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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 13E-4/A
------------------------
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
WALNUT FINANCIAL SERVICES, INC.
(NAME OF ISSUER)
WALNUT FINANCIAL SERVICES, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK PURCHASE WARRANTS WITH AN EXERCISE PRICE OF $3.00
(TITLE OF CLASS OF SECURITIES)
NOT APPLICABLE
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
JOEL S. KANTER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WALNUT FINANCIAL SERVICES, INC.
8000 TOWERS CRESCENT DRIVE, SUITE 1070
VIENNA, VIRGINIA 22182
703-448-3771
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
------------------------
NOVEMBER 10, 1997
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)
PAGE 1 OF 4 PAGES
EXHIBIT INDEX AT PAGE 3
CALCULATION OF FILING FEE
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Transaction Valuation: Amount of Filing Fee (1):
$417,710 $83.55
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1. In accordance with Rule 0-11(b)(2) and Rule 0-11(a)(4) under the
Securities Exchange Act of 1934, the filing fee was calculated based upon
the average of the high and low prices, which equals $1.453 per share of
Common Stock, as reported by The Nasdaq National Market on November 5,
1997, multiplied by 287,481, the maximum number of shares of Common Stock
sought to be exchanged pursuant to the exchange offer.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the
form or schedule and the date of its filing.
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This Issuer Tender Offer Statement on Schedule 13E-4 (this "Statement") is
being filed by Walnut Financial Services, Inc. (the "Company"), a Utah
corporation, and relates to the offer by the Company to holders of its
outstanding Common Stock Purchase Warrants having an exercise price of $3.00
(the "Warrants"), upon and subject to the terms and conditions set forth in the
Offering Circular, dated November 7, 1997 (the "Offering Circular"), which is
being filed as Exhibit (a)(i) hereto, of one newly issued share of the
Company's common stock, par value $.01 per share (the "Common Stock"), in
exchange for each 4 outstanding Warrants (the "Exchange Offer"). Capitalized
terms used but not otherwise defined herein have the meaning ascribed to such
terms in the Offering Circular.
ITEM 1. SECURITY AND ISSUER.
(a) The issuer of the securities to which this Statement relates is the
Company. The principal executive offices of the Company are located at 8000
Towers Crescent Drive, Suite 1070, Vienna, Virginia 22182.
(b) The information set forth under the heading "The Exchange Offer" in
the Offering Circular is specifically incorporated herein by reference.
(c) The Warrants are not listed on any exchange or quoted on any quotation
system. The $3.00 exercise price for the Warrants exceeds the market price of
the one share of Common Stock ($1.438 per share at November 5, 1997) into which
each of the Warrants is exercisable.
(d) This Statement is being filed by the Company.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) Consideration for the Warrants tendered in the Exchange Offer will be
authorized but unissued shares of Common Stock (which will be issued pursuant
to an exemption from registration under the Securities Act of 1933, as
amended), or working capital in the case of cash payments to be made in lieu of
fractional shares.
(b) No funds are expected to be borrowed for the purpose of the Exchange
Offer.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
(a)-(j) The information set forth under the heading "Background and
Purposes of the Exchange Offer; Certain Effects" in the Offering Circular is
specifically incorporated herein by reference.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
During the 40 business days preceding the date of this Statement, neither
the Company, any director or executive officer of the Company, any person
controlling the Company nor any director or executive officer of any such
controlling person has engaged in any transaction whatsoever involving any
Warrants.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO THE ISSUER'S SECURITIES.
None.
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ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
No person has been employed, retained or is to be compensated by the
Company to make solicitations or recommendations in connection with the
Exchange Offer. Regular employees of the Company, who will not receive
additional compensation therefor, may provide information to holders of
Warrants concerning the Exchange Offer. Corporate Stock Transfer, Inc. will
act as Exchange Agent for the Exchange Offer, but has not been authorized to
make recommendations or solicitations.
ITEM 7. FINANCIAL INFORMATION.
(a)(l)-(4) The financial statements set forth in Exhibits A and B of the
Company's Confidential Private Placement Memorandum dated October 27, 1997
(the "PPM"), which document has been included as Exhibit A to the Offering
Circular, are specifically incorporated herein by reference.
(b)(1)-(3) The information set forth under the heading "Pro Forma
Unaudited Financial Information" in the Offering Circular is specifically
incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) The information set forth under the heading "Management--Executive
Compensation" in the PPM is specifically incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
(d) None.
(e) Reference is made to the Offering Circular, including the PPM, which
is specifically incorporated herein by reference.
ITEM 9. EXHIBITS.
(a)(i) Offering Circular dated November 7, 1997
(a)(ii) Form of Letter of Transmittal
(a)(iii) Form of Notice of Guaranteed Delivery
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
WALNUT FINANCIAL SERVICES, INC.
Dated: December 12, 1997 By: /s/ Joel S. Kanter
-------------------------------------
Joel S. Kanter
President and Chief Executive Officer
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Exhibit 99.1
OFFERING CIRCULAR
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OFFERING CIRCULAR
WALNUT FINANCIAL SERVICES, INC.
OFFER TO EXCHANGE
ONE SHARE OF COMMON STOCK
FOR
EACH 4 OUTSTANDING COMMON STOCK PURCHASE WARRANTS
WITH AN EXERCISE PRICE OF $3.00 PER SHARE
-----------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M. EST ON DECEMBER 18, 1997, UNLESS EXTENDED.
THE EXCHANGE OFFER IS CONDITIONED ON, AMONG OTHER THINGS,
THE SHAREHOLDERS OF THE COMPANY
APPROVING THE EXCHANGE OFFER AND
A MINIMUM OF 527,083 WARRANTS BEING TENDERED PURSUANT
TO THIS EXCHANGE OFFER.
SEE "THE EXCHANGE OFFER--CONDITIONS
TO THE EXCHANGE OFFER."
-----------------------------------------
Walnut Financial Services, Inc., a Utah corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Offering Circular (the "Offering Circular") and in the accompanying Letter of
Transmittal, to exchange one share (the "Exchange Consideration") of Common
Stock, par value $.01 per share (the "Common Stock"), of the Company for each 4
outstanding Common Stock Purchase Warrants having an exercise price of $3.00
per share (the "Warrants") of the Company (the "Exchange Offer"). The value of
the Warrants exchanged for Common Stock issued in the Exchange Offer may be
below the current net asset value for such Common Stock; therefore, the Company
has submitted the Exchange Offer to its stockholders for their approval in
order to comply with the Investment Company Act of 1940, as amended (the "1940
Act").
The expiration date of the Exchange Offer is 5:00 p.m. EST on December 18,
1997 (the "Expiration Date), unless the Expiration Date is extended, in which
case the Expiration Date will be the latest date and time to which the
Expiration Date is extended.
The Common Stock is quoted on The Nasdaq National Market (the "Nasdaq
Stock Market"). On November 5, 1997, the closing price of the Common Stock
reported on The Nasdaq Stock Market was $1.438 per share. The Warrants are not
quoted on The Nasdaq Stock Market or any other exchange or quotation system.
No assurance can be given as to the prices at which the Common Stock might be
traded, or the trading volume of the Common Stock, following the consummation
of the Exchange Offer. See "Market and Trading Information."
