Offer to Purchase for Cash
by
XXXXXXXX INDUSTRIES, INCORPORATED
of
All Shares of Its Common Stock
Held by Holders of 100 or Fewer Shares
At a Purchase Price of $2.75 per Share
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
[_____________________________________], UNLESS THE OFFER IS EXTENDED.
Xxxxxxxx Industries, Incorporated, a Virginia corporation (the "Company,"
"we" or "us"), is offering to purchase for cash all shares of our common stock,
$0.10 par value per share (the "Common Stock"), held by stockholders who owned
of record or beneficially 100 or fewer shares as of the close of business on May
7, 2008 and who continue to hold such shares through the expiration of this
offer, at a price of $2.75 per share, net to the seller in cash, less any
applicable withholding taxes and without interest, upon the terms and subject to
the conditions described in this Offer to Purchase and in the related Letter of
Transmittal (which together, as they may be amended or supplemented from time to
time, constitute the "Offer").
Stockholders eligible to accept this Offer are those who owned of record or
beneficially 100 or fewer shares as of the close of business on May 7, 2008 and
who continue to hold such shares through the expiration of this Offer.
This Offer to Purchase will expire at 5:00 P.M., New York City Time, on
[____________________], unless extended or earlier terminated. We may extend or
terminate the offer at any time, subject to applicable law.
Upon the terms and subject to the conditions of the Offer, we will pay
$2.75 per share, net to the seller in cash, less any applicable withholding
taxes and without interest, for shares of our Common Stock properly tendered in
the Offer by an eligible stockholder. Payment will be made promptly after the
expiration date of the Offer.
IF YOU ARE AN ELIGIBLE STOCKHOLDER AND WISH TO ACCEPT THE OFFER, YOU MUST
TENDER ALL OF YOUR SHARES IN THE MANNER DESCRIBED IN THIS OFFER TO PURCHASE AND
ACCOMPANYING LETTER OF TRANSMITTAL. THE OFFER IS NOT CONDITIONED ON ANY MINIMUM
NUMBER OF SHARES BEING TENDERED. OUR OBLIGATION TO TAKE UP AND PAY FOR ANY
SHARES TENDERED UNDER THE OFFER IS, HOWEVER, CONTINGENT AS TO EACH ELIGIBLE
STOCKHOLDER'S PROPER TENDER OF ALL OF THE SHARES OF COMMON STOCK HELD EITHER
BENEFICIALLY OR OF RECORD BY SUCH STOCKHOLDER. PARTIAL TENDERS WILL NOT BE
ACCEPTED. ONCE YOU TENDER YOUR SHARES, YOU MAY NOT WITHDRAW THEM FROM THE OFFER.
If, after we purchase shares in the Offer, we have fewer than 300
stockholders of record, as calculated under the rules and regulations of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), we may file a
Form 15 with the Securities and Exchange Commission (the "SEC"), as a result of
which the registration of our Common Stock and our duty to file reports with the
SEC ("SEC Reporting Obligations") under Sections 13(a) and 15(d) of the Exchange
Act would cease, and we would no longer be a reporting company. We would
continue operations as a non-reporting company. If approximately 100 of the
eligible record holders tender their shares in the Offer and we purchase such
shares after the expiration date, we may have fewer than 300 stockholders of
record.
Our Common Stock is currently quoted on the "Pink Sheets." The Pink Sheets
is a centralized quotation service that collects and publishes market maker
quotes in real time, primarily through its website, xxxx://xxx.xxxxxxxxxx.xxx.
We anticipate our stock will continue to be traded on the Pink Sheets. On
[___________], the last full trading day prior to the announcement and
commencement of the Offer, the closing price for the Common Stock was [$______]
per share. Stockholders are urged to obtain current market quotations for the
shares of Common Stock before deciding whether to tender their shares in the
Offer.
Our board of directors, including a special committee of the independent
members of the board of directors, has approved the Offer. However, neither we
nor any member of our board of directors, Xxxxxxxx X. Xxxxxx, the corporate
secretary of the Company (the "Secretary") or American Stock Transfer and Trust
Company, the depositary for the Offer (the "Depositary") makes any
recommendation to you as to whether you should tender or refrain from tendering
your shares. Neither we nor any member of our board of directors, the Secretary
of the Depositary has authorized any person to make any recommendation with
respect to the Offer. You must make your own decision as to whether to tender
your shares. In doing so, you should consult your own investment and tax
advisors, and read carefully and evaluate the information in the Offer to
purchase and in the related Letter of Transmittal, including our reasons for
making the Offer.
Each of our directors and executive officers hold of record or beneficially
more than 100 shares of our Common Stock or no shares of our Common Stock and
thus will not be eligible to participate in the Offer.
Questions and requests for assistance may be directed to the attention of
the Secretary at the Company's address and telephone number set forth on the
back cover of this Offer to Purchase. Requests for additional copies of this
Offer to Purchase or the Letter of Transmittal should be directed to the
Secretary.
This document does not constitute an offer or a solicitation to any person
in any jurisdiction in which such offer or solicitation is unlawful. The Offer
is not being made to, and tenders of shares will not be accepted from or on
behalf of, stockholders in any jurisdiction in which the making or acceptance of
the Offer would not be in compliance with the laws of that jurisdiction.
___________ __, 2008
IMPORTANT
If you were a record or beneficial owner of 100 or fewer shares of our
common stock as of the close of business on May 7, 2008, you continue to hold
such shares and you want to tender your shares, you must do one of the following
before the Offer expires at 5:00 P.M., New York City time, on [______________]
(unless the Offer is extended): _ If you hold certificates registered in your
own name, complete and sign a Letter of Transmittal according to its
instructions, and deliver it, together with the certificates for your shares and
any other documents required by the Letter of Transmittal, to American Stock
Transfer and Trust Company, the Depositary for the Offer;
_ If your shares are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee, contact the nominee and request that
the nominee tender your shares for you; or
_ If you are an institution participating in The Depository Trust Company,
which we call the "Book-Entry Transfer Facility" in this Offer to Purchase,
tender your shares according to the procedure for book- entry transfer
described in Section 3 on page 20.
IF YOU HOLD MORE THAN 100 SHARES OF THE COMPANY'S COMMON STOCK, YOU ARE
INELIGIBLE TO PARTICIPATE IN THE OFFER.
You may contact the Secretary or your broker, bank or other nominee for
assistance. Contact information for the Secretary is set forth on the back cover
of this Offer to Purchase.
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS
OFFER TO PURCHASE OR IN THE RELATED LETTER OF TRANSMITTAL. YOU SHOULD NOT RELY
ON ANY RECOMMENDATION, OR ANY SUCH REPRESENTATION OR INFORMATION, AS HAVING BEEN
AUTHORIZED BY US, ANY MEMBER OF OUR BOARD OF DIRECTORS, THE SECRETARY OR THE
DEPOSITARY.
TABLE OF CONTENTS
Page
----
SUMMARY TERM SHEET 1
FORWARD-LOOKING STATEMENTS 5
INTRODUCTION 6
SPECIAL FACTORS 7
THE OFFER 22
1. General 22
2. Purpose of the Offer; Certain Effects of the Offer 23
3. Procedures for Tendering Shares 23
4. No Withdrawal Rights 26
5. Purchase of Shares and Payment of Purchase Price 26
6. Conditional Tender of Shares 27
7. Conditions of the Offer 27
8. Price Range of Shares; Dividends 27
9. Source and Amount of Funds 27
10. Certain Information Concerning Us 28
11. Interests of Directors and Executive Officers; Transactions and
Arrangements Concerning the Shares 31
12. Certain Legal Matters; Regulatory Approvals 34
13. Certain U.S. Federal Income Tax Consequences 34
14. Extension of the Offer; Termination; Amendment 39
15. Fees and Expenses 39
16. Accounting Consequences 40
17. Miscellaneous 40
i
SUMMARY TERM SHEET
We are providing this summary term sheet for your convenience. It
highlights certain material information in this Offer to Purchase, but you
should realize that it does not describe all of the details of the Offer to the
same extent described elsewhere in this Offer to Purchase. We urge you to read
the entire Offer to Purchase and the related Letter of Transmittal because they
contain the full details of the Offer. We have included references to the
sections of this Offer to Purchase where you will find a more complete
discussion.
Who is offering to purchase my shares?
Xxxxxxxx Industries, Incorporated is offering to purchase shares of its
outstanding Common Stock held by stockholders who owned beneficially or of
record 100 or fewer shares of the Company's Common Stock as of the close of
business on May 7, 2008 (the "Record Date"), and continue to own beneficially or
of record 100 or fewer shares of the Company's Common Stock through the
expiration date. See Section 1 on page 18.
What is the purpose of the Offer?
The Company seeks to reduce the administrative burden associated with
having a significant number of holders of a small number of shares. The offer
also may result in the Company having fewer than 300 holders of record of its
Common Stock, which would enable the Company to terminate its SEC Reporting
Obligations and continue future operations as a non-reporting company, thereby
relieving the Company of the costs and administrative burdens associated with
operating as a company subject to SEC Reporting Obligations.
Where shares are tendered by the registered owner of those shares directly
to the Depositary, the sale of those shares in the Offer will permit the seller
to avoid the usual transaction costs associated with open market sales.
Furthermore, holders who hold shares registered in their names and
tender their shares directly to the Depositary and whose shares are purchased
under the Offer will avoid not only the payment of brokerage commissions but
also any applicable odd-lot discounts that might be payable on sales of their
shares.
We believe the Offer set forth herein represents an efficient mechanism to
provide eligible stockholders with the opportunity to tender their shares and
thereby receive a return of some or all of their investment if they so elect.
Stockholders who do not participate or who are ineligible to participate in the
Offer will automatically increase the relative percentage ownership held by them
at no additional cost to them, following the purchase, if any, by us of shares
tendered in the Offer. See Section 2 on page 19, Section 9 on page 23 and
Section 11 on page 25.
Why is the Company pursuing the Offer over other alternatives?
We believe that the Offer is in the best interests of the Company and its
stockholders and presents the best way for the Company to achieve the purposes
discussed above. We considered the recent decrease in the number of record
holders of our Common Stock and the number of such record holders that hold odd
lots and determined that the Offer was the most efficient and cost effective
means for achieving the purposes set forth above. See "Special
Factors-Alternatives Considered by the Board of Directors" on page 7.
Will the Company be a public company after the completion of this Offer?
If the Offer results in the number of our record stockholders of Common
Stock falling below 300, we may decide to terminate the registration of our
Common Stock under the Exchange Act. If, after the completion of the Offer,
there are 300 or more stockholders of record holding the Company's Common Stock
remaining, the Company will remain subject to SEC Reporting Obligations. In that
event, the Company's board of directors may consider other options available to
it and the Company at that time to reduce the number of record stockholders to
below 300 and terminate the registration of the Company's Common Stock under the
Exchange Act. Thereafter, we anticipate that our Common Stock will continue to
be quoted in the Pink Sheets, but we cannot predict whether a market will
thereafter exist for our Common Stock. As a result, it may become more difficult
for our remaining common stockholders to sell their shares.
Am I eligible to participate in the Offer?
You are eligible to tender your shares only if you owned 100 or fewer
shares of the Company's Common Stock as of the Record Date, regardless of
whether you owned your shares of record (i.e., in your own name) or beneficially
(i.e., in "street name" held by a brokerage company account maintained for you).
We reserve the right to make all determinations of who is eligible to
participate in the Offer. The beneficial and record holders eligible to tender
shares in the Offer are referred to herein as the "eligible stockholders." You
also must continue to hold of record or beneficially 100 or fewer of the
Company's Common Stock until the offer expires.
How many shares will we purchase in the Offer?
As of the close of business on the Record Date, an estimated maximum of
25,825 shares of our Common Stock were eligible for purchase in the Offer.
What will the purchase price for the shares be and what will be the form of
payment?
We are offering to purchase shares of Common Stock in the Offer at a fixed
purchase price of $2.75 per share in cash. If we purchase your shares in the
Offer, we will pay you the purchase price in cash, less any applicable
withholding taxes and without interest, promptly after the expiration of the
Offer. Under no circumstances will we pay interest on the purchase price, even
if there is a delay in making payment. See the Introduction and Section 1.
How will we pay for the shares?
Assuming we purchase all the shares we estimate to be eligible in the Offer
at the specified purchase price of $2.75 per share, approximately $71,018.75
will be required to purchase such shares. We expect that the maximum aggregate
cost of this purchase (not including the aggregate purchase price), including
all fees and expenses applicable to the Offer, will be approximately $162,000.
We will borrow an amount up to $233,265.75, the maximum aggregate purchase price
for the tendered shares and the expenses and fees, from Xxxxx X. Xxxxxxxx, Xx.
at an interest rate of prime plus one percent to purchase the tendered shares.
See Section 9 on page 23.
How long do I have to tender my shares?
You may tender your shares until the Offer expires at 5:00 P.M., New York
City time, on [____________________] unless we extend the Offer. See Section 1.
We may choose to extend the Offer at any time and for any reason. We cannot
assure you, however, that we will extend the Offer or, if we extend it, for how
long. See Section 1 on page 18 and Section 14 on page 33. If a broker, dealer,
commercial bank, trust company or other nominee holds your shares, it may have
an earlier deadline for accepting the Offer. We urge you to contact the broker,
dealer, commercial bank, trust company or other nominee that holds your shares
to find out its deadline.
Am I required to tender my shares?
No. This is a voluntary offer. You may elect to tender your shares or, in
the alternative, hold your shares and maintain your rights as a stockholder.
May I tender less than all of my shares?
No. You must tender all of your shares of the Common Stock if you wish any
of your shares to be purchased. PARTIAL TENDERS WILL NOT BE ACCEPTED.
Can the Offer be extended, amended or terminated and if so, under what
circumstances?
Yes. We can extend or amend the Offer in our sole discretion, subject to
applicable law. If we extend the Offer, we will delay the acceptance of any
shares that have been tendered. See Section 14 on page 33. If we amend the offer
and the amendment is material, we will provide notice and, if necessary, extend
the Offer to ensure that at least five business days remain prior to expiration
of the Offer, and stockholders that have tendered their shares pursuant to the
Offer prior to the amendment will have an opportunity to withdraw their shares.
We can terminate the Offer at any time. See Section 7 on page 23.
How will I be notified if you extend the Offer or amend the terms of the Offer?
If we extend the Offer, we will issue a press release or furnish such
information on a Current Report on Form 8-K not later than 9:00 a.m., New York
City time, on the first business day after the previously scheduled expiration
date of the Offer. We will announce any amendment to the Offer by making a
public announcement of the amendment. See Section 14. For the purposes of the
Offer, a "business day" means any day other than a Saturday, Sunday or U.S.
federal holiday and consists of the time period from 12:01 a.m. through 12:00
midnight, New York City time.
Are there any conditions to the Offer?
No. The Offer is, however, contingent as to each eligible stockholder's
proper tender to the Company of all of the shares of Common Stock held either
beneficially or of record by such stockholder. Partial tenders will not be
accepted.
How do I tender my shares?
If you want to tender your shares, you must do one of the following before
5:00 P.M., New York City time, on [_________________________] or any later time
and date to which the Offer may be extended:
_ If you hold certificates registered in your own name, complete and sign
an Letter of Transmittal according to its instructions, and deliver it,
together with the certificates for your shares and any other documents
required by the Letter of Transmittal, to the Depositary at one of its
addresses appearing on the back cover page of this Offer to Purchase;
_ If your shares are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee, contact the nominee and request that
the nominee tender your shares for you; or
_ If you are an institution participating in the Book-Entry Transfer
Facility, tender your shares according to the procedure for book- entry
transfer described in Section 3 on page 19.
