions of the Agreement. The Agreement provides that each
outstanding share of common stock of the Company, other than the shares owned
directly or indirectly by the Purchaser, (the "Public Shareholders") will be
converted into the right to receive $34.75 in cash. You have requested our
opinion as to the fairness, from a financial point of view, to the Public
Shareholders of the cash consideration to be received by the Public Shareholders
in the Merger.
In arriving at our opinion, we, among other things: (i) reviewed the
Agreement; (ii) solicited the interest of third parties in submitting a
competing offer for the acquisition of the Company; (iii) met with officers and
certain members of the management of WinsLoew to discuss the respective
business, financial condition, operating results and future prospects; (iv)
reviewed the Company's annual audited financial statements and interim unaudited
financial statements through March 26, 1999; (v) reviewed publicly available
information including recent Securities and Exchange Commission filings and
shareholder communications for WinsLoew; (vi) compared certain financial and
stock market data of WinsLoew with similar data for selected publicly-held
furniture companies; (vii) reviewed projected financial statements through
December 31, 2002 as prepared by management of the Company; (viii) reviewed
historical market price and volume data for the common stock of WinsLoew; (ix)
reviewed various published research reports for WinsLoew; and (x) made such
other financial studies, analyses, and investigations as we deemed appropriate.
In rendering this opinion, we have relied upon the accuracy and
completeness of all financial and other information furnished to us by or on
behalf of the Company and other published information that we considered in our
review. We were not requested to and generally have not undertaken to verify
independently the accuracy and completeness of such information. We have relied
upon the reasonableness of all projections and forecasts provided to us and have
assumed that they were prepared in accordance with accepted practice on bases
reflecting the best currently available estimates and good faith judgments of
the Company's management. Our opinion herein is based on the circumstances
existing and known to us as of the date hereof. We have not made or obtained any
independent evaluations or appraisals of the assets or liabilities (contingent
or otherwise) of the Company, nor were we furnished with any such evaluations or
appraisals. Consequently, we do not express any opinion regarding the value of
any of the Company's specific individual
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assets. We were not requested to, and therefore did not, participate in the
structuring or negotiating of the Merger and have relied as to certain legal
matters on advice from counsel to the Special Committee and counsel to the Board
of Directors.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. Although subsequent developments may affect this
opinion, we do not have any obligation to update or revise this opinion. Our
opinion does not address (i) the relative merits of the Merger and the other
business strategies or transactions with third parties being considered by the
Company's Board of Directors, (ii) the Board's decision to proceed with the
Merger or (iii) the value of the shares of common stock held by the Purchaser or
fairness of any consideration being received by the Purchaser in the Merger. Our
opinion does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Mann, Armistead & Epperson, Ltd., as part of its investment banking
services, is regularly engaged in the valuation of businesses and securities in
connection with mergers, acquisitions, underwritings, private placements and
valuations for corporate, estate and other purposes. Pursuant to our engagement
in connection with this fairness opinion, we will receive a fee for our services
in rendering said opinion, a substantial portion of which is contingent upon the
consummation of the Merger. We are familiar with WinsLoew, having acted as
investment banker in the sale of one of the Company's subsidiaries and having
provided investment research on the Company.
The opinion expressed herein is provided for the benefit of the Special
Committee of the Board of Directors of WinsLoew and the opinion, and any
supporting analysis or other material supplied by us may not be quoted, referred
to, or used in any public filing or in any written document or for any other
purpose without the prior written approval of Mann, Armistead & Epperson, Ltd.
Mann Armistead & Epperson, Ltd. consents to the use of this opinion in its
entirety in any proxy statement or other communication from WinsLoew to its
shareholders. This letter is not intended to, and shall not, confer any rights
or remedies upon any shareholder of WinsLoew or any other person or entity.
Based upon the foregoing considerations, it is our opinion that as of May
4, 1999, the consideration to be received by the Public Shareholders of WinsLoew
upon consummation of the Merger is fair, from a financial point of view, to the
Public Shareholders of WinsLoew.
Truly yours,
MANN, ARMISTEAD & EPPERSON, LTD.