For the year ended December 31, 1996, on a pro forma basis, assuming the
Exchange Offer had been consummated on January 1, 1996 and all Warrants had
been exchanged, earnings (loss) per share applicable to the Common Stock would
have increased from $(0.21) per share to $(0.20) per share. See "Pro Forma
Unaudited Financial Information."
As of the date of this Offering Circular, there are 1,149,924 Warrants
outstanding. No members of management currently hold any Warrants, except that
Joel S. Kanter, President and Chief Executive Officer of the Company, may be
deemed to beneficially own 452,533 Warrants (39.4% of the total number of
Warrants outstanding) owned by Windy City, Inc. ("WCI"), the President of which
company is Mr. Kanter. WCI has advised the Company that it intends to tender
all of its Warrants pursuant to the Exchange Offer. See "The Exchange Offer."
----------------------------
The date of this Offering Circular is November 7, 1997.
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Tendering Warrantholders will not be obligated to pay transfer taxes or
exchange commissions in connection with the Exchange Offer. Tenders are
irrevocable, except that Warrants tendered pursuant to the Exchange Offer may
be withdrawn prior to the Expiration Date and, if not theretofore accepted for
exchange, on or after January 12, 1998, pursuant to Rule 13e-4(f)(2)(ii)
promulgated under the Securities Exchange Act of 1934, as amended.
The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), afforded by Section 3(a)(9) thereof. The
Company therefore will not pay any commission or other remuneration to any
broker, dealer, salesman or other person for soliciting tenders of the
Warrants. Regular employees of the Company, who will not receive additional
compensation therefor, may provide information to holders of the Warrants
concerning the Exchange Offer.
The Company has made no arrangements and has no understanding with any
independent dealer, salesman or other person regarding the solicitation of
tenders hereunder, and no person has been authorized by the Company to give any
information or to make any representation in connection with the Exchange Offer
other than those contained herein and, if given or made, such other information
or representations must not be relied upon as having been authorized. The
delivery of this Offering Circular shall not, under any circumstances, create
any implication that the information herein is correct as of any time
subsequent to the date hereof.
The Exchange Offer is not being made to, nor will the Company accept
tenders from, holders of the Warrants in any jurisdiction in which the Exchange
Offer or the acceptance thereof would not be in compliance with the securities
or blue sky laws of such jurisdiction.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE EXCHANGE OFFER. HOWEVER,
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
WARRANTHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR
WARRANTS. EACH WARRANTHOLDER MUST MAKE THE DECISION WHETHER TO TENDER WARRANTS
AND, IF SO, HOW MANY WARRANTS.
IN EVALUATING THE EXCHANGE OFFER, WARRANTHOLDERS ARE STRONGLY URGED TO READ AND
CONSIDER CAREFULLY THE FACTORS AS DESCRIBED UNDER THE HEADING "RISK FACTORS" IN
THIS OFFERING CIRCULAR.
THE COMMON STOCK TO BE ISSUED IN THE EXCHANGE OFFER HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING
CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE COMMON STOCK TO BE ISSUED IN THE EXCHANGE OFFER (THE "SECURITIES") HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OR UNDER ANY STATE SECURITIES LAWS,
AND THE SECURITIES ARE BEING OFFERED HEREBY IN RELIANCE ON AN EXEMPTION FROM
REGISTRATION RELATING TO EXCHANGE OFFERS. THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES ARE
EXEMPT FROM REGISTRATION. THE SECURITIES WILL BE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR
AN INDEFINITE PERIOD OF TIME.
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OFFERING CIRCULAR
TABLE OF CONTENTS PAGE
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SUMMARY................................................................ 1
The Company........................................................ 1
Purposes and Effects of the Exchange Offer......................... 1
No Recommendation by Board of Directors............................ 2
Intention of Certain Related Parties............................... 2
Acceptance Not Mandatory........................................... 2
The Exchange Offer................................................. 2
RISK FACTORS........................................................... 5
BACKGROUND AND PURPOSES OF THE EXCHANGE OFFER; CERTAIN EFFECTS......... 5
Purposes and Effects of the Exchange Offer......................... 5
No Recommendation by Board of Directors............................ 6
PRO FORMA UNAUDITED FINANCIAL INFORMATION.............................. 6
MARKET AND TRADING INFORMATION......................................... 7
THE EXCHANGE OFFER..................................................... 7
Description of the Warrants; Ratification of Initial Issuance...... 7
Effect of the Exchange Offer on the Warrantholders................. 8
Terms of the Exchange Offer........................................ 8
Expiration Date; Extensions; Amendments............................ 9
Procedure for Tendering Warrants................................... 10
Guaranteed Delivery Procedures..................................... 11
Assistance......................................................... 11
Acceptance of Warrants for Exchange.................................... 12
Withdrawal Rights.................................................. 12
Conditions to the Exchange Offer................................... 12
Fractional Shares.................................................. 14
Solicitation of Warrant Holders.................................... 14
Transfer Taxes..................................................... 14
Certain U.S. Federal Income Tax Considerations..................... 14
The Exchange Agent................................................. 15
DESCRIPTION OF SECURITIES.............................................. 16
EXPERTS................................................................ 16
AVAILABLE INFORMATION.................................................. 16
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LETTER OF TRANSMITTAL.................................................. 1
1. GUARANTEE OF SIGNATURES................................ 4
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES
FOR WARRANTS; GUARANTEED DELIVERY PROCEDURES........... 4
3. INADEQUATE SPACE....................................... 5
4. WITHDRAWALS OF TENDER.................................. 5
5. PARTIAL TENDERS........................................ 5
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL; INSTRUMENTS
OF TRANSFER AND ENDORSEMENTS........................... 6
7. TRANSFER TAXES......................................... 6
8. SPECIAL EXCHANGE INSTRUCTIONS AND SPECIAL DELIVERY
INSTRUCTIONS........................................... 6
9. IRREGULARITIES AND WAIVER OF CONDITIONS................ 6
10. MUTILATED, LOST, STOLEN OR DESTROYED WARRANTS.......... 7
11. TAXPAYER INFORMATION AND SUBSTITUTE W-9................ 7
12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES........... 8
FORM OF NOTICE OF GUARANTEED DELIVERY.................................. 14
Exhibit A -- Confidential Private Placement Memorandum, dated
October 21, 1997 A-1
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SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, contained elsewhere in this Offering
Circular. Capitalized terms used and not defined in this summary shall have
the respective meanings ascribed to them elsewhere in this Offering Circular.
EACH WARRANTHOLDER IS URGED TO READ THIS OFFERING CIRCULAR IN ITS ENTIRETY.
THE COMPANY
Walnut Financial Services, Inc., a Utah corporation (the "Company"), is a
closed-end management investment company, which elected on October 15, 1997 to
be regulated as a business development company ("BDC") under the Investment
Company Act of 1940, as amended (the "1940 Act"). As such, the Company will be
generally required to invest at least 70% of its total assets in certain
prescribed "Eligible Assets," which generally include securities of
privately-held companies and cash items, government securities and high-quality
short-term debt. See "The Company--Government Regulation--BDC Regulation" and
"Risk Factors Restrictions on Future Acquisitions" in the PPM (as defined
below). Prior to such election, the Company may have been operating as an
unregistered investment company. See "Risk Factors--Failure to Comply with the
1940 Act" in the PPM. The Company currently has two primary business focuses:
(i) investing in start-up and early stage development companies and (ii)
operating an investment vehicle that specializes in bridge financing to small
to medium-sized companies. The Company's goal is to expand its business lines
in order to become a single source for the various financing needs of small and
medium-sized companies. The Company is actively pursuing the acquisition of
additional operating businesses in the financial services industry,
particularly in the accounts receivable factoring industry. See "The
Company--Recent Developments" in the PPM. Management anticipates that the
Company may seek to cease to be a BDC upon the acquisition of additional
operating businesses; however, the Company may not change the nature of its
business so as to cease to be a BDC unless such change is approved by the
Company's shareholders in accordance with the 1940 Act.