You may contact the Secretary or your broker, bank or other nominee for
assistance. The contact information for the Secretary is set forth on the back
cover of this Offer to Purchase. See Section 3 on page 19 and the instructions
to the Letter of Transmittal.
Once I have tendered shares in the Offer, may I withdraw my tendered shares?
No. Once you tender your shares pursuant to the Offer, you cannot withdraw
them, unless we materially amend the terms of the Offer. See Section 4 on page
22.
What does the Company's board of directors think of the Offer?
Our board of directors, including a special independent committee of our
board of directors, has approved the Offer. However, neither we nor any member
of our board of directors or the Secretary makes any recommendation to you as to
whether you should tender or refrain from tendering your shares. You must make
your own decision as to whether to tender your shares. In doing so, you should
read carefully the information in this Offer to Purchase and in the related
Letter of Transmittal, including our reasons for making the Offer. See Section 2
on page 19. You should discuss whether to tender your shares with your broker or
other financial or tax advisors.
Did the board of directors receive any fairness opinions or similar reports
regarding the fairness of the Offer?
No. Neither the Company nor its board of directors received any opinions or
reports from outside financial advisors regarding the fairness from a financial
point of view, or otherwise, to our eligible stockholders because the offer is
voluntary for only a limited number of odd-lot shares. Nevertheless, a special
committee of the independent members of the board of directors received a report
from Xxxx Street Partners, a wealth management and investment banking firm,
regarding different valuations for the Company to aid in establishing the tender
offer purchase price. The special committee relied on the Xxxx Street Partners'
Report to provide it with different valuation methodologies for the Company as
discussed herein. The Xxxx Street Partners' Report did not provide an opinion as
to the fairness of the $2.75 tender offer price, nor did the Xxxx Street
Partners' Report discuss a fair range. The special committee established the
tender offer purchase price based on factors discussed herein. The board of
directors relied on the special committee's analysis in approving the Offer.
Will your directors and executive officers tender shares in the Offer?
None of our directors and executive officers is eligible to participate in
the Offer. See Section 11 on page 25.
If I decide not to tender, how will the Offer affect my shares?
Stockholders who decide not to tender may own a greater percentage
interest in our outstanding shares following the purchase, if any, by us of
shares tendered in the Offer. See Section 2 on page 19. When and how will you
pay me for the shares I tender?
We will pay $2.75 per share, net to the seller in cash, less applicable
withholding taxes and without interest, for the shares we purchase promptly
after the expiration of the Offer. We will pay for the shares accepted for
purchase by depositing the aggregate purchase price with the Depositary promptly
after the expiration date of the Offer. The Depositary will act as your agent
and will transmit to you the payment for all of your shares accepted for
payment. We expect the proceeds checks to be mailed approximately ten business
days after the expiration date. See Section 1 on page 18 and Section 5 on page
22.
What is the recent market price of my shares?
On [_________________], the last full trading day before the announcement
and commencement of the Offer, the closing price for our Common Stock on the
Pink Sheets was [$______]. You are urged to obtain current market quotations for
the shares before deciding whether or not to tender your shares. See Section 8
on page 23.
Will I have to pay brokerage commissions if I tender my shares?
If you are a registered stockholder and you tender your shares directly to
the Depositary, you will not incur any brokerage commissions. If you hold shares
through a broker, bank or other nominee, we urge you to consult your broker,
bank or other nominee to determine whether any transaction costs are applicable.
See the Introduction, Section 3 on page 19 and Section 15 on page 33.
Will I have to pay stock transfer tax if I tender my shares?
So long as you do not instruct the Depositary in the Letter of Transmittal
to make the payment for the shares to any person other than the registered
holder, you will not incur any stock transfer tax. See Section 5 on page 22.
What are the U.S. federal income tax consequences if I tender my shares?
Generally, your receipt of cash from us in exchange for the shares of our
Common Stock you tender will be a taxable transaction for U.S. federal income
tax purposes. The cash you receive for your tendered shares of our Common Stock
will generally be treated for U.S. federal income tax purposes either as
consideration received in respect of a sale or exchange of the shares of our
Common Stock purchased by us or as a distribution from us in respect of shares
of our Common Stock. See Section 13 for a more detailed discussion of the tax
treatment of the Offer. We urge you to consult with your own tax advisor as to
the particular tax consequences to you of the Offer. Non-U.S. Holders (as
defined in Section 13) may be subject to a 30% withholding tax and are urged to
consult their tax advisors regarding the application of U.S. federal income tax
withholding and backup withholding, including eligibility for a withholding tax
reduction or exemption, and the refund procedure.
Who is the contact for questions about the Offer?
The Secretary can help answer your questions. The Secretary of the Company
is Xxxxxxxx X. Xxxxxx. The Secretary's contact information is set forth on the
back cover of this Offer to Purchase.
FORWARD-LOOKING STATEMENTS
This Offer to Purchase contains, and our periodic filings with the SEC and
written or oral statements made by our officers and directors to the press,
potential investors, securities analysts and others, may contain,
forward-looking statements. These forward-looking statements are not historical
facts, but rather are predictions, and generally can be identified by use of
statements that include terms such as "believe," "may," "expect," "anticipate,"
"estimate," "intend," "plan" or "foresee" or other words or phrases of similar
import. Similarly, statements that describe or contain information related to
matters such as our intent, belief or expectation with respect to financial
performance, claims resolution, cash availability, stock redemption plans,
contract awards and performance, potential acquisitions and joint ventures and
cost-cutting measures are forward-looking statements. These forward-looking
statements often reflect a number of assumptions and involve known and unknown
risks, uncertainties and other factors that could cause our actual results to
differ materially from those currently anticipated in these forward-looking
statements. In light of these risks and uncertainties, including those described
below, the forward-looking events might or might not occur. Except as necessary
to reflect any and all material changes to information reported herein or as
otherwise required by law, we undertake no obligation to publicly update any
forward-looking statement, whether as a result of new information, future events
or otherwise.
INTRODUCTION
To the holders of our Common Stock:
We are offering to purchase for cash all shares of our Common Stock held by
stockholders who owned of record or beneficially 100 or fewer shares as of the
close of business on May 7, 2008 and who continue to hold such shares, or less
amount, through the expiration date of this offer, at a price of $2.75 per
share, net to the seller in cash, less any applicable withholding taxes and
without interest, upon the terms and subject to the conditions described in this
Offer to Purchase and in the related Letter of Transmittal which together, as
they may be amended or supplemented from time to time, constitute the "Offer."
See Section 1 on page 18.
This Offer will expire at 5:00 P.M., New York City Time, on
[_______________________], unless extended or terminated earlier. We may extend
or terminate the Offer at any time, subject to applicable law.
Upon the terms and subject to the conditions of the Offer, we will pay
$2.75 per share, net to the seller in cash, less any applicable withholding
taxes and without interest, for shares properly tendered in the Offer by an
eligible stockholder. Payment will be made promptly after the expiration date of
the Offer. We will acquire all shares in the Offer at the same purchase price,
on the terms and subject to the conditions of the Offer. We will only purchase
shares that are properly tendered.
If you are an eligible stockholder and wish to accept the offer, you must
tender all of your shares in the manner described in this Offer to Purchase and
accompanying Letter of Transmittal. The Offer is not conditioned on any minimum
number of shares being tendered. The Offer as to each Stockholder is, however,
contingent as to each eligible Stockholder's proper tender of all of the shares
of Common Stock held either beneficially or of record by such Stockholder. See
Section 7 on page 23. Partial tenders will not be accepted. Once you tender your
shares, you may not withdraw them from the Offer, unless the Offer is materially
altered.
If, after we purchase shares in the Offer, we have fewer than 300
stockholders of record, as calculated under the rules and regulations of the
Exchange Act, we may decide to file a Form 15 with the SEC. As a result, the
registration of our Common Stock and our SEC Reporting Obligations under
Sections 13(a) and 15(d) of the Exchange Act would cease, and we would no longer
be a reporting company. In such event, we would continue operations as a
non-reporting company. If approximately 99 of the eligible record holders tender
their shares in the Offer and we purchase such shares after the expiration date,
we may have fewer than 300 stockholders of record.
Our board of directors, including a special committee of the independent
members of the board of directors, has approved the Offer. However, we do not,
nor does any member of our board of directors, the Secretary or the Depositary,
make any recommendation to you as to whether you should tender or refrain from
tendering your shares. You must make your own decision as to whether to tender
you shares. In doing so, you should read carefully the information in this Offer
to Purchase and in the related Letter of Transmittal, including our reasons for
making the Offer. See Section 2 on page 19. You should discuss whether to tender
your shares with your financial and tax advisors.
All of our directors and executive officers hold of record or beneficially
more than 100 shares of our Common Stock or no shares of our Common Stock and
thus will not be eligible to participate in the Offer. See Section 11 on page
25.
We will pay all fees and expenses incurred in connection with the Offer by
the Company and the Depositary. See Section 15 on page 23.
On [___________________], the last full trading day prior to the
announcement and commencement of the Offer, the closing price for the Company's
Common Stock was [$_______]. The estimated aggregate of 25,825 shares owned by
all "odd-lot" stockholders, which is the estimated maximum number of shares that
we are offering to purchase pursuant to the Offer, represent approximately 2.73%
of our shares of Common Stock outstanding on the Record Date. Our Common Stock
is currently quoted on the "Pink Sheets." The Pink Sheets is a centralized
quotation service that collects and publishes market maker quotes in real time,
primarily through its website, xxxx://xxx.xxxxxxxxxx.xxx. We anticipate that our
stock will continue to be traded on the Pink Sheets. Stockholders are urged to
obtain current market quotations for the shares of Common Stock before deciding
whether to tender their shares in the Offer. See Section 8 on page23.
Our principal executive offices are located at 0000 X.X. Reading Drive,
Manassas, Virginia 20109 and our phone number is (000) 000-0000.
SPECIAL FACTORS
Purpose of the Offer
The Company seeks to reduce the administrative burden associated with
having a significant number of holders of a small number of shares. The Offer
also may result in the Company having fewer than 300 holders of record of its
Common Stock. This would enable the Company to terminate its SEC Reporting
Obligations and continue future operations as a non-reporting company, thereby
relieving the Company of the costs and administrative burdens associated with
operating as a company subject to SEC Reporting Obligations. The Company does
not believe that it is necessary or advantageous for its business operations to
continue its SEC reporting obligation.
Alternatives Considered by the Board of Directors
The Company's management and the Board of Directors have from time to time
since 2003 informally considered the possibility of pursuing actions that would
terminate the Company's SEC Reporting Obligations. Management and the Board
observed that as a consequence of the requirements of the Xxxxxxxx- Xxxxx Act of
2002, a number of other relatively small publicly traded companies were in the
process of "going private." The reasons behind the Company's interest in going
private are numerous and included, in addition to the impact of the
Xxxxxxxx-Xxxxx legislation, among other matters:
* The Company had gone through a substantial downsizing several years
previously and was (and still is) a relatively small company.
* There are very few publicly-held construction companies and almost all
are larger than the Company.
* The Company's opportunities for growth were limited and the stock
price reflected these circumstances.
* Key officers of the Company were spending significant time on public
shareholder matters. Management believed this time and efforts could
be better spent devoted to the Company's operations.
* The Company estimated that the annual out-pocket-cost of being a
public company was, in 2003, approximately $150,000, and that amount
would certainly increase as a result of the various requirements
resulting from the Xxxxxxxx-Xxxxx legislation.
As a result of these concerns, management and the Company considered
initially a reverse split of the Company's stock. After discussions with a
consultant to consider the possibility of the Company implementing a reverse
stock split, management and the Board concluded that there were numerous
uncertainties and the cost of such a transaction appeared to be prohibitive.
Accordingly, the Company abandoned the idea of a reverse stock split.
Thereafter, for the next two years, the Company was approached from time to
time by several investment bankers seeking to assist in taking the Company
private. Although Company representatives met with one investment banker, no
investment banker was engaged, and the Company did not pursue any going private
strategies.
Due in part to legislative postponements of the required date for the
Company to comply with the requirements of Section 404 of Xxxxxxxx-Xxxxx,
discussions regarding taking the Company private did not occur again until late
in 2006. Xxxxx X. Xxxxxxxx, Xx., the Company's founder, former President and
Chairman, its largest shareholder and a member of the Board suggested that the
Company revisit the idea of a reverse stock split as a means of taking the
Company private. The Company was again facing the costs of compliance with
Section 404 of Xxxxxxxx-Xxxxx and the other reasons for going private that were
present in 2003 remained unchanged.
The Board discussed the matter at its meeting on December 13, 2006;
however, the Company was, at the time, attempting either to raise capital for
one of the Company's subsidiaries or to sell the subsidiary. The Board agreed to
delay further consideration of going private until the potential financing or
sale of the subsidiary was resolved.
At the next Board meeting on March 7, 2007, after reviewing further the
current and future costs of remaining a public corporation, the Board approved
the appointment of a special committee comprised of its three independent
directors (the "Committee") to explore the possibility of taking the Company
private.
On March 8, 2007, the Committee held an organizational teleconference. The
Committee recognized that it needed to determine how many shareholders of record
the Company had, how such number was calculated, and the projected cost of
compliance with the Xxxxxxxx-Xxxxx Act. Once these matters were determined, the
Committee believed it could better assess the possible benefits of being
relieved of its SEC Reporting Obligations. The Committee continued with the work
on these matters through November 2007.
On November 15, 2007, the Committee met via telephone conference call and
discussed the methods by which the Company could "go private" and the role of
the Committee in any going private transaction. At the Board of Directors'
annual organizational meeting on December 6, 2007, Xxxxx X. Xxxxxxxx XXX
reported that the Company's legal counsel had suggested that the Company
consider an odd-lot tender offer as a means to achieve its objective of
deregistering as a public company. A discussion ensued as to the cost and
complexities associated with this type of transaction and it was concluded that
this approach may be the simplest, least costly approach to achieving the
desired objective of taking the Company private. After discussing this
suggestion, the Board agreed to hold a special meeting on January 10, 2008 for
the sole propose of discussing this topic in depth.
At the January 10, 2008 Board meeting, Xxxxx X. Xxxxxxxx XXX reported that
management endorsed the Company making an "odd-lot" tender offer to shareholders
and asked for the Board's consideration and approval of such an offer. One goal
of the tender offer would be to reduce the number of registered shareholders to
less than 300, the SEC's current threshold for comprehensive reporting purposes.
As a result, the Company would be relieved of its SEC Reporting Obligations and
the Company would save the expense of complying with the Xxxxxxxx-Xxxxx Section
404 regulations.
The Board then considered and discussed several options, including the
odd-lot tender, a reverse stock split, a general tender offer and other
considerations. During the discussion, the advantages and disadvantages of the
various approaches were discussed. The Board then discussed the need for an
independent valuation of the Company and a fairness opinion. The Board concluded
that a fairness opinion was unnecessary given the voluntary nature of an odd-lot
tender offer but that an independent valuation would be prudent to validate the
price recommended by the Committee.