/s/ Mann, Limited & Epperson, Ltd.
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MANN, ARMISTEAD & EPPERSON, LTD.
INVESTMENT BANKERS AND ADVISORS
July 8, 1999
Special Committee of the Board of Directors
WinsLoew Furniture, Inc.
160 Village Street
Birmingham, Alabama 35242
Gentlemen:
At your request, we are providing this letter to supplement and to further
describe the analyses which provided the basis of our fairness opinion addressed
to you and dated May 4, 1999. More specifically, this letter addresses the
financial projections utilized in the discounted cash flow analysis performed by
us as of May 4. As a matter of context, we remind the Committee that the
discounted cash flow analysis was only one of four analyses performed to arrive
at our opinion. We also refer the Committee to the Opinion of the Financial
Advisor section of the Company's Amended Preliminary Proxy Statement as filed on
June 4, 1999, page 39, paragraph two, which states, "The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description."
You have asked that we expand our explanation of the projections used in
preparing our May 4 opinion. Upon our engagement as financial advisor to the
Committee on January 19, 1999, the Company provided us with financial
projections prepared by the Company for the years ending 1999 through 2002 (the
Company "Budget Projections"). These projections reflected estimated earnings
per share amounts of $2.60 in 1999 and increasing to $3.50 per share in 2002.
These projections were subsequently discussed with management of the Company on
several occasions, including during our due diligence visits. After the results
of the first quarter were released indicating that the Company exceeded their
projections for that quarter, we discussed with Company representatives the
Budget Projections. Management strongly confirmed that the Budget Projections
provided to us originally (the $2.60 per share in 1999) represented the
Company's most realistic estimates. These same projections were reflected on
page 85 of the Company's Amended Preliminary Proxy Statement filed on June 4
under Certain Forward Looking Information.
In addition to our discussions with management, there were other factors
which led us to believe that the use of the Budget Projections in our discounted
cash flow analysis was reasonable as of May 4. First, the Budget Projections
were not significantly inconsistent with street projections even though some
analysts were projecting higher results than $2.60 per share for 1999, and some
were projecting lower. One of the most respected analysts who follows the
Company was significantly below $2.60 and has only recently raised the estimate
to $2.60. Second, the casual furniture industry is very much subject to
seasonality and weather conditions and sales are difficult to predict. Combined
with the fact that the Company does not operate on a backlog of business due to
its quick delivery, projecting operating results is not systematic. Third, other
industry competitors were experiencing a slowdown in business. Fourth, the
contract furniture segment was beginning to experience a slowdown in business
during the first quarter of 1999. Finally, the Company had produced quarterly
results in 1998 that had exceeded certain analysts' projections, but management
advised us those results included non-recurring year-end adjustments. It was
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some analysts' expectation that the Company would have difficulty significantly
exceeding the excellent 1998 results. All of these factors led us to believe
that the Budget Projections were reasonable to be utilized in the discounted
cash flow analysis as of May 4. As a matter of interest, we note that according
to Zacks Investment Research, as of June 18, 1999, the earnings per share
estimates for WinsLoew range from $2.50 per share to $2.90 per share with the
mean being $2.67 per share.
In March 1999 management of WinsLoew brought to our attention financial
projections which we understand were prepared by management in connection with
Trivest's solicitation of financing for the proposed acquisition of WinsLoew.
These projections reflected operating results of $2.80 per share in 1999
increasing to $3.85 per share in 2002 (the Company "Best-Case Projections").
Management advised us that these figures were based on more favorable operating
assumptions. However, it was our understanding that management did not believe
this scenario was the most reasonable case. After discussing the matter with the
Special Committee, the Best-Case Projections were provided to Hancock Park.