The principal executive offices of the Company are located at 8000 Towers
Crescent Drive, Vienna, Virginia 22182, telephone number (703) 448-3771.
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The purpose of the Exchange Offer is to eliminate or significantly reduce
the number of derivative securities of the Company outstanding. As a BDC, the
Company is generally prohibited from having outstanding derivative securities
(e.g., options, warrants, etc.) convertible or exchangeable into a number of
shares of capital stock in excess of 25% (the "25% Limitation") of the number
of then outstanding shares of capital stock. As of November 5, 1997, the
Company had 14,659,172 shares of Common Stock outstanding and derivative
securities relating to 2,066,876 shares of Common Stock.
Concurrently with the Exchange Offer, the Company is engaging in a private
placement (the "Private Placement") of units (the "Units"), with each Unit
consisting of 50,000 shares of Common Stock and 35,000 Class A Redeemable
Common Stock purchase warrants (the "Class A Warrants"). In addition, subject
to shareholder approval, the Company intends to sell an additional 1,000,000
Class A warrants (the "Initial Class A Warrants") to certain purchasers. The
Private Placement is described in the Confidential Private Placement Memorandum
dated October 27, 1997 (the "PPM"), a copy of which is attached as Exhibit A to
this Offering Circular and made a part hereof. Consummation of the Exchange
Offer is one of the conditions to the completion of the Private Placement.
The Company proposes to offer and sell a minimum of 50 Units and a maximum
of 80 Units. The closing of the minimum Private Placement would result in the
issuance of 2,500,000 shares of Common Stock and
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1,750,000 Class A Warrants. As a result, at the minimum level the Company would
have a total number of 17,159,172 shares of Common Stock outstanding and
4,816,876 derivative securities (inclusive of the Initial Class A Warrants),
which amount would exceed the 25% Limitation by 527,083 derivative securities.
The Closing of the maximum Private Placement would result in the issuance of
4,000,000 shares of Common Stock and 2,800,000 Warrants. As a result, at the
maximum level the Company would have 18,659,172 shares of Common Stock
outstanding and 5,866,876 derivative securities, which amount would exceed the
25% Limitation by 1,202,083 derivative securities. Accordingly, it is
necessary that the Company reduce the number of derivative securities currently
outstanding through the Exchange Offer in order to be able to close the Private
Placement in compliance with the 25% Limitation. See "Background and Purposes
of the Exchange Offer; Certain Effects--Purposes and Effects of the Exchange
Offer."
NO RECOMMENDATION BY BOARD OF DIRECTORS
The Board of Directors of the Company has approved the Exchange Offer.
However, neither the Company nor its Board of Directors makes any
recommendation to Warrantholders as to whether to tender or refrain from
tendering their Warrants. Each Warrantholder must make the decision whether to
tender Warrants and, if so, how many Warrants.
INTENTION OF CERTAIN RELATED PARTIES
Joel S. Kanter, President and Chief Executive Officer of the Company, is
the President of Windy City, Inc. ("Windy City"), which is owned by various
trusts for the benefit of members of the family of Burton W. Kanter, the
Company's Chairman of the Board. Windy City owns 452,533 Warrants (the "Windy
City Warrants") and has advised the Company that it intends to tender all of
its Warrants. No other director or officer of the Company owns any Warrants.
See "The Exchange Offer."
ACCEPTANCE NOT MANDATORY
Warrantholders are free to exchange or not exchange their Warrants for
shares of Common Stock in the Exchange Offer and may tender all or some of
their Warrants by properly completing and delivering the Letter of Transmittal,
together with their Warrants, to the Exchange Agent.
THE EXCHANGE OFFER
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The Exchange Offer................. One share of Common Stock in exchange for
each 4 Warrants tendered. The Common
Stock issued in the Exchange Offer will
not be registered under the Securities Act
and will not be subject to registration
rights. The value of the Warrants
exchanged for Common Stock issued in the
Exchange Offer may be below the current
net asset value for such Common Stock;
therefore, the Company has submitted the
Exchange Offer to its stockholders for
their approval in order to comply with
the 1940 Act.
Conditions to
Exchange Offer.................... The Exchange Offer is conditioned upon,
among other things, (i) the Company's
shareholders approving at the Annual
Meeting of Shareholders to be held on
December 18, 1997, and any adjournment
thereof (the "Annual Meeting"), (x) the
Exchange Offer and (y) an extension of the
expiration date of all Warrants to June
30, 2005, and (ii) a minimum of 527,083
Warrants outstanding (45.84%) being
tendered. See "The Exchange
Offer--Conditions to the Exchange" for a
statement of the other conditions to the
Company's obligation to accept Warrants
tendered pursuant to the Exchange Offer.
Fractional Shares.................. Tendering record holders of Warrants that
are accepted for exchange will not receive
fractional shares of Common Stock but
instead will
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receive a cash payment in lieu thereof
equal to the product of such fraction
multiplied by the closing bid price for
the Common Stock as reported on The Nasdaq
National Market on the date the Exchange
Agent receives the properly completed
Letter of Transmittal.
Expiration Date.................... The "Expiration Date" of the Exchange
Offer will be 5:00 p.m. EST on December
18, 1997, unless the Exchange Offer
is extended, in which case the term
"Expiration Date" shall mean 5:00 p.m. EST
on the last date to which the Exchange
Offer is extended. See "The Exchange
Offer--Expiration Date; Extensions;
Amendments."
How to Tender in the
Exchange Offer.................... A holder electing to tender Warrants in the
Exchange Offer should either (i) complete
and sign the Letter of Transmittal, have
the signatures thereon guaranteed, if
required by Instruction 2 thereof, and
mail or deliver the Letter of Transmittal
with the Warrants and any other required
documents to the Exchange Agent at the
address set forth on the back cover page
of this Offering Circular, or (ii) request
his broker, dealer, commercial bank, trust
company or other nominee to effect the
transaction for him. Holders will not be
obligated to pay any brokerage
commissions in connection with the
Exchange Offer.
Withdrawal Rights.................. Tendered Warrants may be withdrawn at any
time until the Expiration Date and, if
not theretofore accepted for exchange by
the Company, on or after January 12, 1998.
See "The Exchange Offer--Withdrawal
Rights."
Acceptance of Warrants and
Delivery of Common Stock.......... Subject to the satisfaction or waiver of
all conditions of the Exchange Offer, the
Company will accept for exchange all
Warrants validly tendered on or prior to
the Expiration Date. The Common Stock
will be delivered in exchange for the
Warrants accepted in the Exchange Offer
promptly after acceptance on the
Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Federal Income Tax
Considerations.................... For a discussion of certain Federal
income tax consequences of the Exchange
Offer to tendering holders and to the
Company, see "Certain Federal Income Tax
Considerations." However, Warrantholders
are urged to consult with their own tax
advisors as to the specific tax
consequences to them of the Exchange
Offer.