After further discussion, the Board voted to move forward with an odd- lot
tender offer subject to an independent valuation of the price per share to be
offered and the Board's determination that the savings from being relieved of
the SEC Reporting Obligations, and as a result, Xxxxxxxx-Xxxxx compliance costs
substantially exceed the costs of the odd-lot tender offer.
Special Committee of Independent Directors interface with Xxxx Street Partners
At the Board meeting on January 10, 2008, members of the Committee stated
that they wanted an independent valuation of the Company's stock to assist the
Committee in determining a price to be offered by the Company in an odd-lot
tender offer. At the Committee's request, and with knowledge of the Committee's
stated needs, the Company's corporate secretary contacted various investing
banking firms to discuss the proposed engagement. She identified two firms that
were interested and the Committee chairman reviewed the qualifications of each
firm and had telephone discussions with representatives of the firms. After
reviewing the qualifications and having the discussions, the Chairman
recommended that the Company, on the Committee's behalf, engage Xxxx Street
Partners.
On February 5, 2008, the Committee Chairman discussed by telephone with a
representative of Xxxx Street Partners the backgrounds of the other committee
members and the work product the Committee sought. The Committee Chairman
explained that the Committee desired to receive a valuation report and not a
fairness opinion. The Committee sought independent assistance in determining a
price to be offered for the Company's stock in an odd-lot tender.
The Chairman discussed, in general, the Company's recent financial
performance and its real estate holdings. The Chairman also discussed persons at
the Company who Xxxx Street Partners should interview. He also indicated that
there were expected to be relatively few shares involved in the transaction.
On February 15, 2008, the Committee Chairman spoke again via telephone with
a representative of Xxxx Street Partners. The representative reported that on a
visit to the Company's Manassas, Virginia headquarters on February 13, 2008,
Xxxx Street Partners met with several Company representatives and reviewed
historical financial information.
On February 22, 2008, the Chairman spoke again via telephone to a
representative of Xxxx Street Partners. Xxxx Street Partners reported that it
was making good progress and continued to gather data for its valuation report.
On February 27, 2008, all members of the Committee had a meeting via
telephone conference with a representative of Xxxx Street Partners to discuss
the status of Xxxx Street Partners' valuation of the Company's stock. Xxxx
Street Partners provided a preliminary presentation of its valuation report
based on materials and interviews conducted to date. The Committee shared its
concerns that certain of the information provided by Xxxx Street Partners
assumed significant capital expenditures by the Company. Then, during the
discussions of the operations of the Company's subsidiaries, Xxxxxxxx Bridge and
SIP, the Committee noted that the operating projections for fiscal years 2009
and 2010 included several actions that were going to require substantial outlays
of cash, including the moves of SIP and Xxxxxxxx Bridge-Manassas operation to
Richmond in the fall of 2008 and 2009, respectively. Further, significant
investments in technology were planned for Xxxxxxxx Bridge and the SIP Alabama
facility in fiscal years 2009 and 2010. The aggregate costs of these activities
were estimated to require approximately $2.2 million in 2009 and $1.6 million in
2010. In light of the Company's financial situation, the Committee suggested it
would be prudent to consider alternative projections excluding the impact of
certain capital investments. The Committee also discussed the effect of
corporate allocations to the operations of the operating subsidiaries that were
reflected in the Xxxx Street Partners preliminary report. The Committee also
discussed real estate values assigned to the Company's Manassas property.
On February 29, 2008, the Chairman of the Committee spoke again with a
representative of Xxxx Street Partners to check on the progress of the valuation
of the Company's stock. The representative reported that he had been able to
complete an interview with the President of the Company's steel erection
business.
On March 7, 2008, the Chairman spoke again with a representative of Xxxx
Street Partners to discuss the progress on the valuation of the Company's stock.
Xxxx Street Partners reported it had gathered almost all the information it
needed and planned to finish the report in the next few days. The Chairman and
the Xxxx Street Partners representative discussed the format of the report.
On Tuesday, March 11, 2008, all members of the Committee had a meeting via
telephone conference with a representative of Xxxx Street Partners to discuss
its report on the value of the Company's shares. The representative reviewed
with the Committee the approach Xxxx Street Partners followed in preparing the
valuation, including its reliance on information provided by the Company,
historical data, financial forecasts, and data concerning real estate values the
Company had previously obtained from others. He noted that Xxxx Street Partners
is not a real estate appraiser and it relied on information in this regard
supplied by others. The major assumptions reflected in the valuation report were
also discussed including the Company's continuation as a going concern, as well
as its ability to fund the capital needs of the Company on which certain of the
forecasts were based. The three valuation strategies -- including ongoing
business value, asset liquidation value, and hybrid/greater value -- were
discussed. The latter value takes the greater value of each of the operating
units, ongoing business value or liquidating value, less a discount factor to
recognize the additional risk of continuing certain operations, namely SIP,
Xxxxxxxx Bridge and Piedmont, while shutting down and liquidating Steel and
Equipment.
The Committee asked a number of questions concerning the valuation
procedures employed and the results as presented in the report. The Committee
focused on the value ascribed to Xxxxxxxx Bridge. The Committee questioned the
availability of sufficient funds for the operational changes on which the
valuation of Xxxxxxxx Bridge were based. The Committee also discussed the
valuation of the Company's real estate in Manassas and Richmond. Xxxx Street
Partners explained the method used to value the properties and, in response to a
question from Xx. Xxxxxx, said that it had not assumed any transactions costs in
determining the values. The Committee expressed its opinion that some
recognition should be given to such costs. Xxxx Street Partners agreed to
reflect transaction costs in its final report.
The Committee then discussed the valuation of the Richmond property and
concluded that, since Xxxxxxxx Bridge and SIP were included as ongoing
businesses in the Hybrid/Greater Value valuation, the excess market value over
cost of the Richmond property should be excluded from the real estate values in
the Hybrid/Greater Value calculation. However, the value of the Richmond
property should be included in the real estate value in the Asset Liquidation
Value calculation.
After the telephone conference with Xxxx Street Partners and later in the
day on March 11, 2008, the Committee met to determine the price to recommend to
the entire Board. At the outset, the members discussed their reaction to the
valuation report and the discussion with Xxxx Street Partners earlier in the
day. Among the key items discussed was the observation that the highest value
utilizing the Hybrid/Greater Value assumes that $3.8 million of funds will be
available to finance the move of SIP and Xxxxxxxx Bridge to Richmond and upgrade
technology for both operations. Obtaining the necessary financing, the Committee
believed, was unlikely. Even if the financing was obtained, the Committee
determined the operating forecasts on which the ongoing business values were
based were very optimistic. This determination was based to a large extent on
the actual results for the past several years and the Committee members' long
term involvement with the Company. Further, the Committee observed that the high
end estimated value of the Manassas property assumed no reduction in market
value had occurred since 2006 despite well-publicized weaknesses in the real
estate market.
The Committee also considered the market value of the Company's stock and
the fact that it had been less than $2.50 per share for over two years. The
Committee agreed that the offering price should provide a reasonable premium
over the recent and current stock market price, in line with what the Committee
believed were the reasonable valuations provided by Xxxx Street Partners.
In consideration of the above reasons, and after extended discussions
throughout the process, the Committee selected a price of $2.75 per share. The
price is an average of the mid points of the Asset Liquidation Value and the
Hybrid/Greater Value Amounts. The recommended price also approximates the
average of the medium and high prices of the Asset Liquidation Values and
provides a premium of more than 20% over the current market price of the stock.
Reasons for the Offer
Reduce Expenses Associated with Administering Odd-Lot Holder Accounts
The expense of administering accounts of odd-lot holders is
disproportionate to their ownership interest in the Company. As of the Record
Date, there were approximately 237 stockholders of record holding 100 or fewer
shares, other than participants in the Book-Entry Transfer Facility, and an
estimated 190 stockholders known to us beneficially owning 100 shares or fewer
of the Company's Common Stock. These eligible record and beneficial stockholders
hold an estimated aggregate of approximately 25,825 shares, or approximately
2.73%, of our outstanding Common Stock. Approximately 59.55% of the marginal
administrative expense relating to our record stockholder accounts relate to
holders owning less than 2.73% of our outstanding Common Stock. Regardless of
whether the record stockholder base falls below 300, we believe that every
tender by an eligible holder will reduce our administrative expenses going
forward.
The Company's board of directors does not believe the costs associated with
maintaining the Company's stockholder accounts with 100 or fewer shares are
justified. The Company's board of directors believes that it is in the Company's
best interests and the best interests of the Company's stockholders as a whole
to eliminate, to the extent possible, the administrative burden and costs
associated with maintaining stockholder accounts of 100 shares or fewer.
Liquidity Opportunity For Odd-Lot Holders
There is a very limited trading market for our Common Stock and a more
limited trading market for odd-lot holders' shares. As a result, we believe that
stockholders are unable to efficiently trade in our shares when they choose. In
particular, stockholders holding small amounts of Common Stock may find it
uneconomical to dispose of shares due to minimum brokerage commissions that are
often charged. The Offer will permit eligible stockholders to directly tender
the small amounts of shares of Common Stock that they hold at a premium to the
current market price, without paying the minimum brokerage commissions typically
charged, and to do so without material impact to the Company's capital
structure, equity value, balance sheet or operations.
Cost-Savings Associated with Termination of SEC Reporting Obligations
If the Company continues to have more than 300 holders of record of the
Company's Common Stock after completion of the Offer, the Company will eliminate
administrative expenses (such as printing and mailing costs related to
stockholders communications and proxy and information statements) related to the
small stockholders who tendered their shares pursuant to the Offer.
If the Company has fewer than 300 holders of record of the Company's Common
Stock after completion of the Offer, it may seek to terminate its SEC Reporting
Obligations. The Company incurs direct and indirect costs associated with its
status as a public-reporting company. Among the most significant are the costs
associated with compliance with the SEC Reporting Obligations. Direct costs
associated with compliance with the SEC Reporting Obligations include, but are
not limited to:
* auditing fees;
* legal fees;
* financial printer fees; and
* miscellaneous clerical and other administrative expenses, such as word
processing, conversion to XXXXX, telephone and fax charges associated
with the filing of periodic reports with the SEC.
Based on the Company's experience in prior years, the Company's direct
costs of complying with the SEC Reporting Obligations are estimated to be
approximately $190,500 annually, based on estimated annual audit and accounting
fees of $105,000, which represents estimated fees of $180,000 less the $75,000
estimated for a non-reporting company audit, estimated annual legal fees of
$40,000, estimated financial printer fees of $10,000 estimated transfer agent
fees of $18,000, estimated costs associated with filing reports with the SEC
(including internal administrative staff) of $10,000 and estimated miscellaneous
costs of $7,500.
Indirect costs associated with compliance with the SEC Reporting
Obligations include, among other things, the time the Company's executive
officers expend to prepare and review the Company's periodic reports, which the
Company estimates requires varying percentages of the total time the executive
officers expend in the management of the Company. It is estimated that Xx.
Xxxxxx Xxxxx, the Company's comptroller, expends 50% of his time in meeting
compliance obligations. For the fiscal year ending July 31, 2008, the Company is
subject to additional regulations and compliance procedures required of public
companies under Section 404(a) of the Xxxxxxxx-Xxxxx Act of 2002. Section 404(a)
requires that Company's management establish and maintain an adequate internal
control structure and procedure for financial reporting. In addition, management
will have to include in the Company's annual report, an assessment of the
effectiveness of these internal controls and procedures. The Company's direct
and indirect costs in the categories identified above necessary to comply with
Section 404(a) is estimated at $200,000 in the initial year of compliance and
will range between $120,000 and $150,000 in each subsequent year. In addition,
for the fiscal year ending July 31, 2009, the Company will be subject to all
provisions of Section 404 of the Xxxxxxxx-Xxxxx Act of 2002. As a result, the
Company will need to comply with Section 404(b), which requires the Company's
external auditor to test the Company's internal controls and procedures and
provide an assessment thereon. The SEC has issued a proposed Rule that would
extend the deadline for compliance by an additional year. The Company expects
its direct and indirect costs to increase by an additional estimated $140,000 to
comply with these additional requirements. These costs may include, among other
things, the cost of the hiring of additional personnel dedicated to regulatory
compliance, fees paid to consultants to assist in the implementation of new
procedures and additional audit fees. Because the Company would anticipate
hiring additional dedicated compliance personnel as well as a significant
increase in audit fees, the Company estimates that ongoing costs of compliance
and ongoing cost of being a public company could amount to as much as $480,500
annually. These costs are substantial when compared to the Company's total
general and administrative expenses for 2007 of $7,202,000.
In comparison, the Company estimates the one-time fees payable in
connection with the Offer will be a maximum of approximately $162,000, which
includes the Xxxx Street Partners' report, legal fees, Depositary fees, filing
fees, printing and mailing. The Company did not include the payment of the
purchase price for shares purchased in the Offer estimated to be $71,018.75 in
the comparison against the costs of complying with the SEC Reporting Obligations
because the expenditure of the purchase price for the shares will be made
directly to the Company's stockholders holding 100 or fewer shares and will
result in each share (on a pre-Offer basis) held by remaining stockholders
representing a greater ownership interest following the Offer.
The Company anticipates that, if the SEC Reporting Obligations are
terminated, it will continue to incur some costs associated with soliciting
proxies for purposes of its annual meeting as required under Virginia law, as
well as meeting other state corporate law requirements. However, these costs
should be significantly less than the direct and indirect costs of complying
with the SEC Reporting Obligations as described above.
The board of directors has periodically considered the cost to the Company
of continuing to file periodic reports with the SEC and complying with the proxy
and annual report requirements under the Exchange Act compared to the benefits
to the Company and its stockholders of continuing to operate as a public
company. Under the Company's particular circumstances, for the reasons discussed
below under "Lack of Capital from Public Sector", the board of directors has
determined that the benefits that the Company and its stockholders would
typically expect to derive from the Company's status as a public company are not
being realized and are not likely to be realized in the foreseeable future. As
discussed below under "Lack of Capital from Public Sector", benefits of being a
public company that are not likely to inure to the benefit of the Company
include raising capital in the public markets and using Common Stock for
acquisition purposes. As a result, in the event that the Company has fewer than
300 holders of record after the completion of the Offer, the board of directors
may decide that the elimination of the costs of complying with the Company's SEC
Reporting Obligations would outweigh the benefits of continuing to incur such
costs. In the event that the Company is able to terminate, and does terminate,
the SEC Reporting Obligations, the actual savings to be realized from
terminating the Company's SEC Reporting Obligations may be higher or lower than
such estimates.
Lack of Capital from Public Sector
The Company's circumstances are such that management believes that it is
not likely to be able to take advantage of the capital available through the
public markets. The Company's board of directors does not have any present
intention to raise capital through sales of the Company's securities in a public
offering or to acquire other business entities using the Company's Common Stock
as the consideration for such acquisition. The Company does not believe, as a
practical matter, that it will be able to build up or achieve an active market
for the Company's securities. Accordingly, the Company has not and is not likely
to make use of, or benefit from, the advantages generally associated with
operating as a public company.
During its regular meeting on March 7, 2007, the Company's board of
directors, after reviewing the current and future costs of remaining a public
corporation, approved the appointment of a committee of its independent members
to explore the possibility of taking the company private with the objective of
eliminating the costs associated with being a public company.