As part of our due diligence and prior to the issuance of our May 4
opinion, we prepared a discounted cash flow analysis utilizing the higher
Best-Case Projections. Even though we were satisfied on May 4 with the
continuing reasonableness of the Budget Projections, we conducted such an
analysis with the Best-Case Projections since those projections had been made
available and in light of the Company's actual financial performance for the
first quarter of 1999 and the possibility that the Best-Case Projections might
be attained. The discounted cash flow analysis taken independently, revealed
that the offer of $34.75 per share was still in the range of fairness after
considering the Best-Case Projections. Consequently, this will confirm that our
May 4 fairness opinion took into account the Company's actual financial
performance for the first quarter of 1999, as well as higher Best-Case
Projections, and that the discounted cash flow analysis we performed utilizing
such projections supported our conclusion that the Merger is fair to the Public
Shareholders from a financial point of view as of the date of such opinion.
This letter is not a current opinion with respect to the fairness of the
transaction. We have not updated, revised or reviewed any of the information
underlying our May 4, 1999 opinion with respect to current information.
In re-examining our conclusions as of May 4, 1999, we have assumed that the
information provided to us by the Company and its representatives was true,
accurate and complete as of that date.
At the time we delivered our May 4, 1999 opinion, we delivered additional
material entitled "Opinion of the Financial Advisor, Financial Analysis" dated
May 4, 1999. As noted above, the discounted cash flow analysis contained in that
material was based upon projections at the level of $2.60 per share for 1999. We
are enclosing with this letter an additional set of materials which demonstrate
our calculations based on the higher Best-Case Projections as of May 4, 1999.
Very truly yours,
MANN, ARMISTEAD & EPPERSON, LTD.
/s/ Mann, Limited & Epperson, Ltd.
B-4
<PAGE> 1
EXHIBIT (d)(4)
WINSLOEW FURNITURE, INC.
160 VILLAGE STREET
BIRMINGHAM, ALABAMA 35242
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
ON FRIDAY, AUGUST 27, 1999 AT 9:00 A.M.
The undersigned hereby appoints Bobby Tesney and Vincent A. Tortorici, Jr., and
each of them, proxies, with full power of substitution and resubstitution, for
and in the name of the undersigned, to vote, as designated on the reverse side
of this proxy card, all shares of common stock, par value $.01 per share, of
WinsLoew Furniture, Inc., held by the undersigned at the close of business on
July 26, 1999, which the undersigned would be entitled to vote if personally
present at the Special Meeting of Shareholders to be held on Friday, August 27,
1999 at 9:00 a.m., local time, at the offices of Trivest, Inc., 2665 South
Bayshore Drive, Miami, Florida 33133, and at any adjournment or postponement
thereof, upon the matters described in the accompanying Notice of Special
Meeting of Shareholders and Proxy Statement, receipt of which is hereby
acknowledged, and upon any other business incident to the conduct of the meeting
that may properly come before the meeting or any adjournment or postponement
thereof. Said proxies are directed to vote on the matters described in the
Notice of Special Meeting of Shareholders and Proxy Statement as follows, and
otherwise in their discretion upon such other business incident to the conduct
of the meeting as may properly come before the meeting or any adjournment
thereof.
PROPOSAL OF THE BOARD OF DIRECTORS TO APPROVE THE SECOND AMENDED AND
RESTATED AGREEMENT AND PLAN OF MERGER, DATED AS OF MAY 4, 1999 BETWEEN
WINSLOEW FURNITURE, INC. AND TRIVEST FURNITURE CORPORATION.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE UNDERSIGNED HEREBY REVOKES ANY PROXY OR PROXIES HERETOFORE GIVEN TO VOTE
UPON OR ACT WITH RESPECT TO SUCH STOCK AND HEREBY RATIFIES AND CONFIRMS ALL THAT
SAID PROXIES, THEIR SUBSTITUTES, OR ANY OF THEM, MAY LAWFULLY DO BY VIRTUE
HEREOF.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF WINSLOEW
FURNITURE, INC.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THE
PROXY WILL BE VOTED FOR THE PROPOSAL LISTED ABOVE.
Dated: ______________________, 1999
___________________________________________
Signature
Please sign exactly as your name(s)
appear(s) hereon. Where more than one owner
is shown above, each should sign. When
signing in a fiduciary or representative
capacity, please add your full title as
such. If this proxy is submitted by a
corporation, it should be executed in the
full corporate name by a duly authorized
officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND
THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY.