Common Stock....................... There are 50,000,000 shares of Common
Stock and 1,000,000 shares of Preferred
Stock authorized for issuance, of
which 14,659,172 shares of Common Stock
and no shares of Preferred Stock are
issued and outstanding. In addition,
options to acquire up to an additional
2,066,876 shares of Common Stock upon the
exercise of options and warrants (not
including the Warrants and the Warrants
which may be issued in the Private
Placement) are outstanding. The maximum
number of shares of Common Stock offered
for exchange by the Company in the
Exchange Offer, an aggregate of 287,481
shares,
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represents approximately 2.0% of
the current number of shares of Common
Stock. See "Description of Securities."
Market and
Trading Information............... The outstanding Common Stock are quoted
on The Nasdaq Stock Market. The Warrants
are not quoted on The Nasdaq National
Market or on any other exchange or
quotation system. The Common Stock
issuable in the Exchange Offer will be
quoted on The Nasdaq National Market,
subject to official notice of issuance,
under the symbol "WNUT". On November 5,
1997, the closing quotation reported on
The Nasdaq Stock Market for the Common
Stock was $1.438. NO ASSURANCE CAN BE
GIVEN CONCERNING THE PRICES AT WHICH THE
COMMON STOCK MIGHT BE TRADED OR THE
TRADING VOLUME OF THE COMMON STOCK
FOLLOWING THE CONSUMMATION OF THE EXCHANGE
OFFER.
Quotations on The Nasdaq National Market
reflect interdealer prices, without
retail mark-up, mark-down or commission,
and may not necessarily represent actual
transactions. WARRANTHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET INFORMATION WITH
RESPECT TO THE COMMON STOCK. See "Market
and Trading Information."
Exchange Agent..................... Corporate Stock Transfer, Inc. is the
exchange agent (the "Exchange Agent") for
the Exchange Offer.
Failure to Participate in
Exchange Offer.................... Holders of the Warrants who do not
exchange their Warrants for shares of
Common Stock in the Exchange Offer
will be entitled to receive shares of
Common Stock upon exercise of the
Company's Warrants upon the same terms and
conditions as are currently contained in
the Warrants, subject to the extension of
the expiration date of the Warrants to
June 30, 2005. See "The Exchange
Offer--Description of the Warrants" and
"--Effect of the Exchange Offer on the
Warrantholders."
Further Information................ Requests for additional copies of this
Offering Circular, the Letter of
Transmittal or any other documents
furnished herewith should be directed to
the Exchange Agent at its address and
telephone number set forth on the back
cover page of this Offering Circular. For
further information concerning the
Exchange Offer, contact the Exchange Agent
or Joel S. Kanter, President and Chief
Operating Officer, Walnut Financial
Services, Inc., 8000 Towers Crescent
Drive, Suite 1070, Vienna, Virginia 22182,
(703) 448-3771.
Use of Proceeds.................... There will be no cash proceeds to the
Company from the Exchange Offer.
Risk Factors....................... Investment in the securities of the
Company involves a high degree of risk,
including, but not limited to, risks
relating to the Company's
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failure to comply, and ongoing compliance,
with the 1940 Act, as well as risks
resulting from the Company's financial
condition, the financial condition of the
Company's portfolio companies, changes in
the Company's industry, numerous competing
entities in the Company's industry, and
the Company's growth strategy. See "Risk
Factors."
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION THAT
WARRANTHOLDERS TENDER OR REFRAIN FROM TENDERING THEIR WARRANTS, AND NO ONE HAS
BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION ON BEHALF OF THE COMPANY. THIS
IS A MATTER FOR EACH WARRANTHOLDER TO DETERMINE AFTER CONSULTATION WITH HIS
ADVISORS, INCLUDING TAX ADVISORS, ON THE BASIS OF HIS OWN FINANCIAL POSITION
AND REQUIREMENTS. SEE "THE EXCHANGE OFFER--CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS."
RISK FACTORS
THERE ARE SUBSTANTIAL RISK FACTORS INVOLVING INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY AND IN THE WARRANTS. CERTAIN OF THOSE RISK FACTORS ARE
SET FORTH IN THE PPM UNDER THE HEADING "RISK FACTORS," WHICH SECTION DOES NOT
PURPORT TO SET FORTH EVERY RISK FACTOR ASSOCIATED WITH SUCH INVESTMENT. EACH
WARRANTHOLDER SHOULD CAREFULLY CONSIDER SUCH RISKS INHERENT IN, AND AFFECTING
THE BUSINESS OF, THE COMPANY BEFORE MAKING A DECISION TO TENDER WARRANTS FOR
COMMON STOCK. WARRANTHOLDERS ARE ADVISED TO DISCUSS THE POTENTIAL BENEFITS AND
ASSOCIATED RISKS OF TENDERING WARRANTS WITH THEIR INVESTMENT, TAX AND LEGAL
ADVISORS.
THIS OFFERING CIRCULAR AND THE PPM CONTAIN CERTAIN FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE RESULTS OF OPERATIONS AND BUSINESSES OF THE
COMPANY. THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED, PROJECTED, FORECAST, ESTIMATED OR BUDGETED IN SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES:
(i) HEIGHTENED COMPETITION, INCLUDING SPECIFICALLY THE INTENSIFICATION OF PRICE
COMPETITION, THE ENTRY OF NEW COMPETITORS AND THE FORMATiON OF NEW FINANCIAL
SERVICES AND PRODUCTS BY EXISTING OR NEW FINANCIAL SERVICE PROVIDERS; (ii)
ADVERSE STATE AND FEDERAL LEGISLATION AND REGULATION; (iii) GENERAL MARKET
DECLINE OR OTHER EVENTS WHICH ADVERSELY AFFECT THE STOCK MARKET IN GENERAL OR
THE COMPANY'S PORTFOLIO COMPANIES IN PARTICULAR; (iv) INABILITY TO CONSUMMATE
STRATEGIC ACQUISITIONS AND/OR EXPANSION PLANS; (v) LOSS OF KEY EXECUTIVES; (vi)
CHANGES IN INTEREST RATES; (vii) GENERAL ECONOMIC AND BUSINESS CONDITIONS WHICH
ARE LESS FAVORABLE THAN EXPECTED; AND (viii) UNANTICIPATED CHANGES IN INDUSTRY
TRENDS.
BACKGROUND AND PURPOSES OF THE EXCHANGE OFFER; CERTAIN EFFECTS
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The purpose of the Exchange Offer is to eliminate or significantly reduce
the number of derivative securities of the Company outstanding. The Warrants
are derivative securities, and those tendered in the Exchange Offer will be
retired by the Company. As a BDC, the Company is generally prohibited from
having outstanding derivative securities (e.g., options, warrants, etc.)
convertible or exchangeable into a number of shares of capital stock in an
amount that would exceed the 25% Limitation. Under certain circumstances,
which are not currently present, a BDC may be prohibited from having
outstanding derivative securities convertible or exchangeable into a number of
shares of capital stock in excess of 20% of the number of then outstanding
shares of capital stock. See "Term of the Offering--Closing Conditions" in the
PPM. As of November 5, 1997, the Company had 14,659,172 shares of Common Stock
outstanding and derivative securities relating to 2,066,876 shares of Common
Stock.