Effects
Effects of the Offer on Affiliated Stockholders
Except as provided below, the Offer will affect both affiliated and
unaffiliated stockholders of the Company who are not eligible to participate in
the offer in the same manner. As used in this Offer to Purchase, the term
"affiliated stockholder" means any stockholder who is a director or executive
officer of the Company or any other person who directly or indirectly through
one or more intermediaries controls, is controlled by, or is under common
control with the Company. "Affiliated stockholder" therefore includes the
directors and executive officers listed in "The Offer-Interests of Directors and
Executive Officers; Transactions and Arrangements Concerning the Shares." The
term "unaffiliated stockholder" means any stockholder other than an affiliated
stockholder. As none of the affiliated stockholders of the Company are eligible
to participate in the Offer, the effects of the Offer on each of the affiliated
stockholders will be the same. We expect that our executive officers and
directors will continue to beneficially own immediately after the Offer the
shares of Common Stock reported as beneficially owned by them below under "The
Offer-Interests of Directors and Executive Officers; Transactions and
Arrangements Concerning the Shares" on page 25.
Other potential effects of the Offer which are applicable to the affiliated
stockholders include the following:
* Reduced reporting requirements for officers and directors. If we
terminate the SEC Reporting Obligations, the directors, executive
officers and persons owning more than 10% of our outstanding shares of
Common Stock will no longer be subject to the reporting and
short-swing profit provisions under the Exchange Act with respect to
changes in their beneficial ownership of our Common Stock; and
* Share Ownership. The number of stockholders holding 100 shares or
fewer of the Company's Common Stock constitutes an estimated maximum
of 2.73% of the issued and outstanding shares of the Company's Common
Stock. If the Offer is fully subscribed, we believe it will not
materially impact the percentage of beneficial ownership of the
Company's Common Stock held by other stockholders. As of May 7, 2008,
the directors and executive officers of the Company beneficially owned
in the aggregate approximately 57% of the Company's combined voting
power. Following a fully subscribed Offer, they would own in the
aggregate approximately 57%.
Effects of the Offer on Unaffiliated Stockholders
The effects of the Offer on unaffiliated stockholders will vary depending
on whether or not the unaffiliated stockholder is eligible to participate in the
Offer and chooses to tender his or her shares pursuant to the Offer. Eligible
and tendering unaffiliated stockholders will:
* receive $2.75 per share, net to the seller in cash, less any
applicable withholding taxes and without interest;
* after completion of the Offer, no longer have any equity interest in
the Company and therefore will not participate in its future potential
earnings or growth, if any, or bear the risk of any possible future
depreciation in value of that equity interest;
* be required to pay federal and, if applicable, state and local income
taxes on the cash received in the Offer; and
* be able to sell their shares directly to the Company without paying
brokerage commissions; transaction costs may be applicable, however,
if the shares are tendered through a broker, bank or other
institution.
Potential effects on unaffiliated stockholders who remain stockholders after
the Offer include the following:
* Decreased Access to Information. If the Offer results in reducing the
number of stockholders by the required amount, we may terminate the
registration of our Common Stock under the Exchange Act. As a result,
the Company would no longer be subject to the SEC Reporting
Obligations. Similarly, executive officers, directors and other
affiliates would no longer be subject to many of the reporting
requirements and restrictions of the Exchange Act, including Section
13, Section 14 and Section 16 of the Exchange Act.
* Continued Lack of Liquidity. If the Offer results in reducing the
number of stockholders by the required amount, we may terminate the
registration of our Common Stock under the Exchange Act. If this
occurs, the liquidity of the shares of Common Stock held by
unaffiliated stockholders may not be increased by the termination of
the registration of the Common Stock under the Exchange Act. Future
trading in our Common Stock after the Offer, if we deregister our
Common Stock under the Exchange Act, may continue to occur in the Pink
Sheets or in privately negotiated sales. No active trading market is
expected to develop in our Common Stock for the foreseeable future.
* Book value per share. If the Offer is fully subscribed, neither the
book value per share of Common Stock nor earnings per share will be
materially affected.
* Share Ownership. If the Offer is fully subscribed, we expect that the
percentage of beneficial ownership of the Company's Common Stock held
by affiliated stockholders will increase by less than 1.0%.
Effects of the Offer on the Company
The Offer is expected to reduce the number of the Company's stockholders
and the number of the Company's outstanding shares of Common Stock. The
Company's Certificate of Incorporation currently authorizes the issuance of
10,000,000 shares of Common Stock, $0.10 par value. As of May 7, 2008, 3,690,029
shares of the Company's Common Stock were outstanding. Shares purchased by the
Company in the Offer will become unissued shares. If the Offer is fully
subscribed, the Company believes that the Offer will reduce the number of
holders of record of the Company's Common Stock from 398 to approximately 161.
Based on the aggregate number of holders of the Company's Common Stock, the
Company estimates there were 237 holders of record owning 100 or fewer shares of
the Company's Common Stock, as of the Record Date. The Company also estimates
that an additional 000 xxxxxxx xxxxx xx xxxxxx name 100 shares or fewer of the
Company's Common Stock. Assuming all of these stockholders elect to participate
in the Offer, and the shares are properly tendered at the offer price of $2.75
per share, approximately $71,018.75 will be required to purchase such shares. We
expect that the maximum aggregate cost of these purchases (exclusive of the
foregoing purchase price), including all fees and expenses applicable to the
Offer, will be approximately $162,000.
Our Common Stock is currently quoted on the "Pink Sheets." The Pink Sheets
is a centralized quotation service that collects and publishes market maker
quotes in real time, primarily through its website, xxxx://xxx.xxxxxxxxxx.xxx.
The Company intends for this source of liquidity to be available to the
Company's stockholders following the Offer.
The Company's Common Stock will continue to have the same par value
following the consummation of the Offer. In addition, each post-Offer share of
the Company's Common Stock will be entitled to one (1) vote per one (1) whole
share.
The Company has no current plans to issue Common Stock, but the Company
reserves the right to do so at any time and from time to time at such prices and
on such terms as the Company's board of directors determines to be in the
Company's best interests and the best interests of the Company's then
stockholders. The Company has no current plans or proposals to effect any
extraordinary corporate transaction such as a merger, reorganization or
liquidation, to change the Company's board of directors or management, to change
materially the Company's capitalization, or otherwise to effect any material
change in the Company's corporate structure or business.
The Company is undertaking the Offer at this time because, among other
reasons, the Company believes that it will save substantial costs associated
with having a significant number of small stockholders. In the event that the
Offer results in the Company having fewer than 300 stockholders of record, the
Company also may terminate the SEC Reporting Obligations, which it believes
would save substantial costs associated with compliance with the SEC Reporting
Obligations, particularly in light of the requirement to comply with Section
404(a) of the Xxxxxxxx-Xxxxx Act for the 2008 fiscal year and all of Section 404
for the 2009 fiscal year. However, the Company's cost- saving estimates may be
inaccurate, and the actual savings to be realized from reducing the number of
small stockholders and, if applicable, from terminating the Company's SEC
Reporting Obligations might be higher or lower than the Company's estimates.
Should the Offer not result in the Company having fewer than 300 holders of its
Common Stock, the Company will continue to operate as a public-reporting
company, subject to SEC Reporting Obligations and related expenses and may
reconsider other alternatives for deregistration.
Summary of Xxxx Street Partners' Report
Xxxx Street Partners was engaged by the Committee to provide the Committee
with valuation of the Company that the Committee could take into consideration
as it set a purchase price for the odd-lot tender offer. Xxxx Street Partners
was not engaged to provide either a fairness opinion or report on the share
price to be offered.
In its analysis, Xxxx Street Partners has, among other things:
* Reviewed certain business, financial and other information, including
financial forecasts, regarding the Company that was furnished to it by
members of the Company's management, and have discussed the business
and its prospects with the Company's management.
* Considered certain financial data related to the Company's business
and compared that data with similar data for publicly and privately
held companies in businesses similar to the Company.
* Considered the financial terms of certain other business combinations
and other transactions which have recently been effected, although it
notes that the number of transactions and the related financial data
for companies it considered to be comparable to the Company's
businesses was limited.
* Considered such other information, financial studies, analyses and
investigations as well as financial and economic and market criteria
that Xxxx Street Partners deemed relevant.
* Considered the Company's management estimates of potential market and
liquidation values of certain assets of the Company.
In connection with its review, Xxxx Street Partners:
* Relied upon the accuracy and completeness of the information provided
to it by the Company's management, and it did not assume any
responsibility for any independent verification of such information.
* With respect to financial forecasts for the Company provided to it by
the Company, assumed that the forecasts have been reasonably prepared
and reflect the best current estimates and judgments of the Company's
management as to the future financial performance of its business.
* Has discussed the financial projections with the Company's management,
but it assumed no responsibility for and expressed no view as to the
financial projections or the assumptions upon which they are based.
* Are neither real estate appraisers nor equipment appraisers. As
such Xxxx Street Partners has relied solely upon valuation data
provided to it by the Company's management. For land and property
values, much of the information Xxxx Street Partners was supplied
relates to recent sales or offers on properties the Company's
management believes is similar to the relevant land or property.
There can no assurance that this data accurately reflects current
market conditions or valuations for the Company's land and property.
In connection with its analysis, Xxxx Street Partners made many
assumptions. The following lists some of the major assumptions it made:
* The Company has the ability to continue as a going concern and has
access to sufficient capital to fund the needs of the Company based
upon the projections and plans set forth by the Company's management.
* No impact of the current claim against the Company for work performed
on the Xxxxxxx Xxxxxx Bridge has been factored into its analysis. In
addition, there are no other costs incorporated in Xxxx Street
Partners' analysis for other potential legal exposures, collectability
of any accounts receivable or other similar items factored into its
analysis.
* The asset liquidation analysis contains many assumptions regarding the
Company's ability to realize value for its assets while winding down
Company operations in an orderly fashion. Xxxx Street Partners
estimated costs associated with this activity, but actual costs may
vary significantly from its estimates.
* The valuation exercise explores what the Company might potentially be
worth to shareholders if it chose to explore certain strategies. To
the extent that these strategies are not desired or feasible, these
values will not be achieved.
* Xxxx Street Partners estimated an additional discount to factor in
execution risk with pursuing the Hybrid/Greater Value strategy.
Due to the unique aspects of the Company's businesses and asset base, Xxxx
Street Partners analyzed the value of the Company in the following ways:
Ongoing Business Value Asset Liquidation Value Hybrid/Greater Value
-------------------------- ----------------------- --------------------
Overview - Values the Overview - Values the Overview - Values the
Company as if it continues Company as if the Company by taking the
to operate all of its Company were to wind greater of Ongoing
businesses in a down operations and Business Value or
consolidated manner. sell assets in an Asset Liquidation
orderly process. Value for each of its
operating businesses.
Assumes keeping some
businesses and
shutting others down.
Key Assumptions: Key Assumptions: Key Assumptions:
------------------------ ---------------------- --------------------
- Sufficient capital to - Access to sufficient Capital to have true
fund business capital to execute an orderly liquidation
- Execute on financial plan orderly liquidation process
provided by operating process
businesses
Key assumptions that are common across all three valuation methodologies include
the following:
* No impact of the claim against the Company for its work on the Xxxxxxx
Xxxxxx Bridge is modeled into the analysis.
* No impact of the costs of fully implementing the requirements of
Sarbanes Oxley is factored into the analysis.
* Utilization of net operating losses for tax purposes is not factored
into the analysis.
Valuation Summary
Ongoing Asset Liquidation Hybrid/Greater
Valuation Business Value Value Value
---------------- ---------------- ----------------- -----------------
Consolidated
Enterprise Value $7,872 - $13,947 $12,448 - $20,653 $20,070 - $31,115
Price Per Share $0.00 - $1.37 $0.97 - $3.17 $2.20 - $4.73
Factors Considered by the Board of Directors as to the Fairness of the Offer
The Committee has analyzed the Offer and its anticipated effects on the
Company's stockholders. In addition, the board of directors has analyzed the
Offer and its anticipated effects on the Company's stockholders. All of the
members of the Company's board of directors deemed the Offer to be substantively
and procedurally fair to, and in the best interests of, the Company's affiliated
and unaffiliated stockholders, whether or not such stockholders are eligible to
participate in the Offer. In reaching this conclusion, the board of directors
has considered, in the course of exploring strategic alternatives for the
Company, in no particular order and without preference, the following factors:
* Based upon the independent board members' analysis of the Xxxx Street
Partners' report, the Committee concluded that the $2.75 per share
offer price reflected a reasonable adjustment to the highest value in
the Xxxx Street Partners' report, the value utilizing the
Hybrid/Greater Value approach. The Hybrid/Greater Value approach
assumed that $3.8 million of funds would be available in the next two
years to finance the Company's move of two operating subsidiaries and
upgrade technology for both operations. The Committee concluded that
obtaining the necessary financing for implementing this strategy was
unlikely. The Hybrid/Greater Value approach also assumed that a sale
of some or all of the Company was feasible. Based on the Company's
past experience with investment bankers, the Committee had to discount
this approach as unlikely. Accordingly, the Committee discounted the
valuation reached by Xxxx Street Partners and the operating forecasts
on which it was based.
* The Committee discounted the value attributed to the Company's real
estate in the Hybrid/Greater Value approach because the report did not
account for well-publicized weaknesses in the real estate market since
the real estate was last appraised in 2006.
* In addition to the Xxxx Street Partners' report, the Committee also
considered that the Company's stock has traded at less than $2.44 per
share for over eighteen months. The Committee agreed that the offering
price should provide a reasonable premium over the recent and current
stock market price, consistent with reasonable valuations in the Xxxx
Street Partners' report.
* The Committee also noted that the $2.75 per share price also
approximates the average of the medium and high prices of the asset
liquidation values presented in the Xxxx Street Partners' report and
provides a premium of more than ___% over the current trading price of
the Company's stock.
* The Committee did not consider net book value, since it considered
that the Company's real estate holdings had a much greater value than
net book value. Using a net book value of the Company as of April 30,
2008, the net book value per share is $0.38.
* The Committee discussed the fact that the Xxxx Street Partners' Report
gave a going concern value in the range of $0 to $1.37 per share.
* The Committee discussed the liquidation value in the Xxxx Street
Partners' Report. The range of $0.97 to $3.17 per share was discounted
by the Committee because of the recent weakness in the real estate
market and the fact that a large portion of the value was attributed
to the Company's real estate holdings.
* The Committee discussed the fact that there were no recent offers by
any firms for any type of merger, sale of assets or tender offers and
that there was only one apparently serious potential buyer when the
Company attempted to sell the Xxxxxxxx Bridge subsidiary in 2006, and
that no firm offer resulted therefrom.
Substantive Factors Favoring the Offer
The Offer presents stockholders owning beneficially or of record 100 or
fewer shares of our Common Stock with the opportunity to dispose of their
holdings at a price greater than recent market prices. The Committee received a
report from an outside financial analyst, Xxxx Street Partners, a wealth
management and investment banking firm, regarding different valuations for the
Company to aid in determining the per share purchase price to be paid in the
Offer. Xxxx Street Partners provided to the Committee a price range for the
Company's stock based on several approaches to valuation, including an ongoing
business value, an asset liquidation value and a hybrid/greater value. Within
these sets of values, the financial analyst estimated a low and high range from
zero to $4.73 per share. Odd-lot tender holders may obtain a copy of Xxxx Street
Partners' report by written request to the Secretary at the address provided
herein. After detailed discussions with Xxxx Street Partners, both during Xxxx
Street Partners' initial engagement and when the draft report was presented, and
after further discussions of the Committee, the Committee concluded that a fair
price, in the circumstances and for the limited purpose of the odd-lot tender
discussed above, is $2.75 per share, a price equal to an average of the mid
points of the asset liquidation value and the hybrid/greater value amounts. In
addition to the report by Xxxx Street Partners, the Committee considered other
factors. The Committee reviewed the historic stock prices for the Company's
common stock as well as information regarding competitors and the Company's lack
of success with selling itself or parts of itself previously. On May 7, 2008,
the closing price for the Company's Common Stock was $1.58.
The purpose of the Offer is to reduce the number of stockholders who hold a
small number of shares and thereby relieve the Company of the administrative
burden of having a significant number of holders of a small number of shares. If
the Offer results in the Company having fewer than 300 stockholders of record,
the Company will consider terminating its SEC Reporting Obligations and
continuing operations in the future as a non- reporting company.
It should, however, be noted that, as a result of the Offer, the major
stockholders of the Company will slightly increase their ownership interest in
the Company following the Offer. See "Procedural Factors Disfavoring the Offer
and Interests of the Company's Directors and Executive Officers in the Offer."
Procedural Factors Favoring the Offer
The Offer is available to all Odd-Lot Holders. The Offer will be applied
equally to all stockholders of the Company owning of record or beneficially 100
or fewer shares, whether affiliated or unaffiliated stockholders. No director or
officer of the Company is eligible to participate in the Offer.
The Offer provides the Company's Odd-Lot Holders with liquidity. The Offer
provides the Company's stockholders owning beneficially or of record 100 or
fewer shares of Common Stock with liquidity. The average daily trading volume
for the Company's Common Stock over the last three months was approximately 600
shares per day, which renders the Common Stock illiquid by most standards. The
Offer will provide stockholders who hold 100 or fewer shares the opportunity to
liquidate their investment in the Company.
It should be noted that the Company does not currently satisfy the listing
standards for the New York Stock Exchange or NASDAQ. The Company's Common Stock
trades on the over the counter markets under the symbol ("XXXX.XX"), and as
discussed elsewhere is currently quoted on the "Pink Sheets," a centralized
quotation service. The Company's limited operations are such that it does not
believe it will be able to attract analyst coverage or significant investor
interest, and it therefore does not believe that attempts to qualify for listing
on a national securities exchange would be beneficial to stockholders.
In addition, eligible stockholders who directly tender their shares to the
Company will avoid brokerage commissions that would otherwise be incurred if the
shares were sold in an open market transaction.
The Offer is voluntary; eligible stockholders are not required to tender
their shares. Current holders of 100 or fewer shares of the Company's Common
Stock may elect not to tender and instead to remain stockholders of the Company.
Also, as noted above, as a result of the Offer, the stockholders who own 101 or
more shares and odd-lot holders who do not tender their shares will increase
their percentage ownership interest in the Company as a result of the Offer. The
Company's board of directors and a special committee of its independent members
consider the structure of the Offer to be fair to all eligible stockholders
because it allows the holders to control the decision of whether to remain a
stockholder of the Company following the Offer or to receive the purchase price
offered in connection with the Offer.
There will not be a complete loss of a public market for the Company's
Common Stock resulting from the Offer for unaffiliated stockholders who elect to
remain stockholders of the Company, since the Company anticipates that its
Common Stock will continue to be quoted on the "Pink Sheets."
The unaffiliated stockholders who own 100 shares or fewer and elect not to
tender their shares in the Offer will continue to own a small percentage of the
Company in comparison to the dominant majority of ownership interest in the
Company held by the affiliated stockholders and existing large stockholders
after the Offer. However, because the affiliated stockholders and existing large
stockholders currently own a very significant ownership interest in the Company,
any increase in ownership percentage by the affiliated stockholders and existing
large stockholders resulting from the Offer will not have a material impact on
the ability of affiliated stockholders and existing large stockholders to
control the Company or the inability of the unaffiliated stockholders to control
the Company after the Offer. Finally, the unaffiliated stockholders owning 100
shares or fewer who elect to remain stockholders of the Company will have no
guarantee of dividends in the future. Therefore, the Company believes that,
because the adverse effect on the liquidity of the Company's Common Stock and
minority position of unaffiliated stockholders will likely not be material,
providing the opportunity for stockholders to remain stockholders after the
Offer was a procedural factor favoring the Offer. Furthermore, since the lack of
interest in the Company's Common Stock makes it more difficult for stockholders
to sell their shares, providing a mechanism for stockholders who own 100 shares
or fewer to completely liquidate their ownership interest was a procedural
factor favoring an alternative such as the Offer.
No Unusual Conditions to the Offer. The board of directors also considered
the likelihood that the Offer would be implemented. In this regard, it took into
consideration that there are no unusual requirements or conditions to the Offer,
and the fact that the Company has the financial resources to implement the Offer
expeditiously.
Substantive Factors Disfavoring the Offer
Neither the Company, the Committee, nor the Board of Directors received a
fairness opinion or report on the share price to be offered. As described above,
the Committee determined the purchase price in the Offer taking into
consideration a report provided by an outside financial analyst from Xxxx Street
Partners. However, this report is neither a fairness opinion nor report on the
share price to be offered. The Committee formulated the price based on numerous
factors, which included the report by Xxxx Street Partners. After detailed
discussions with Xxxx Street Partners, the Committee concluded and recommended
to the board of directors that a fair price, in the circumstances and for the
limited purpose of the odd-lot tender, is $2.75 per share. This purchase price
is equal to an average of the mid points of the financial analyst's asset
liquidation value and the hybrid/greater value amounts. The foregoing
notwithstanding, neither the Company nor its board of directors, including the
Committee, received any opinions or reports from outside financial advisors
regarding the fairness from a financial point of view, or otherwise, to our
eligible stockholders because the Offer is voluntary for only a limited number
of odd-lot shares. The board of directors relied on the analysis of the
Committee in approving the Offer. Any stockholder that does not view the price
to be adequate will not be required to participate.
Cessation of Public Sale Opportunities. Following the Offer, the Company
may apply for the termination of its SEC Reporting Obligations if it is eligible
to do so. As a result, it is possible that the public market for shares of the
Company's Common Stock could be substantially less active, particularly due to
the possible lack of publicly-available information, which is described below in
"Cessation of Publicly Available Information." The Company intends for its
Common Stock to continue to be quoted on the Pink Sheets. Additionally, the
Company does not have any present intention or plans to sell the Company or
enter into any other transaction that would provide liquidity for the shares.
The current public market is highly illiquid. Since, as a practical matter,
for several years, there has existed very little liquidity for the Company's
Common Stock, the Company believes that, if the Company has fewer than 300
stockholders of record and terminates it SEC Reporting Obligations,
deregistering would have little effect on unaffiliated stockholders and would be
outweighed by the benefits of terminating the Company's SEC Reporting
Obligations.
Cessation of Publicly Available Information. If the Company were to
terminate its SEC Reporting Obligations, the Company would no longer file, among
other things, annual or quarterly reports with the SEC. In addition, the
Company, its executives and its directors would no longer be subject to Section
13, Section 14 and Section 16 of the Exchange Act. Information regarding the
Company's business, results of operations and financial condition that is
currently available to the general public and the Company's investors would not
be available if the Company were to terminate the registration of the Company's
securities and the Company's SEC Reporting Obligations. As a result of
termination of the Company's SEC Reporting Obligations, the remaining
stockholders after the Offer would not receive the benefit of the protections
provided to stockholders of a company subject to SEC Reporting Obligations,
including, but not limited to, certain corporate governance, reporting, and
management certifications required under the Xxxxxxxx-Xxxxx Act of 2002 and
disclosure and liability applicable to reports and statements made pursuant to
the requirements of the Exchange Act. If Company were to terminate its SEC
Reporting Obligations, it would continue to report to its stockholders in
accordance with Virginia law. The Company would continue to hold annual meetings
of stockholders as required under Virginia law and in conjunction with such
meetings distribute proxy materials and an annual report that are similar to,
but likely not as extensive as, those that would be required if the Company
remained subject to the SEC Reporting Obligations. Under Virginia law, the
Company is not required to mail or otherwise distribute quarterly or annual
reports to stockholders. However, the Company presently intends that, should its
SEC Reporting Obligations cease, it would report its quarterly and annual
financial results through its web site. The board of directors does not believe
that this factor makes a transaction involving a termination of the Company's
SEC Reporting Obligations unfair to unaffiliated stockholders because any
detriment to unaffiliated stockholders that may result from the termination of
the registration of the Company's securities and the Company's periodic filings
would be offset by the anticipated cost-saving benefits to the Company of no
longer being required to publicly file such reports.
Inability to participate in any future increase in the value of the
Company's Common Stock. Eligible stockholders who tender their shares in the
Offer will have no further interest in the Company, and thus will not have the
opportunity to participate in the potential upside of any increase in the value
of such shares. The board of directors does not consider this factor unfavorable
to unaffiliated eligible stockholders because those unaffiliated eligible
stockholders who desire to continue to hold shares of the Company's Common Stock
after the Offer can do so by electing not to tender.
Procedural Factors Disfavoring the Offer and Interests of the
Company's Directors and Executive Officers in the Offer
Among the factors weighing against the procedural fairness of the Offer is
the fact that approval of the majority of unaffiliated stockholders will not be
required, that the applicable laws do not provide for appraisal rights to
stockholders of the Company, and that the Committee did not engage an
unaffiliated representative to act solely on behalf of unaffiliated stockholders
for the purposes of negotiating the terms of the Offer, although the independent
committee did receive a report from Xxxx Street Partners regarding different
valuations for the Company.
However, even though it was not required, the board of directors and the
Committee unanimously approved the Offer. As described above, the Committee
determined the purchase price in the Offer taking into consideration a report
provided by outside financial analysts from Xxxx Street Partners. After detailed
discussions with Xxxx Street Partners, the Committee concluded and recommended
to the board of directors that a fair price, in the circumstances and for the
limited purpose of the odd-lot tender discussed above, is $2.75 per share.
Although there is no party to negotiate on behalf of the unaffiliated eligible
stockholders, the board of directors is tasked with determining a fair price to
offer all eligible stockholders and, considering that the maximum number of
shares eligible for tender in the Offer is equal to less than 2.73% of the
outstanding Common Stock, the board of directors, which includes individuals
with years of investment experience and experience assessing strategic
alternatives for the Company, did not deem the expense of motivating an
unaffiliated eligible stockholder to negotiate the price or represent solely the
interest of the unaffiliated eligible stockholders to be practical. Finally, the
Company believes that the board of directors' long- standing familiarity with
the Company, the Company's unique history and financial condition, and the
Company's prospects make the time and expense of negotiating with an independent
representative unnecessary.
Furthermore, the applicable laws of the Commonwealth of Virginia, the
jurisdiction under which the Company is incorporated, do not provide for
appraisal rights for the fair value of the shares of Common Stock of the Company
for stockholders who do tender their shares in the Offer.
Despite the fact that the Offer has not been structured to require an
approval of a majority of unaffiliated stockholders for the reasons discussed
above or provide for appraisal rights, the board of directors believes that,
because (1) the consideration to be paid for each share of Common Stock of the
Company will be the same in the Offer irrespective of whether such shares are
held by affiliated or unaffiliated eligible stockholders and (2) affiliated
stockholders are not eligible to participate in the Offer, such factors favor
the procedural fairness to unaffiliated stockholders and sufficiently protect
the rights of the unaffiliated stockholders of the Company in the Offer.
The Offer was approved unanimously by a the Committee and by our board of
directors, including all of the board of directors who are not Company
employees, on April 30, 2008. In addition, the Committee and the board of
directors obtained an unaffiliated representative to prepare a report relating
to the value of the Company, but not to the fairness of the consideration, to be
offered pursuant to the Offer. The board of directors has determined that the
engagement of an unaffiliated stockholder representative on behalf of
unaffiliated stockholders to not be necessary, practical or advisable and to
constitute an unnecessary expense in light of the very small size of the
strategic transactions contemplated by the Company, including the Offer.
Furthermore, the Offer is voluntary and the purchase price offered represents a
premium over the current market price on the record date and will be less costly
to tendering record stockholders than ordinary open market sales because of the
absence of brokerage commissions.
Also, stockholders, including those ineligible to participate in the Offer,
have been notified of the Offer and the implications of the transaction on them
by receipt of a copy of this Offer to Purchase and have the opportunity to sell
their shares before or after completion of the Offer.
The Company's directors and officers are not eligible to participate in the
Offer because each either holds more than 100 or no shares of the Common Stock.
As a result of the Offer, the stockholders who own more than 100 shares of
Common Stock as of the date of this Offer to Purchase, such as certain of the
Company's executive officers and directors, will slightly increase their
percentage ownership interest in the Company. However, because such increases
will be minimal and because ownership of the majority of the Company's shares is
highly concentrated, any increase in ownership percentage by the affiliated
stockholders resulting from the Offer will not have a material impact on the
ability of affiliated stockholders to control the Company or the inability of
the unaffiliated stockholders to control the Company. Therefore, the board of
directors has determined the equal treatment of holders (in this case the fact
that the per share consideration to be paid in the Offer will be the same for
every eligible stockholder) to be a more material factor than any slight
increase in the ownership of the Company by the affiliated stockholders and the
already concentrated ownership of the Company by its large stockholders.
Fairness of the Offer
The board of directors of the Company and a special committee of its
independent members have unanimously approved the Offer and declared it
advisable, in the best interests of, and substantively and procedurally fair to,
the Company's unaffiliated stockholders, whether or not they are eligible to
participate. The board of directors relied on the analysis of the Committee in
approving the Offer
Neither we nor any member of our board of directors, the Secretary or the
Depositary makes any recommendation to you as to whether you should tender or
refrain from tendering your shares. Neither we nor any member of our board of
directors, the Secretary or the Depositary has authorized any person to make any
recommendation with respect to the Offer. You must make your own decision as to
whether to tender your shares. In doing so, you should consult your own
investment and tax advisors, and read carefully and evaluate the information in
this Offer to purchase and in the related Letter of Transmittal, including our
reasons for making the Offer.
THE OFFER
1. General.
Upon the terms and subject to the conditions of the Offer, we are offering
to purchase all shares of our Common Stock held by stockholders who own of
record or beneficially 100 or fewer shares of our Common Stock as of the close
of business on May 7, 2008, the Record Date. Properly tendered shares by these
odd-lot stockholders will be purchased at a price of $2.75 per share net to the
seller in cash, less any applicable withholding taxes and without interest. The
purchase price for the Offer was determined by a special committee of the
independent members of the board of directors and approved by the entire board
of directors. Payment for properly tendered shares will be made promptly upon
the expiration of the Offer.
You may participate in the Offer and tender your shares only if you are
* the owner of record of 100 or fewer shares of the Company's Common
Stock on the Record Date; or
* the beneficial owner of 100 or fewer shares of the Company's Common
Stock held in "street name" on the Record Date; these shares will
often be held in a brokerage account maintained by you.
Participation in the Offer is voluntary. You may choose to continue to hold
your shares and retain your rights as a stockholder. If you are a holder of 100
or fewer shares of our Common Stock and you elect to accept this Offer, however,
you must tender all of your shares of Common Stock. Only shares properly
tendered will be purchased.
The Offer is not conditioned on any minimum number of shares being
tendered. We will not accept any alternative, conditional or contingent tenders.