5
<PAGE> 15
Concurrently with the Exchange Offer, the Company is engaged in the
Private Placement of Units with each Unit consisting of 50,000 shares of Common
Stock and 35,000 Class A Warrants. Consummation of the Exchange Offer is one
of the conditions to the completion of the Private Placement. The Private
Placement is described in the PPM, which is attached hereto as Exhibit A and
made a part hereof. The Company proposes to offer and sell a minimum of 50
Units and a maximum of 80 Units. The closing of the minimum Private Placement
would result in the issuance of 2,500,000 shares of Common Stock and 1,750,000
Class A Warrants. As a result, at the minimum level the Company would have a
total number of 17,159,172 shares of Common Stock outstanding and 4,816,876
derivative securities, which amount would exceed the 25% Limitation by 527,083.
The Closing of the maximum Private Placement will result in the issuance of
4,000,000 shares of Common Stock and 2,800,000 Warrants. As a result, at the
maximum level the Company would have 18,659,172 shares of Common Stock
outstanding and 5,866,876 derivative securities, which amount would exceed the
25% Limitation by 1,202,083 shares. Accordingly, it is necessary that the
Company reduce the number of derivative securities currently outstanding in
order to be able to close the Private Placement in compliance with the 25%
Limitation.
The Company may, in the future, purchase Warrants in private transactions,
through tender offers or otherwise. However, Rule 13e-4 under the Exchange Act
prohibits the Company from making any purchases of shares of Common Stock or
Warrants until 10 business days after the Expiration Date, other than pursuant
to the Exchange Offer. Any purchases the Company may choose to make may be on
the same terms as, or on terms more or less favorable to holders than, the
terms of the Exchange Offer. Any possible future purchases by the Company will
depend on numerous factors, including the market price of the Warrants, the
results of the Exchange Offer, the Company's business and financial condition
and general economic and market conditions.
SHARES OF COMMON STOCK ISSUED IN EXCHANGE FOR WARRANTS IN THE EXCHANGE
OFFER WILL BE DEEMED RESTRICTED STOCK UNDER THE SECURITIES ACT AND CANNOT BE
RESOLD UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITY ACT IS AVAILABLE. SHARES OF COMMON STOCK
ISSUED IN EXCHANGE FOR WARRANTS IN THE EXCHANGE OFFER WILL NOT BE SUBJECT TO
ANY REGISTRATION RIGHTS.
NO RECOMMENDATION BY BOARD OF DIRECTORS
The Board of Directors of the Company has approved the Exchange Offer.
However, neither the Company nor its Board of Directors makes any
recommendation to Warrantholders as to whether to tender or refrain from
tendering their Warrants. Each Warrantholder must make the decision whether to
tender Warrants and, if so, how many Warrants.
PRO FORMA UNAUDITED FINANCIAL INFORMATION
6
<PAGE> 16
The Pro Forma Unaudited Earnings Per Share and Book Value Per Share set
forth below for the year ended December 31, 1996 and the six months ended June
30, 1997 and 1996 are based on the historical financial statements of the
Company and have been prepared to give effect to the Exchange Offer as if it
had been consummated on January 1, 1996 with respect to the fiscal year
comparison and with respect to the nine month comparison. The information
provided that gives effect to the Exchange Offer assumes that holders of
Warrants elect to exchange into Common Stock the minimum number of Warrants
required hereunder, on the one hand, and all Warrants, on the other hand. The
Company's full audited financial statements are included in the PPM, attached
as Exhibit A to, and made a part of, this Offering Circular.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 30, 1997
----------------------------------- ------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
<S> <C> <C> <C> <C>
Earnings (Loss) Per Share...... (0.21) (0.04)
Assuming Minimum Tender
(131,770 shares) (1)....... (0.21) (0.03)
Assuming Maximum Tender
(287,481 shares) (2)....... (0.20) (0.03)
Book Value Per Share........... 0.98 0.95
Assuming Minimum Tender
(131,770 shares) (1)....... 0.98 0.94
Assuming Maximum Tender
(287,481 shares) (2)....... 0.97 0.93
</TABLE>
- ---------------------
(1) Assumes that holders of 527,083 (45.84%) of the Warrants outstanding
elect to exchange their Warrants for Common Stock.
(2) Assumes that holders of 1,149,924 (100%) of the Warrants outstanding
elect to exchange their Warrants for Common Stock.
MARKET AND TRADING INFORMATION
As of the date hereof, there are 1,149,924 Warrants outstanding, all with
an exercise price of $3.00. The Warrants are not quoted on The Nasdaq Stock
Market or any exchange or other quotation system. All Warrants are currently
"out of the money," based on the closing stock price as of November 5, 1997 of
$1.438 per share. Information concerning the number of outstanding shares of
Common Stock, the market on which Common Stock trades and quarterly price
information is set forth in the PPM under the heading "Description of
Securities--Market Price of Common Stock."
THE EXCHANGE OFFER
DESCRIPTION OF THE WARRANTS; RATIFICATION OF ISSUANCE
There are 1,149,924 currently outstanding Warrants, all of which are
subject to the Exchange Offer. The Warrants were issued in two phases, and
have substantially similar terms, except for different expiration dates. All
Warrants give the holder the right to purchase one share of Common Stock,
subject to certain anti-dilution adjustments, for $3.00 per share. The Windy
City Warrants expire June 30, 1998, with the remaining 697,391 Warrants (the
"Universal Warrants") expiring June 17, 2001. It is a condition to this
Exchange Offer that the shareholders of the Company approve at the Annual
Meeting an extension of the expiration date of the Warrants
7
<PAGE> 17
to June 30, 2005 (the "Extension Condition"). There can be no assurance,
however, that the Extension Condition will be met. Nevertheless, Warrantholders
should act as though the Extension Condition will be satisfied when considering
whether to tender Warrants because the Company is not permitted to waive the
Extension Condition. See "--Conditions to the Exchange Offer."
The Universal Warrants were issued pursuant to and are governed by that
certain Warrant Agreement (Universal) dated as of June 17, 1996 (the "Universal
Agreement"). The Universal Agreement provides that, from and after June 17,
1997, the Universal Warrants may be redeemed, at the option of the Company, at
a price of $0.10 per Warrant; provided, however, that redemptions shall not be
permitted unless (i) the closing bid price for shares of Common Stock for 20 of
the 30 trading days prior to the date of the redemption notice exceeds
$4.50 per share and (ii) the Common Stock which would be issued upon the
exercise of a Warrant shall be registered under the Securities Act. This last
requirement is important because the Warrantholder shall have the right to
exercise his Warrants until 5:00 p.m. on the date preceding the redemption
date. The redemption date must be at least 30 days following the date of the
redemption notice.
The Windy City Warrants were issued pursuant to a subscription agreement,
which provides for a $3.00 exercise price and an expiration date of June 30,
1998.
The Windy City Warrants are owned by Windy City, the president of which is
Joel S. Kanter, the president and chief executive officer of the Company.
Windy City has advised the Company that it intends to tender all of the Windy
City Warrants pursuant to the Exchange Offer.
At the Annual Meeting, the Company is seeking approval of the extension
and ratification by the Company's shareholders of the issuance of the Warrants
because the presence of such outstanding Warrants may otherwise be in violation
of the 1940 Act. The purpose of the ratification by shareholders is to comply
with the capital structure provisions of the 1940 Act applicable to a BDC,
which require shareholder approval in certain circumstances. If such approval
is not obtained, the Warrants will nonetheless remain outstanding and would be
in violation of the 1940 Act.