Any tender of shares by any eligible stockholder must be for all shares of the
Company's Common Stock owned by such stockholder. We reserve the right in our
discretion to reject any improper tender. If we fail at any time to exercise our
rights, it shall not constitute a waiver of those rights.
The term "expiration date" means 5:00 P.M., New York City time, on
[_______________________], unless and until we, in our sole discretion, shall
have extended the period of time during which the Offer will remain open, in
which event the term "expiration date" shall refer to the latest time and date
at which the Offer, as so extended by us, shall expire. See Section 14 for a
description of our right to extend, delay, terminate or amend the Offer.
This Offer to Purchase and the related Letter of Transmittal will be mailed
to record holders of the shares and will be furnished to brokers, dealers,
commercial banks, trust companies and other nominees and similar persons whose
names, or the names of whose nominees, appear on our stockholder list or, if
applicable, who are listed as participants in a clearing agency's security
position listing for subsequent transmittal to beneficial owners of shares.
2. Purpose of the Offer; Certain Effects of the Offer.
The Company seeks to reduce the administrative burden associated with
having a significant number of holders of a small number of shares. The Offer
also may result in the Company having fewer than 300 holders of record of its
Common Stock, which would enable the Company to terminate its SEC Reporting
Obligations and continue future operations as a non-reporting company, thereby
relieving the Company of the costs and administrative burdens associated with
operating as a company subject to SEC Reporting Obligations.
See "Special Factors."
Our board of directors, including a special committee of the independent
members of the board of directors, has approved the Offer. However, neither we
nor any member of our board of directors, the Secretary or the Depositary makes
any recommendation to you as to whether you should tender or refrain from
tendering your shares. You must make your own decision as to whether to tender
your shares.
Shares we acquire pursuant to the Offer will become unissued shares.
Except as otherwise disclosed in this Offer to Purchase, we currently have
no plans, proposals or negotiations that relate to or would result in:
* any extraordinary transaction, such as a merger, reorganization or
liquidation, involving us or any of our subsidiaries;
* any purchase, sale or transfer of an amount of our assets or any of
our subsidiaries' assets which is material to us and our subsidiaries,
taken as a whole;
* any material change in our present board of directors or management or
any plans or proposals to change the number or the terms of directors
(although we may fill the existing vacancy and any other vacancies
arising on the board of directors) or to change any material term of
the employment contract of any executive officer;
* any material change in our present dividend rate or policy, our
indebtedness or capitalization, corporate structure or business;
* the termination or suspension of our obligation to file reports under
Sections 13(a) or 15(d) of the Exchange Act;
* the acquisition or disposition by any person of our securities; or
* any changes in our charter, bylaws or other governing instruments or
other actions that could impede the acquisition of control of us.
Nothing in this Offer will preclude us from pursuing, developing or engaging in
future plans, proposals or negotiations that relate to or would result in one or
more of the foregoing events, subject to applicable law.
3. Procedures for Tendering Shares.
Proper Tender of Shares. For shares to be tendered pursuant to the Offer,
the certificates for such shares (or confirmation of receipt of such shares
pursuant to the procedure for book-entry transfer set forth below), together
with a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile of the Letter of Transmittal) and any other documents required
by the Letter of Transmittal, must be received before 5:00 P.M., New York City
time, on [_____________________] by the Depositary at the address set forth on
the back cover of this Offer to Purchase.
Stockholders holding their shares through a broker, dealer, commercial
bank, trust company or other nominee must contact the nominee in order to tender
their shares. Stockholders who hold shares through nominees are urged to consult
their nominees to determine whether transaction costs may apply if stockholders
tender shares through the nominees and not directly to the Depositary.
Method of Delivery. Payment for shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of:
* one of (a) certificates for the shares or (b) a timely confirmation of
the book-entry transfer of the shares into the Depositary's account at
the Book-Entry Transfer Facility as described below;
* a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile of the Letter of Transmittal); and
* any other documents required by the Letter of Transmittal.
The method of delivery of all documents, including certificates for shares,
the Letter of Transmittal and any other required documents, is at the election
and risk of the tendering stockholder. If delivery is by mail, then registered
mail with return receipt requested, properly insured, is recommended. In all
cases, sufficient time should be allowed to ensure timely delivery.
All deliveries in connection with the Offer, including an Letter of
Transmittal and certificates for shares, must be made to the Depositary and not
to us, the Secretary or the Book-Entry Transfer Facility. ANY DOCUMENTS
DELIVERED TO US, THE SECRETARY OR THE BOOK-ENTRY TRANSFER FACILITY WILL NOT BE
FORWARDED TO THE DEPOSITARY AND WILL NOT BE DEEMED TO BE PROPERLY TENDERED.
Book-Entry Delivery. The Depositary will establish an account with respect
to the shares for purposes of the Offer at the Book-Entry Transfer Facility
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of the shares by means of a
book-entry transfer by causing the Book-Entry Transfer Facility to transfer
shares into the Depositary's account in accordance with the Book- Entry Transfer
Facility's procedures for transfer. Although delivery of shares may be effected
through a book-entry transfer into the Depositary's account at the Book-Entry
Transfer Facility, Book-Entry Transfer Facility participants must deliver a
properly completed and duly executed Letter of Transmittal and any other
required documents to the Depositary at one of its addresses set forth on the
back cover of this Offer to Purchase before the expiration date. Book-Entry
Transfer Facility participants may deliver an "Agent's Message" as a substitute
for a Letter of Transmittal. An "Agent's Message" is a message transmitted by
the Book-Entry Transfer Facility to, and received by, the Depositary, which
states that the Book-Entry Transfer Facility has received an express
acknowledgment from the participant in the Book-Entry Transfer Facility
tendering the shares that such participant has received and agrees to be bound
by the terms of the Letter of Transmittal and that we may enforce such agreement
against the participant. Delivery of the Letter of Transmittal and any other
required documents to the Book-Entry Transfer Facility does not constitute
delivery to the Depositary.
Return of Unpurchased Shares. If any tendered shares are not purchased
under the Offer, we will return certificates for unpurchased shares promptly
after the expiration or termination of the Offer or, in the case of shares
tendered by book-entry transfer at the Book-Entry Transfer Facility, the shares
will be credited to the appropriate account maintained by the tendering
stockholder at the Book-Entry Transfer Facility, in each case without expense to
the stockholder.
Determination of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the number of shares
to be accepted, the purchase price to be paid for shares to be accepted and the
validity, form, eligibility (including time of receipt) and acceptance for
payment of any tender of shares will be determined by us, in our sole
discretion, and our determination will be final and binding on all parties. We
reserve the absolute right to reject any or all tenders of any shares that we
determine are not in proper form or the acceptance for payment of or payment for
which may, in the opinion of our counsel, be unlawful. We also reserve the
absolute right to waive any of the conditions of the Offer on or prior to the
expiration date, or any defect or irregularity in any tender with respect to any
particular shares or any particular stockholder (whether or not we waive similar
defects or irregularities in the case of other stockholders), and our
interpretation of the terms of the Offer will be final and binding on all
parties. In the event a condition is waived with respect to any particular
stockholder, the same condition will be waived with respect to all stockholders.
No tender of shares will be deemed to have been properly made until all defects
or irregularities have been cured by the tendering stockholder or waived by us.
We will not be liable for failure to waive any condition of the Offer, or any
defect or irregularity in any tender of shares. Neither we nor the Depositary,
the Secretary or any other person will be obligated to give notice of any
defects or irregularities in tenders, nor will any of the foregoing incur any
liability for failure to give any such notification.
Tendering Stockholder's Representation and Warranty; Our Acceptance
Constitutes an Agreement. A tender of our Common Stock in accordance with the
procedures described above will constitute the tendering stockholder's
acceptance of the terms and conditions of the Offer. Our acceptance for payment
of Common Stock tendered pursuant to the Offer will constitute a binding
agreement between the tendering stockholder and us on the terms and subject to
the conditions of the Offer.
Each stockholder that validly tenders shares pursuant to the Offer shall be
deemed to have represented, warranted and agreed that:
* Such stockholder has full power and authority to tender, sell, assign
and transfer the shares and, when the same are accepted for payment,
the Company will acquire good title thereto, free and clear of all
liens, security interests, restrictions, charges, claims,
encumbrances, conditional sales agreements or other similar
obligations relating to the sale or transfer of the shares, and the
same will not be subject to any adverse claim or right;
* Such stockholder will, upon request by the Depositary or us, execute
any additional documents deemed by the Depositary or us to be
necessary or desirable to complete the sale, assignment and transfer
of the shares (and any and all such other shares or other securities
or rights), all in accordance with the terms of the Offer; and
* All authority conferred or agreed to be conferred pursuant to the
Letter of Transmittal shall be binding on the successors, assigns,
heirs, personal representatives, executors, administrators and other
legal representatives of such stockholder and shall not be affected
by, and shall survive, the death or incapacity of the stockholder.
Lost or Destroyed Certificates. Stockholders whose certificates for part or
all of their shares have been lost, destroyed or stolen may participate in the
Offer. If an Letter of Transmittal is received without share certificate(s)
representing the shares being tendered, the certificate(s) will be considered
lost, and the tendering stockholder's signature on the Letter of Transmittal
will acknowledge agreement with the terms of the Offer and the Statement for
Lost Stock Certificate(s) included in the Letter of Transmittal. An insurance
bonding and filing fee of three percent (3%) of the value of the lost stock
certificate(s) to secure against the risk that the certificates may be
subsequently recirculated will be deducted from the payment for the tendered
shares. Questions regarding lost stock certificates may be directed to the
Secretary at (000) 000-0000.
Backup Withholding.
Under the U.S. federal income tax laws, payments to a tendering stockholder
may be subject to "backup withholding" at the applicable statutory rate
(currently 28%), unless a tendering stockholder:
* provides a correct taxpayer identification number (which, for an
individual stockholder, is the stockholder's social security number)
and any other required information; or
* is an exempt recipient and, when required, demonstrates this fact and
otherwise complies with applicable requirements of the backup
withholding rules.
A stockholder that does not provide a correct taxpayer identification
number may be subject to penalties imposed by the Internal Revenue Service (the
"IRS"). To prevent backup withholding on cash payable under the Offer, each
stockholder who has not previously provided the Depositary with his or her
correct taxpayer identification number and certified that he or she is not
subject to backup withholding should do so by completing an IRS Form W-9, a copy
of which may be obtained from the Depositary, and submitting such form to the
Depositary. Non-U.S. Holders should complete and sign the appropriate IRS Form
W-8, a copy of which may be obtained from the Depositary, to avoid backup
withholding. See Section 13 and Instruction 10 to the Letter of Transmittal.
Backup withholding is not an additional tax. Taxpayers may use amounts
withheld as a credit against their U.S. federal income tax liability or may
claim a refund of such amounts if they timely provide certain required
information to the IRS. See Section 13 on page 28.
4. No Withdrawal Rights.
Tenders of shares pursuant to the Offer are irrevocable. If we extend the
Offer, are delayed in our purchase of shares or are unable to purchase shares
pursuant to the Offer for any reason, then, without prejudice to our rights
under the Offer, the Depositary may, subject to applicable law, retain tendered
shares on our behalf, and the shares may not be withdrawn.
5. Purchase of Shares and Payment of Purchase Price.
On the terms and subject to the conditions of the Offer, promptly following
the expiration date, we will accept for payment and pay for (and thereby
purchase) shares properly tendered prior to the expiration date. We expect the
proceeds checks to be mailed approximately ten business days after the
expiration date of the Offer.
For purposes of the Offer, we will be deemed to have accepted for payment
(and therefore purchased) shares that are properly tendered only when, as and if
we give oral or written notice to the Depositary of our acceptance of the shares
for payment pursuant to the Offer. All tendering eligible stockholders, by
executing the Letter of Transmittal, waive any right to receive notice of the
acceptance for payment of their shares.
On the terms and subject to the conditions of the Offer, promptly after the
expiration date, we will accept for purchase and pay the per share purchase
price for all of the shares accepted for payment in accordance with the Offer.
In all cases, payment for shares tendered and accepted for payment in accordance
with the Offer will be made promptly, but only after timely receipt by the
Depositary of:
* certificates for shares or a timely confirmation of a book-entry
transfer of shares into the Depositary's account at the Book-Entry
Transfer Facility;
* a properly completed and duly executed Letter of Transmittal; and
* any other documents required by the Letter of Transmittal.
We will pay for shares purchased pursuant to the Offer by depositing the
aggregate purchase price for the shares with the Depositary, which will act as
agent for tendering stockholders for the purpose of receiving payment from us
and transmitting payment to the tendering stockholders. Certificates for all
shares tendered and not purchased will be returned, or, in the case of shares
tendered by book-entry transfer, will be credited to the account maintained with
the Book-Entry Transfer Facility by the participant who delivered the shares, to
the tendering stockholder promptly after the expiration or termination of the
Offer at our expense.
Under no circumstances will interest be paid on the Purchase Price for the
shares, regardless of any delay in making payment.
6. Conditional Tender of Shares.
We will not accept any alternative, conditional or contingent tenders.
7. Conditions of the Offer.
The Offer is not conditioned on any minimum number of shares being
tendered; the Offer is, however, contingent as to each eligible stockholder,
such stockholder's proper tender of all of the shares of Common Stock held
either beneficially or of record by such stockholder. Any tender of shares by
any eligible stockholder must be for all shares of the Company's Common Stock
owned by such stockholder. We reserve the right in our discretion to reject any
improper tender. If we fail at any time to exercise our rights, it shall not
constitute a waiver of those rights. Notwithstanding any other provision of the
Offer, we will not be required to accept for payment, purchase or pay for any
shares tendered, and may terminate or amend the Offer or may postpone the
acceptance for payment of or the payment for shares tendered, subject to
applicable law.
8. Price Range of Shares; Dividends.
The Company's Common Stock trades on the over the counter markets under the
symbol ("XXXX.XX"), and is currently quoted on the "Pink Sheets," a centralized
quotation service. The following table sets forth the high and low sales prices
for the periods indicated, as obtained from market makers in the Company's
stock.
5/01/06 8/01/06 11/01/06 2/01/07 5/01/07 8/01/07 11/01/07 2/01/08
7/31/06 10/31/06 1/31/07 4/30/07 7/31/07 10/31/07 1/31/08 4/30/08
------- -------- -------- ------- ------- ------- -------- -------
$2.55 $2.49 $2.40 $2.38 $2.23 $2.40 $2.30 $2.29
$1.98 $2.13 $2.05 $2.01 $2.12 $2.05 $2.07 $1.60
The prices shown reflect published prices, without retail mark-up, markdown, or
commissions and may not necessarily reflect actual transactions.
There were approximately 398 common stockholders of record as of May 7,
2008.
The Company paid no cash dividends during the fiscal years ended July 31,
2007 or 2006. Further, there are covenants in the Company's current credit
agreements that prohibit cash dividends without the lenders' permission. Subject
to lenders' approval, any future determination to pay cash dividends will be
made at the discretion of the board of directors of the Company, which
determines the Company's dividend policy based on its results of operations,
capital requirements and other factors that the board of directors deems
relevant.
On [____________________], the last full trading day before the
announcement and commencement of the Offer, the closing price of our Common
Stock was [$___________] per share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR OUR COMMON STOCK.
9. Source and Amount of Funds.
We estimate that, as of May 7, 2008, the record date for the Offer,
approximately 427 eligible stockholders may participate in the Offer. These
eligible stockholders own or have the right to acquire an estimated 25,825
issued and outstanding shares of our Common Stock. Assuming all of these
eligible stockholders elect to participate in the Offer, and the shares are
properly tendered at the offer price of $2.75 per share, approximately
$71,018.75 will be required to purchase such shares. We expect that the maximum
aggregate cost of these purchases, including all fees and expenses applicable to
the Offer, will be approximately 233,265.75. We will borrow an amount up to
$233,265.75, the maximum aggregate purchase price for the tendered shares and
fees and expenses, from Xxxxx X. Xxxxxxxx, Xx. at an interest rate of prime plus
one percent to purchase the tendered shares. The amount we borrow from Xxxxx X.
Xxxxxxxx, Xx. to purchase the tendered shares as well as fees and other expenses
related to the transaction are not expected to have any material adverse effect
on the Company's capitalization, liquidity, results of operations or cash flows.
The Company's cash and restricted cash, as of January 31, 2008 and July 31,
2007, were approximately $130,000 and $694,000, respectively.
10. Certain Information Concerning Us.
We are subject to the informational filing requirements of the Exchange Act
which obligates us to file reports, statements and other information with the
SEC relating to our business, financial condition and other matters.
Information, as of particular dates, concerning our directors and officers,
their remuneration, the principal holders of our securities and any material
interest of these persons in transactions with us, among other matters, are
required to be disclosed in proxy statements distributed to our stockholders and
filed with the SEC. As required by Exchange Act Rule 13e-3, we have also filed
with the SEC a Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3"),
which includes additional information relating to the Offer.
These reports, statements and other information can be inspected and copied
at the public reference facilities maintained by the SEC at 000 X Xxxxxx, X.X.,
Xxxxxxxxxx, X.X. 00000. Copies of this material may also be obtained by mail,
upon payment of the SEC's customary charges, from the Public Reference Section
of the SEC at 000 X Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000. The SEC also maintains
a web site on the Internet at xxxx://xxx.xxx.xxx that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC, including the Company's Schedule 13E-3 and
documents of the Company incorporated by reference. You may obtain information
about the Public Reference Room by calling the SEC for more information at
1-800-SEC-0330.
Incorporation by Reference. The rules of the SEC allow us to "incorporate
by reference" information into this document, which means that we can disclose
important information to you by referring you to another document filed
separately with the SEC. We hereby incorporate by reference each of the
following documents:
SEC FILINGS PERIOD OR DATE FILED
-------------------------------- -----------------------------------
Annual Report on Form 10-K Year ended July 31, 2007
Quarterly Reports on Form 10-Q Quarters ended
October 31, 2007, April 30, 2008 and
January 31, 2008
Current Reports on Form 8-K Filed on March
13, 2008, January 7, 2008 and
September 6, 2007.
Proxy Statement Filed on October 23, 2007
You can obtain any of the documents incorporated by reference in this
document from us or from the SEC's web site xxx.xxx.xxx. Documents incorporated
by reference are available from us without charge, excluding any exhibits to
those documents, at our principal executive offices located at 0000 X.X. Reading
Drive, Manassas, Virginia 20109 and our phone number is (000) 000-0000. Please
be sure to include your complete name and address in your request. If you
request any incorporated documents, we will mail them to you by first class
mail, or another equally prompt means, within one business day after we receive
your request.
Summary Financial Information
April 30, July 31,
2008 2007
--------- --------
ASSETS
CURRENT ASSETS
Cash and restricted cash $ 720 $ 694
Accounts receivable, net 14,535 13,988
Inventory 3,091 2,105
Costs and estimated earnings in excess of
xxxxxxxx on uncompleted contracts 2,226 2,602
Prepaid and other assets 887 787
-------- --------
Total current assets 21,459 20,176
-------- --------
PROPERTY AND EQUIPMENT, AT COST 21,448 22,010
Accumulated depreciation (14,711) (14,485)
-------- --------
Property and equipment, net 6,737 7,525
-------- --------
OTHER ASSETS 187 99
-------- --------
TOTAL ASSETS $ 28,383 $ 27,800
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of notes payable
Unaffiliated third parties $ 6,902 $ 5,907
Related parties 3,903 3,323
Accounts payable 7,168 6,831
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,842 1,308
Financing obligations resulting from
sale-leaseback transactions 264 314
Other liabilities 2,945 2,894
-------- --------
Total current liabilities 23,024 20,577
LONG-TERM LIABILITIES
Notes payable, less current portion
Unaffiliated third parties 164 403
Financing obligations resulting from
sale-leaseback transactions 3,806 3,957
-------- --------
Total Liabilities 26,994 24,937
-------- --------
MINORITY INTEREST 40 168
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock -3,669,442 and 3,666,850
shares issued and outstanding 367 366
Additional paid-in capital 16,643 16,638
Accumulated deficit (15,661) (14,309)
Total stockholders' equity 1,349 2,695
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,383 $ 27,800
======== ========
(Unaudited - in thousands except share data)
Three Months Ended Nine Months Ended
April 30, April 30,
----------------------- -----------------------
2007 2008 2007 2008
---------- ---------- ---------- ----------
REVENUE
Manufacturing $ 6,628 $ 6,953 $ 19,180 $ 19,805
Construction 2,845 4,457 9,516 10,923
Other 18 64 43 245
---------- ---------- ---------- ----------
Total revenue 9,491 11,474 28,739 30,973
---------- ---------- ---------- ----------
DIRECT COSTS
Manufacturing 4,442 4,889 12,570 14,389
Construction 1,815 3,552 6,788 8,057
---------- ---------- ---------- ----------
Total direct costs 6,257 8,441 19,358 22,446
---------- ---------- ---------- ----------
GROSS PROFIT 3,234 3,033 9,381 8,527
---------- ---------- ---------- ----------
GAIN ON LAND SALE -- -- -- 1,136
---------- ---------- ---------- ----------
EXPENSES
Overhead 1,235 1,142 3,668 3,502
General and administrative 1,860 1,872 5,129 5,440
Depreciation 330 366 1,038 1,136
Interest 262 305 871 738
---------- ---------- ---------- ----------
Total expenses 3,687 3,685 10,706 10,816
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST (453) (652) (1,325) (1,153)
INCOME TAX PROVISION -- -- -- --
---------- ---------- ---------- ----------
LOSS BEFORE MINORITY INTEREST (453) (652) (1,325) (1,153)
Minority interest (12) (8) (27) (18)
---------- ---------- ---------- ----------
NET LOSS $ (465) $ (660) $ (1,352) $ (1,171)
========== ========== ========== ==========
NET LOSS PER COMMON SHARE:
LOSS PER COMMON SHARE-BASIC $ (0.13) $ (0.18) $ (0.37) $ (0.32)
========== ========== ========== ==========
LOSS PER COMMON SHARE-DILUTED $ (0.13) $ (0.18) $ (0.37) $ (0.32)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING: BASIC AND DILUTED 3,666,879 3,662,783 3,666,859 3,659,810
---------- ---------- ---------- ----------
Fixed Charges to Earnings Ratio
Nine
Months Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
April 30, July 31, July 31, July 31, July 31, July 31,
In thousand dollars 2008 2007 2006 2005 2004 2003
--------- -------- -------- -------- -------- --------
Income (Loss) Before
minority interests (1,325) (2,300) 128 (12,180) (757) (921)
Fixed Charges 1,221 1,561 1,821 1,884 2,427 2,901
Total adjusted Earnings (104) (739) 1,949 (10,296) 1,670 1,980
======== ======== ======== ======== ======== ========
Ratio of Earnings
to Fixed charges (0.0852) (0.4734) 1.0703 (5.4650) 0.6881 0.6825
======== ======== ======== ======== ======== ========
Book Value:
The book value per share as of April 30, 2008 is $0.38.
Before making a decision to tender your shares, you should read the
financial information incorporated by reference into this Offer to Purchase in
their entirety. For information on how to obtain the financial information
incorporated by reference, see "Incorporation by Reference" on page 24.
Certain Transactions
Before making a decision to tender your shares, you should read the section
entitled "Certain Transactions" in the Company's Proxy Statement filed October
23, 2007, which is incorporated by reference into this Offer to Purchase in its
entirety. For information on how to obtain the information incorporated by
reference, see "Incorporation by Reference" on page 24.
11. Interests of Directors and Executive Officers; Transactions and
Arrangements Concerning the Shares.
Beneficial Ownership. A person is deemed to be a beneficial owner of the
Company's Common Stock if that person has voting and/or investment power with
respect to such Common Stock or has the right to acquire such Common Stock
within 60 days. The following table sets forth information regarding each person
known by the Company to beneficially own 5% or more of the outstanding shares of
Common Stock of the Company.
Number of Shares
Name and Address of Beneficial Owners of of Common Percent of
More Than 5% of the Common Stock of the Company Stock Common Stock
----------------------------------------------- ---------------- ------------
Xxxxx X. Xxxxxxxx, Xx. 1,916,789 (a) 51.9%
0000-X Xxxxxxxx Xxxx
Xxxxx Xxxxxx, Xxxxxxxx 00000
Xxxxx X. Xxxxxxxx, III 1,272,409 (b) 34.5%
Xxxxxxxx Industries, Incorporated
8624 X.X. Reading Drive
Manassas, Virginia 20109
----------
(a) Includes 176,879 shares owned by his wife, as to which Xx. Xxxxxxxx, Xx.
disclaims beneficial ownership; 826,456 owned or controlled by the Xxxxxxxx
Family Limited Partnership of which Xx. Xxxxxxxx, Xx. is the control person
and beneficial owner; 338,300 shares by Xxxxxxxx Enterprises of Georgia,
Inc., of which Xx. Xxxxxxxx Xx. is the control person as Chairman of the
Board and a beneficial owner (as are Xx. Xxxxx X. Xxxxxxxx, III, and X.
Xxxxxx Xxxxxxxx); 13,000 shares as trustee for minor grandchildren (as to
which Xx. Xxxxxxxx, Xx. disclaims beneficial ownership); and 50,100 shares
held by the Xxxxxxxx Family Foundation, a charitable organization exempt
under Section 501(c)(3) of the Internal Revenue Code of 1986 (as to which
Xx. Xxxxxxxx, Xx. disclaims beneficial ownership). The Foundation's purpose
is to use and apply its income and principal assets exclusively for
charitable, scientific, literary, and educational purposes. Xx. Xxxxxxxx,
Xx. is a trustee of the Foundation and votes the stock. The Xxxxxxxx Family
Limited Partnership has pledged 150,000 shares to a financial institution
to secure indebtedness of the Xxxxxxxx Family Limited Partnership and
Xxxxxxxx Enterprises of Georgia, Inc. has pledged 338,300 shares to a
financial institution to secure indebtedness of the Xxxxxxxx Enterprises of
Georgia, Inc. These pledges grant dispositive power to the lenders, who may
dispose of the shares without further consent of the owner in the event of
default on the underlying indebtedness. Includes options granted to
directors.
(b) Includes 826,456 shares owned or controlled by the Xxxxxxxx Family Limited
Partnership, duplicative of the shares listed for Xx. Xxxxxxxx, Xx., but
included here because Xx. Xxxxxxxx, III, has a beneficial interest in these
shares; 338,300 shares owned by Xxxxxxxx Enterprises of Georgia, Inc.,
duplicative of shares listed for Xx. Xxxxxxxx, Xx., but listed here because
Xx. Xxxxxxxx, III, has a beneficial interest; 344 shares owned by his wife
to which Xx. Xxxxxxxx, XXX, disclaims beneficial interest; and 3,000 shares
held in trust for his minor child. Xx. Xxxxxxxx, XXX, is also trustee of
the Xxxxxxxx Family Foundation, which holds 50,100 shares that are not
included in Xx. Xxxxxxxx XXX's total but are included in the shares
controlled by Xx. Xxxxxxxx, Xx. Includes options granted to directors. The
Xxxxxxxx Family Limited Partnership has pledged 150,000 shares to a
financial institution to secure indebtedness of the Xxxxxxxx Family Limited
Partnership and Xxxxxxxx Enterprises of Georgia, Inc. has pledged 338,300
shares to a financial institution to secure indebtedness of the Xxxxxxxx
Enterprises of Georgia, Inc. These pledges grant dispositive power to the
lenders, who may dispose of the shares without further consent of the owner
in the event of default on the underlying indebtedness. Includes options
granted to directors.
The following table sets forth information as of May 7, 2008 regarding the
beneficial ownership of shares of Common Stock by the current directors and
executive officers, and by all current directors and executive officers as a
group. The persons as to whom information is given in the table below have sole
voting and investment power over the shares beneficially owned by them, unless
otherwise noted in the footnotes following the table. Unless otherwise
indicated, the address of each of the persons identified in the table below is:
c/x Xxxxxxxx Industries, Incorporated, 8624 X.X. Reading Drive, Manassas,
Virginia 20109.
Percent of Common
Certain Beneficial Owners of Shares Number of Shares Stock
of Common Stock of the Company of Common Stock (*Less than 1%)
----------------------------------- ----------------- -----------------
Xxxxx X. Xxxxxxxx, Xx.
0000-X Xxxxxxxx Xxxx
Xxxxx Xxxxxx, Xxxxxxxx 00000 1,916,789 (a) 51.9%
Xxxxx X. Xxxxxxxx, III 1,272,409 (b) 34.5%
Xxxxxxx X. Xxxxxx 32,295 (c) *
Xxxxxxx X. Xxx 23,795 (d) *
Xxxx X. Xxxxxxx 8,149 (e) *
All Directors and Current Executive
Officers as a Group (10 Persons) 2,120,842 (f) 57.4%
----------
(a) Includes 176,879 shares owned by his wife, as to which Xx. Xxxxxxxx, Xx.
disclaims beneficial ownership; 826,456 owned or controlled by the Xxxxxxxx
Family Limited Partnership of which Xx. Xxxxxxxx, Xx. is the control person
and beneficial owner; 338,300 shares by Xxxxxxxx Enterprises of Georgia,
Inc., of which Xx. Xxxxxxxx Xx. is the control person as Chairman of the
Board and a beneficial owner (as are Xx. Xxxxx X. Xxxxxxxx, III, and X.
Xxxxxx Xxxxxxxx); 11,500 shares as trustee for minor grandchildren (as to
which Xx. Xxxxxxxx, Xx. disclaims beneficial ownership); and 50,100 shares
held by the Xxxxxxxx Family Foundation, a charitable organization exempt
under Section 501(c)(3) of the Internal Revenue Code of 1986 (as to which
Xx. Xxxxxxxx, Xx. disclaims beneficial ownership). The Foundation's purpose
is to use and apply its income and principal assets exclusively for
charitable, scientific, literary, and educational purposes. Xx. Xxxxxxxx,
Xx. is a trustee of the Foundation and votes the stock. The Xxxxxxxx Family
Limited Partnership has pledged 150,000 shares to a financial institution
to secure indebtedness of the Xxxxxxxx Family Limited Partnership and
Xxxxxxxx Enterprises of Georgia, Inc. has pledged 338,300 shares to a
financial institution to secure indebtedness of the Xxxxxxxx Enterprises of
Georgia, Inc. These pledges grant dispositive power to the lenders, who may
dispose of the shares without further consent of the owner in the event of
default on the underlying indebtedness. Includes options granted to
directors.