EFFECT OF THE EXCHANGE OFFER ON THE WARRANTHOLDERS
Upon acceptance of the tendered Warrants by the Company, the
Warrantholders will receive one share of Common Stock for each 4 Warrants
tendered. Warrantholders who do not participate in the Exchange Offer will
retain the right to purchase 1 share of Common Stock at an exercise price of
$3.00 per Warrant, which price will remain subject to the adjustment
provisions, if any, of the governing warrant agreement. The expiration date of
Warrants that are not tendered into the Exchange Offer will be extended to June
30, 2005, assuming the Extension Condition is met.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions
set forth in this Offering Circular and in the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange one share of Common
Stock for each 4 Warrants tendered.
The Company will accept any Warrants validly tendered and not withdrawn
prior to 5:00 p.m. EST on the Expiration Date. Warrants that are not accepted
for exchange will be returned as promptly as practicable after the Expiration
Date. Warrantholders may tender all or a portion of their Warrants pursuant to
the Exchange Offer.
If the Company should increase or decrease the number of shares of Common
Stock offered in exchange for the Warrants in the Exchange Offer, such changed
consideration would be paid with regard to all Warrants accepted in the
Exchange Offer. If the consideration is so changed, the Exchange Offer will
remain open at least
8
<PAGE> 18
ten business days from the date the Company first gives notice, by public
announcement or otherwise, of such increase or decrease.
As of November 5, 1997, 1,149,924 Warrants were outstanding and there were
approximately 50 registered Warrantholders. Only holders or owners of Warrants
(or such Warrantholder's legal representative or attorney-in-fact) may
participate in the Exchange Offer. There will be no fixed record date for
determining Warrantholders entitled to participate in the Exchange Offer. The
Company believes that, as of the date of this Offering Circular, none of such
holders is an affiliate (as defined in Rule 405 under the Securities Act) of
the Company, except that Windy City owns 452,533 Warrants and has advised the
Company that it intends to tender all of its Warrants pursuant to the Exchange
Offer.
Warrantholders do not have any appraisal or dissenters' rights under the
Revised Business Corporation Act of the State of Utah or otherwise in
connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the SEC thereunder.
The Company shall be deemed to have accepted validly tendered Warrants
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for tendering
Warrantholders for the purposes of receiving the Common Stock from the Company.
If any tendered Warrants are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Warrants will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Tendering Warrantholders will not be required to pay brokerage commissions
or fees with respect to the exchange of Warrants for Common Stock pursuant to
the Exchange Offer. The Company will pay all charges and expenses in
connection with the Exchange Offer. The Company will also pay all transfer
taxes, if any, applicable to the transfer and exchange of Warrants pursuant to
the Exchange Offer. If, however, Warrants not exchanged are to be delivered
to, or are to be issued in the name of, any person other than the registered
Warrantholder, or if tendered Warrants are recorded in the name of any person
other than the person signing the Letter of Transmittal, then the amount of
such transfer taxes (whether imposed on the registered Warrantholder or any
other person) will be payable by the tendering Warrantholder. See "--Transfer
Taxes."
Although the Company has no plan or intention to do so, it reserves the
right in its sole discretion to purchase or make offers for any Warrants that
remain outstanding after the consummation of the Exchange Offer. The terms of
any such purchases or offers could differ from the terms of the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m. EST on December 18, 1997,
unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by oral or written notice and will make a
public announcement thereof, each prior to 9:00 a.m. EST on the next business
day after the previously scheduled Expiration Date.
The Company reserves the right in its sole discretion, (i) to delay
accepting any Warrants, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under "Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (iv)
to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, termination or amendment will be followed as promptly as
practicable by a public
9
<PAGE> 19
announcement thereof. If the Exchange Offer is amended in a manner determined
by the Company to constitute a material change, the Company will promptly
disclose such amendments by means of a supplement to this Offering Circular that
will be distributed to the registered Warrantholders, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the amendment and the manner of disclosure to the
registered Warrantholders, if the Exchange Offer would otherwise expire during
such five to ten business day period. If the Company amends the terms of the
Exchange Offer to improve the consideration for the Warrants, the Company will
give such improved consideration to all tendering Warrantholders, including
Warrantholders who have previously tendered Warrants.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall not have an obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely public disclosure.
PROCEDURE FOR TENDERING WARRANTS
The tender by a Warrantholder as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the
tendering Warrantholder and the Company upon the terms and subject to the
conditions set forth in this Offering Circular and in the accompanying Letter
of Transmittal. Except as set forth below, a Warrantholder who wishes to
tender Warrants for exchange pursuant to the Exchange Offer must transmit such
Warrants, together with a properly completed and duly executed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to the Exchange Agent at the address set forth herein on or prior
to 5:00 p.m. EST on the Expiration Date.
THE METHOD OF DELIVERY OF WARRANTS, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE WARRANTHOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
A signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, need not be guaranteed if the Warrants surrendered for exchange
pursuant thereto (i) are tendered by a registered Warrantholder of the Warrants
who has not completed either the box entitled "Special Exchange Instructions"
or the box entitled "Special Delivery Instructions" on the Letter of
Transmittal or (ii) are tendered by an Eligible Institution (as defined below).
In the event that a signature on a Letter of Transmittal or a notice of
withdrawal, as the case may be, is required to be guaranteed, such guarantee
must be by a firm which is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or is otherwise an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible
Institutions"). If Warrants are registered in the name of a person other than
a signer of the Letter of Transmittal, the Warrants surrendered for exchange
must either (i) be endorsed by the registered holder, with the signature
thereon guaranteed by an Eligible Institution or (ii) be accompanied by a stock
power, in satisfactory form as determined by the Company in its sole
discretion, duly executed by the registered Warrantholder, with the signature
thereon guaranteed by an Eligible Institution. The term "registered
Warrantholders" as used herein with respect to the Warrants means any person in
whose name the Warrants are registered on the books of the registrar for the
Warrants.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Warrants tendered for exchange will be
determined by the Company in its sole, reasonable discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any and all tenders of any particular Warrants not properly
tendered or to reject any particular Warrants which acceptance might, in the
judgment of the Company or its counsel, be unlawful. The Company also reserves
the absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Warrants either before or after the
10
<PAGE> 20
Expiration Date. The interpretation of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Warrants
for exchange must be cured within such reasonable period of time as the Company
shall determine. The Company will use reasonable efforts to give notification
of defects or irregularities with respect to tenders of Warrants for exchange
but shall not incur any liability for failure to give such notification.
Tenders of the Warrants will not be deemed to have been made until such
irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, stock power, power of attorney
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of such person's authority to so
act must be submitted.
Any beneficial owner whose Warrants are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Warrants in the Exchange Offer should contact such registered
Warrantholder promptly and instruct such registered Warrantholder to tender on
such beneficial owner's behalf. If such beneficial owner wishes to tender
directly, such beneficial owner must, prior to completing and executing the
Letter of Transmittal and tendering Warrants, make appropriate arrangements to
register ownership of the Warrants in such beneficial owner's name. Beneficial
owners should be aware that the transfer of registered ownership may take
considerable time.
GUARANTEED DELIVERY PROCEDURES
Warrantholders who wish to tender their Warrants but whose Warrants are
not immediately available or who cannot deliver their Warrants and Letter of
Transmittal or any other documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date must tender their Warrants
according to the guaranteed delivery procedures set forth in the Letter of
Transmittal. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution and a Notice of Guaranteed Delivery (as defined
in the Letter of Transmittal) must be signed by such Warrantholder, (ii) prior
to the Expiration Date, the Exchange Agent must have received from the
Warrantholder and the Eligible Institution a properly completed and duly
executed Letter of Transmittal and a Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the Warrantholder, the certificate number or numbers of the tendered
Warrants, stating that the tender is being made thereby and guaranteeing that,
within three business days after the date of delivery of the Notice of
Guaranteed Delivery, the tendered Warrants and any other required documents
will be deposited by the Eligible Institution with the Exchange Agent, and
(iii) such properly completed and executed documents required by the Letter of
Transmittal and the tendered Warrants in proper form for transfer must be
received by the Exchange Agent within three business days after the Expiration
Date. Any Warrantholder who wishes to tender Warrants pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery and Letter of Transmittal
relating to such Warrants prior to 5:00 p.m. EST on the Expiration Date.
Failure to complete the guaranteed delivery outlined above will not, of itself,
affect the validity or effect a revocation of any Letter of Transmittal
properly completed if executed by a holder who attempted to use the guaranteed
delivery process.
ASSISTANCE
All tendered Warrants, executed Letters of Transmittal and other related
documents should be directed to the Exchange Agent. Questions and requests for
assistance and requests for additional copies of this Offering Circular, the
Letter of Transmittal and other related documents should be addressed to the
Exchange Agent as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Facsimile: (303) 592-8821
</TABLE>
11
<PAGE> 21
<TABLE>
<S> <C>
CORPORATE STOCK TRANSFER, INC. Confirmed by Telephone: (303) 595-3300
370 17th Street (Originals of all documents submitted by facsimile should be
Suite 2350 sent promptly by hand, overnight courier, or registered or
Denver, Colorado 80202 certified mail.)
Attention: Carylyn Bell
</TABLE>
ACCEPTANCE OF WARRANTS FOR EXCHANGE
Upon satisfaction or waiver of all conditions to the Exchange Offer and
following the Expiration Date, the Company will promptly accept all Warrants
properly tendered, and will immediately thereafter issue the appropriate number
of corresponding shares of Common Stock to eligible Warrantholders. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
Warrants that are tendered for exchange when, and if, the Company has given
oral or written notice thereof to the Exchange Agent.
In all cases, issuances of Common Stock for Warrants that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Warrants, a properly completed and duly executed
Letter of Transmittal, and all other required documents; provided, however,
that the Company reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer. If any
tendered Warrants are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Warrant certificates are submitted for a
greater number than the holder desires to exchange, such unaccepted or
nonexchanged Warrants or substitute Warrants evidencing the unaccepted portion,
as appropriate, will be returned without expense to the tendering holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
WITHDRAWAL RIGHTS
Tenders of the Warrants may be withdrawn at any time prior to 5:00 p.m.
EST on the Expiration Date and, if not theretofore accepted for exchange by the
Company, on or after January 12, 1998.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth herein. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Warrants to be withdrawn ("Depositor"), (ii) identify the Warrants to be
withdrawn (including the Warrant certificate number or numbers and number of
Warrants), and (iii) be signed in the same manner required for the Letter of
Transmittal by which such Warrants were tendered. All questions as to the
validity, form, and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. The Warrants so withdrawn, if any, will be deemed not
to have been validly tendered for exchange for purposes of the Exchange Offer.
Any Warrants which have been tendered for exchange but which are withdrawn will
be returned to the Warrantholder without cost to such Warrantholder as soon as
practicable after withdrawal. Warrants properly withdrawn may be re-tendered
by following the procedures described under "--Procedure for Tendering
Warrants" at any time on or prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue the Common Stock in
exchange for, any Warrants and may terminate or amend the Exchange Offer if,
any time before the Expiration Date, any of the following events shall occur,
which occurrence, in the sole judgment of the Company and regardless of the
circumstances (including any action by the Company) giving rise to any such
events, makes it inadvisable to proceed with the Exchange Offer:
(i) there shall be threatened, instituted, or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other
12
<PAGE> 22
governmental regulatory or administrative agency or commission (a)
seeking to restrain or prohibit the making or consummation of the Exchange
Offer or any other transaction contemplated by the Exchange Offer, or
assessing or seeking any damages as a result thereof, or (b) resulting in
a material delay in the ability of the Company to accept for exchange some
or all of the Warrants pursuant to the Exchange Offer, or any statute,
rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange
Offer or any of the transactions contemplated by the Exchange Offer by any
domestic or foreign government or governmental authority that, in the
reasonable judgment of the Company, might directly or indirectly result in
any of the consequences referred to in clauses (a) or (b) above, or would
otherwise in the reasonable judgment of the Company make it inadvisable to
proceed with the Exchange Offer;
(ii) there shall have occurred (a) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the
United States or any limitation by any governmental agency or authority
which adversely affects the extension of credit or (b) a commencement of
war, armed hostilities or other similar international calamity directly
or indirectly involving the United States, or, in the case of any of the
foregoing existing at the time of the commencement of the Exchange Offer,
a material acceleration or worsening thereof;
(iii) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operation,
prospects, plans, strategies, development projects or existing or
contemplated financing arrangements of the Company that, in the
reasonable judgment of the Company, is or may be adverse to the Company,
or the Company shall have become aware of facts that, in the sole
judgment of the Company, have or may have adverse significance with
respect to the value of the Warrants or the Common Stock;
(iv) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby;
(v) the shareholders of the Company shall not have approved the
extension of the expiration date for all Warrants to June 30, 2005 at the
Annual Meeting;
(vi) the shareholders of the Company shall not have approved the
Exchange Offer at the Annual Meeting; or
(vii) less than 527,083 (45.84%) of the Warrants outstanding have
been properly tendered pursuant to the Exchange Offer.
If the Company determines in its sole discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Warrants
and return all tendered Warrants to the tendering holders, (ii) extend the
Exchange Offer and retain all Warrants tendered prior to the Expiration Date,
subject, however, to the rights of holders to withdraw such Warrants (see
"--Withdrawal Rights"), or (iii) except for the condition set forth in clause
(v) above, waive such unsatisfied conditions with respect to the Exchange Offer
and accept all validly tendered Warrants which have not been withdrawn. If
such waiver constitutes a material change to the Exchange Offer, the Company
will promptly disclose such waiver by means of a supplement to this Offering
Circular that will be distributed to the registered Warrantholders, and the
Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the waiver and the manner of
disclosure to the registered Warrantholders, if the Exchange Offer would
otherwise expire during such five to ten business day period.
The Company expects that the foregoing conditions will be satisfied. The
foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its
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reasonable discretion. The failure by the Company at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time. Any determination by the Company concerning the events
described above will be final and binding upon all parties.
FRACTIONAL SHARES
No fractional shares of Common Stock will be issued as a result of the
Exchange Offer. Each holder of a fractional interest in shares of the
Company's Common Stock will be entitled to receive a cash payment in lieu of
such fractional amount based on the current market price of a share of Common
Stock. The current market price will be determined as follows: (i) if the
shares of the Company's Common Stock are listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq Stock Market, the current market price shall be the
last reported sale price of the shares of the Company's Common Stock on the
last business day prior to the date of exchange or, if no such sale is made on
such day, the average of the closing bid and asked prices for such day; or (ii)
if the shares of Common Stock are not so listed or admitted to trading and bid
and asked prices are not so reported, the current market price or current value
shall be an amount determined in a reasonable manner by the Board of Directors
of the Company.
As soon as practicable after the determination of the amount of cash, if
any, to be paid to the holder of shares of Common Stock with respect to any
fractional share interests, the Exchange Agent shall distribute in cash the
amount payable to such fractional holder.
SOLICITATION OF WARRANT HOLDERS
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokers, dealers and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Offering Circular and related
documents to the beneficial owners of the Warrants, and in handling or
forwarding tenders for their customers.
The cash expenses to be incurred by the Company in connection with the
Exchange Offer are estimated to be approximately $75,000, which include
registration fees, listing fees, fees to the Exchange Agent and warrant agent,
accounting, legal and printing fees, and associated expenses.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the
exchange of Warrants pursuant to the Exchange Offer. If, however, tendered
Warrants are registered in the name of any person other than the person signing
the Letter of Transmittal or if a transfer tax is imposed for any reason other
than the exchange of Warrants pursuant to the Exchange Offer, the amount of any
such transfer tax (whether imposed on the registered Warrant holder or any
other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such transfer tax or exemption therefrom is not
submitted, the amount of such transfer tax will be billed directly to such
tendering holder.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION IS INTENDED ONLY AS A GENERAL SUMMARY OF CERTAIN
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER AND DOES
NOT CONSIDER ALL POTENTIAL TAX EFFECTS OF THE EXCHANGE OFFER OR THE TAX
CONSEQUENCES TO A PARTICULAR WARRANTHOLDER IN LIGHT OF SUCH WARRANTHOLDER'S
PERSONAL CIRCUMSTANCES. THIS DISCUSSION ALSO DOES NOT ADDRESS THE U.S. FEDERAL
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INCOME TAX CONSEQUENCES TO WARRANTHOLDERS (AND UNDERLYING COMMON STOCK) NOT
HELD AS CAPITAL ASSETS OR TO WARRANTHOLDERS SUBJECT TO SPECIAL TREATMENT, SUCH
AS NON-U.S. PERSONS, DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES,
TAX-EXEMPT ORGANIZATIONS, WARRANTHOLDERS OWNING AT LEAST 10% OF THE VOTING
POWER OF THE COMPANY AND WARRANTHOLDERS WHO ACQUIRED THEIR INTERESTS PURSUANT
TO THE EXERCISE OF OPTIONS OR SIMILAR DERIVATIVE SECURITIES OR OTHERWISE AS
COMPENSATION, NOR PROVIDE AN ANALYSIS OF ANY TAX CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE, LOCALITY, OR FOREIGN JURISDICTION. THIS DISCUSSION IS BASED
ON CURRENT PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), CURRENT AND PROPOSED TREASURY REGULATIONS PROMULGATED THEREUNDER, AND
ADMINISTRATIVE AND JUDICIAL DECISIONS AS OF THE DATE HEREOF, ALL OF WHICH ARE
SUBJECT TO CHANGE, POSSIBLY ON A RETROACTIVE BASIS. ACCORDINGLY,
WARRANTHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S.
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE
EXCHANGE OFFER TO THEM.
The exchange of Warrants for shares of Common Stock will result in the
following federal income tax consequences to participating Warrantholders:
1. A participating Warrantholder will recognize gain or loss equal
to the excess of (a) the sum of the fair market value of the shares of
Common Stock received in the Exchange Offer and any cash received in lieu
of a fractional share of Common Stock over (b) the participating
Warrantholder's tax basis in the Warrants exchanged therefor;
2. Such gain or loss will be capital gain or loss and will generally
be a long term capital gain or loss if the Warrantholder has held the
Warrant for more than one year at the time of exchange. Pursuant to
recently enacted legislation, with respect to any capital asset sold or
exchanged after July 29, 1997 and which has been held for more than
eighteen months, capital gains will be subject to tax at a rate of twenty
percent. With respect to any capital asset sold or exchanged after that
date which has been held for more than twelve months but less than
eighteen months, capital gains will remain subject to tax at a rate of
twenty-eight percent;
3. The tax basis of the shares of Common Stock received in the
Exchange Offer will be equal to the fair market value of such shares of
Common Stock received in the Exchange Offer; and
4. The holding period for the shares of Common Stock received in the
Exchange Offer will commence on the day following the consummation of the
Exchange Offer.
Foreign Warrantholders will not be subject to tax as a result of the
exchange of Warrants for Common Stock to the extent that such exchange gives
rise to capital gains not effectively connected to a United States trade or
business.
THE EXCHANGE AGENT
Corporate Stock Transfer, Inc. has been appointed as Exchange Agent for
the Exchange Offer. Corporate Stock Transfer, Inc. also acts as warrant agent
with respect to the Warrants. All correspondence in connection with the
Exchange Offer and the Letters of Transmittal should be addressed to the
Exchange Agent, as follows:
Corporate Stock Transfer, Inc.
370 17th Street
Suite 2350
Denver, Colorado 80202
Attention: Carylyn Bell
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DESCRIPTION OF SECURITIES
For a complete discussion of the Company's outstanding securities,
including the Common Stock being offered in exchange for Warrants in the
Exchange Offer, see the section entitled "Description of Securities" in the
PPM. That section also contains a discussion of outstanding registration
rights in the Company's securities.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and for the year then ended have been included in the PPM attached hereto
and made a part hereof in reliance upon the report of Richard A. Eisner &
Company, LLP, independent auditors, given upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, the Company files proxy statements, reports and other information
with the Securities and Exchange Commission (the "SEC"). This filed material
can be inspected and copied at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices in Chicago, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and in New York, 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material may also be obtained by mail from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The SEC maintains a Web Site address which
contains reports, proxy and information statements and other information
regarding the registrants that file electronically with the SEC. The address
of such site is http://www.sec.gov.
The Company has filed with the SEC an Issuer Tender Offer Statement on
Schedule 13E-4 (together with any amendments thereto, the "Tender Offer
Schedule") under the Exchange Act with respect to the Warrants to be exchanged
for Common Stock. Copies of the Tender Offer Schedule are available from the
SEC upon payment of prescribed rates. Statements contained in this Offering
Circular relating to the contents of any contract or other document referred to
herein are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the Tender
Offer Schedule or such other document, each such statement being qualified in
all respects by such reference.
The shares of Common Stock are listed on The Nasdaq Stock Market. Reports
and other information concerning the Company may be inspected at The Nasdaq
Stock Market.
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Facsimile copies of the Letter of Transmittal will be accepted. Letters
of Transmittal, Warrant certificates and any other required documents should be
sent by each holder or his broker, dealer, commercial bank, trust company or
other nominee to the Exchange Agent at the address set forth below:
The Exchange Agent for the Exchange Offer is:
CORPORATE STOCK TRANSFER, INC.
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<S> <C>
By Mail, Hand Delivery or Overnight Carrier: By Facsimile Transmission: (303) 592-8821
Corporate Stock Transfer, Inc. (For Eligible Institutions Only)
370 17th Street
Suite 2350 Confirm Facsimile by Telephone: (303) 595-3300
Denver, Colorado 80202 (For Confirmation Only)
Attention: Carylyn Bell
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