(b) Includes 826,456 shares owned or controlled by the Xxxxxxxx Family Limited
Partnership, duplicative of the shares listed for Xx. Xxxxxxxx, Xx., but
included here because Xx. Xxxxxxxx, III, has a beneficial interest in these
shares; 338,300 shares owned by Xxxxxxxx Enterprises of Georgia, Inc.,
duplicative of shares listed for Xx. Xxxxxxxx, Xx., but listed here because
Xx. Xxxxxxxx, III, has a beneficial interest; 344 shares owned by his wife
to which Xx. Xxxxxxxx, XXX, disclaims beneficial interest; and 3,000 shares
held in trust for his minor child. Xx. Xxxxxxxx, XXX, is also trustee of
the Xxxxxxxx Family Foundation, which holds 50,100 shares that are not
included in Xx. Xxxxxxxx XXX's total but are included in the shares
controlled by Xx. Xxxxxxxx, Xx. Includes options granted to directors. The
Xxxxxxxx Family Limited Partnership has pledged 150,000 shares to a
financial institution to secure indebtedness of the Xxxxxxxx Family Limited
Partnership and Xxxxxxxx Enterprises of Georgia, Inc. has pledged 338,300
shares to a financial institution to secure indebtedness of the Xxxxxxxx
Enterprises of Georgia, Inc. These pledges grant dispositive power to the
lenders, who may dispose of the shares without further consent of the owner
in the event of default on the underlying indebtedness. Includes options
granted to directors.
(c) Includes options granted to directors.
(d) Includes options granted to directors.
(e) Includes options granted to directors.
(f) Includes options granted to directors.
Biographical Information About our Directors and Executive Officers.
Xx. Xxxxx X. Xxxxxxxx, III has held the position of Chairman of the Board
and President since November 1994. On September 8, 1994, he was elected Chief
Financial Officer. He was elected as a vice president of the Corporation in
1991. For more than five years prior thereto he was an officer of various
Company subsidiaries and remains an officer and/or director of several
subsidiaries.
Xx. Xxxxx X. Xxxxxxxx, Xx., until November 1994, was the Chairman of the
Board and President of Xxxxxxxx Industries, Inc. He is a founder and Chairman of
Bosworth Steel Erectors, Inc., formerly known as the Xxxxxxxx and Xxxxxxx
Company; the Chairman of the Board of Xxxxxxxx Enterprises of Georgia, Inc.; and
the principal owner of Structural Concrete Products and Industrial Alloy
Fabricators, LLC; all organizations that are not otherwise affiliated with
Xxxxxxxx Industries, Inc. Xx. Xxxxxxxx, Xx. is also the Chairman of the Board of
Xxxxxx Group Holdings, a member of the board of Capital Bank, and a member of
the Regulatory Fairness Board of the U.S. Small Business Administration (SBA).
Xx. Xxxxxxx X. Xxxxxx is a principal with SAS advisors, an area consulting
firm, and Chairman of the Board of Capital Bank, N.A., Rockville, Maryland. Xx.
Xxxxxx serves on the advisory boards of: Prudent Capital, a mezzanine fund;
NextGen Capital, a venture capital fund; and Ategra Community Financial
Institutions, a hedge fund. He is active in a number of charitable and arts
organizations in the Washington, DC metropolitan area.
Xx. Xxxxxxx X. Xxx is founder, President and CEO of Midlothian Associates,
a specialty consulting firm in the utility and construction field. Prior to
founding Midlothian Mr. Xxx was Senior Vice President of Pepco Holdings, Inc.
(PHI), and also President and Chief Executive Officer of Potomac Electric Power
Company (Pepco) and Atlantic City Electric (ACE). PHI is a regional energy
holding company that provides utility service to nearly two million customers
and is the parent company of Pepco, an electric utility serving Washington, D.C.
and suburban Maryland; Delmarva Power, an electric and gas utility serving
Delaware and the rest of the Delmarva peninsula; and ACE, an electric utility
serving southern New Jersey. In his PHI position, Mr. Xxx was responsible for
utility operations across all PHI utilities. Mr. Xxx is also active in a number
of business and civic organizations, as well as being a registered professional
engineer.
Xx. Xxxx X. Xxxxxxx is a self-employed financial consultant, a position he
has held since June 2002. Prior to that time, he was a senior audit partner in
the international accounting firm of Deloitte & Touche. During his 39 years with
the firm, Xx. Xxxxxxx held a variety of positions including Partner-in-Charge of
Audit for the Washington, D.C. practice, Managing Partner for the Baltimore
practice and for several years prior to his retirement, was Deputy Professional
Practice Director for the Washington, D.C./Baltimore practice. He is presently
serving on the board of a privately held company, and serves on the finance
committee of Vital Voices Global Partnership, Inc., a nonprofit organization
supporting the economic and political advancement of women in developing
countries.
Except as otherwise described herein, neither we nor, to the best of our
knowledge, any of our affiliates, directors or executive officers, is a party to
any contract, agreement, arrangement, understanding or relationship with any
other person with respect to any of our securities.
12. Certain Legal Matters; Regulatory Approvals.
The Company is not aware of any material governmental or regulatory
approval required for completion of the Offer, other than compliance with the
applicable federal and state securities laws and the corporate laws of the
Commonwealth of Virginia. The Company is not aware of any license or regulatory
permit that is reasonably likely to be material to our business that might be
adversely affected by our acquisition of shares as contemplated in the Offer or
of any approval or other action by any governmental, administrative or
regulatory authority or agency, domestic, foreign or supranational, that would
be required to consummate the acquisition of shares in the Offer, other than
approvals, filings or notices required under federal and state securities laws.
13. Certain U.S. Federal Income Tax Consequences.
Treasury Department Circular 230 Notice: To ensure compliance with Circular
230, stockholders are hereby notified that: any discussion of federal tax issues
contained or referenced to in the Offer is not intended or written to be used,
and cannot be used, by stockholders for the purpose of avoiding penalties that
may be imposed on them under the Internal Revenue Code of 1986, as amended to
the date of the Offer (The "Code"); such discussion is written in connection
with the Offer; stockholders should seek advice based on their particular
circumstances from an independent tax advisor.
The following is a summary of certain U.S. federal income tax consequences
of the Offer to stockholders whose shares of our Common Stock are properly
tendered and accepted for payment pursuant to the Offer. Those stockholders who
do not participate in the Offer should not incur any U.S. federal income tax
liability from the exchange. This summary is based upon the Code, existing and
proposed U.S. Treasury Regulations promulgated under the Code, published
rulings, administrative pronouncements and judicial decisions, any changes to
which could affect the tax consequences described in this Offer to Purchase
(possibly on a retroactive basis). This summary addresses only shares of our
Common Stock held as capital assets. It does not address all of the tax
consequences that may be relevant to particular stockholders because of their
personal circumstances (including, without limitation, certain financial
institutions, brokers, dealers or traders in securities or commodities,
insurance companies, "S" corporations, partnerships (including entities treated
as partnerships for U.S. federal income tax purposes), expatriates, tax-exempt
organizations, tax-qualified retirement plans, persons who are subject to
alternative minimum tax, persons who hold shares of our Common Stock as a
position in a "straddle" or as part of a "hedging," "conversion" or "integrated"
transaction, or persons that have a functional currency other than the U.S.
dollar). This summary may not be applicable with respect to shares of our Common
Stock acquired as compensation, upon the exercise of stock options, under a
tax-qualified retirement plan or under our employee stock purchase plan. This
summary also does not address tax considerations arising under any state, local
or foreign laws, or under U.S. federal estate or gift tax laws.
In addition, if a partnership (including any entity treated as a
partnership for U.S. federal income tax purposes) is a stockholder, the tax
treatment of a partner in the partnership will generally depend upon the status
of the partner and the activities of the partnership. A stockholder that is a
partnership, and partners in such partnership, should consult their own tax
advisors regarding the tax consequences of participating in the Offer. You are
urged to consult your tax advisor as to the particular consequences to you of
participating in the Offer.
For purposes of this summary, a "U.S. Holder" is a beneficial owner of
shares of our Common Stock that for U.S. federal income tax purposes is:
* a citizen or resident of the United States;
* a corporation (or other entity taxable as a corporation for U.S.
federal income tax purposes) created or organized in or under the
laws of the United States or any state or the District of Columbia;
* an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or
* a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more U.S. persons has the authority to control all substantial
decisions of the trust, or certain other trusts considered U.S.
Holders for U.S. federal income tax purposes.
A "Non-U.S. Holder" is a beneficial owner of shares of our Common Stock
other than a U.S. Holder or a partnership for U.S. federal income tax
purposes.
Consequences of the Offer to U.S. Holders.
Characterization of the Purchase-Distribution vs. Sale Treatment. Our
purchase of shares of our Common Stock from a U.S. Holder pursuant to the
Offer will be a taxable transaction for U.S. federal income tax purposes. As
a consequence of any such purchase, a U.S. Holder will, depending on the U.S.
Xxxxxx's particular circumstances, be treated either as having sold the U.S.
Holder's shares of our Common Stock or as having received a distribution in
respect of such U.S. Holder's shares of our Common Stock.
The purchase of shares of our Common Stock pursuant to the Offer will be
treated as a sale for any U.S. Holder if, following such purchase, such holder
does not own any shares of our stock, either directly or as a result of the
constructive ownership rules of Section 318 of the Code. Under those rules, a
U.S. Holder is treated as owning not only shares of our Common Stock actually
owned by such holder but also shares of our Common Stock actually (and in some
cases constructively) owned by certain related entities and individuals. Under
the constructive ownership rules, a U.S. Holder will be considered to own shares
of our Common Stock owned, directly or indirectly, by certain members of the
holder's family and certain entities (such as corporations, partnerships, trusts
and estates) in which the U.S. Holder has an equity interest, as well as certain
shares of our Common Stock which the U.S. Holder has an option to acquire.
A U.S. Holder that continues to own shares of our stock following the
purchase, either directly or as a result of the constructive ownership rules
(described above), will be subject to sale treatment if such holder meets any of
the three tests discussed below (the "Section 302 tests"). The purchase will be
treated as a distribution if such U.S. Holder does not satisfy at least one of
the Section 302 tests. We cannot predict whether any particular U.S. Holder will
be subject to sale or distribution treatment.
A U.S. Holder that is treated as having sold the shares of our Common Stock
purchased by us pursuant to the Offer generally will recognize capital gain or
capital loss (subject to certain limits on deductibility of losses, including
the wash sale rules under the Code) in an amount equal to the difference between
the amount of cash received under the Offer and the U.S. Holder's tax basis in
such shares of our Common Stock. This capital gain or loss will be long-term
capital gain or loss if the U.S. Holder held the shares of our Common Stock for
more than one year as of the date of our purchase pursuant to the Offer.
Currently the maximum long-term capital gain rate for individual U.S. Holders is
15%. Certain limitations apply to the deductibility of capital losses by U.S.
Holders. A U.S. Holder must calculate gain or loss separately for each block of
shares of our Common Stock (generally, shares of our Common Stock acquired at
the same cost in a single transaction) that we purchase from a U.S. Holder under
the Offer.
If a U.S. Holder is not subject to sale treatment, the full amount received
by the U.S. Holder with respect to our purchase of shares of our Common Stock
under the Offer will be treated as a distribution to the U.S. Holder with
respect to the U.S. Holder's shares of our Common Stock. This distribution will
be treated as a dividend to the U.S. Holder to the extent of the U.S. Xxxxxx's
share of our current and accumulated earnings and profits, if any, as determined
under U.S. federal income tax principles. Such a dividend would be includible in
the U.S. Holder's gross income without reduction for the tax basis of the shares
of our Common Stock exchanged, and no current loss would be recognized.
Currently, dividends are taxable at a maximum rate for individual U.S. Holders
of 15%, which is the same as the maximum tax rate for long-term capital gains,
if certain holding period and other requirements are met. As of the date of this
Offer to Purchase, we believe that the total amount of our current and
accumulated earnings and profits will be greater than the aggregate amount that
we will pay in fees, expenses and borrow from Xxxxx X. Xxxxxxxx, Xx. to purchase
the tendered shares of our Common Stock. To the extent that the amount received
by a U.S. Holder exceeds the U.S. Xxxxxx's share of our current and accumulated
earnings and profits, the excess first will be treated as a tax-free return of
capital to the extent, generally, of the U.S. Holder's tax basis in its shares
of our Common Stock and any remainder will be treated as capital gain from the
sale of shares of our Common Stock. To the extent that a purchase of a U.S.
Xxxxxx's shares of our Common Stock by us in the Offer is treated as the receipt
of a dividend, the U.S. Xxxxxx's remaining adjusted tax basis (after the
adjustment as described in the preceding sentence) in the purchased shares of
our Common Stock will be added to any shares of our Common Stock retained by the
holder, subject to certain adjustments in the case of a corporate stockholder.
To the extent that a corporate U.S. Holder is treated as receiving a
dividend, as described above, it may be eligible for a dividends received
deduction (subject to applicable limitations). In addition, any amount received
by a corporate U.S. Holder that is treated as a dividend may constitute an
"extraordinary dividend" under Section 1059 of the Code, thereby resulting in a
reduction of tax basis or possible gain recognition in an amount equal to the
non-taxed portion of the dividend. Corporate U.S. Holders should consult their
own tax advisors as to the application of Section 1059 of the Code to the Offer,
and to the tax consequences of a dividend treatment of the purchase of shares of
our Common Stock pursuant to this Offer in their particular circumstances.
Section 302 Tests-Determination of Sale or Distribution Treatment. Our
purchase of shares of our Common Stock pursuant to the Offer will be treated as
a sale of the shares of our Common Stock by a U.S. Holder if any of the
following Section 302 tests is satisfied:
* as a result of the purchase, there is a "complete redemption" of the
U.S. Xxxxxx's equity interest in us;
* as a result of the purchase, there is a "substantially
disproportionate" reduction in the U.S. Holder's equity interest in
us; or
* the receipt of cash by the U.S. Holder is "not essentially equivalent
to a dividend."
As indicated above, if none of these tests is met with respect to a
particular U.S. Holder, then our purchase of shares of our Common Stock pursuant
to the Offer will be treated as a distribution. In applying the Section 302
tests, the constructive ownership rules of Section 318 of the Code (as discussed
above) generally apply.
* Complete Redemption. The purchase of shares of our Common Stock
pursuant to the Offer will result in a "complete redemption" of a U.S.
Holder's equity interest in the Company, if, immediately after such
purchase, such holder owns, actually and constructively, none of our
shares of our Common Stock. Because the Offer requires a U.S. Holder
to tender all of our Common Stock owned by such stockholder, the
purchase should result in a complete redemption unless such holder
continues to own an interest in the Company as a result of the
constructive ownership rules. In applying the "complete redemption"
test, U.S. Holders may be able to waive the application of
constructive ownership through the family attribution rules, provided
that such holders comply with the provisions of Section 302(c) of the
Code and applicable Treasury Regulations. U.S. Holders wishing to
satisfy the "complete redemption" test through satisfaction of the
special conditions set forth in Section 302(c) of the Code should
consult their tax advisors concerning the mechanics and desirability
of those conditions.
* Substantially Disproportionate. In general, our purchase of a U.S.
Xxxxxx's shares of our Common Stock pursuant to the Offer will be
"substantially disproportionate" as to a U.S. Holder if, immediately
after the purchase, the percentage of the outstanding shares of our
Common Stock that the U.S. Holder actually and constructively owns
(including shares of our Common Stock constructively owned as a result
of the ownership of options) is less than 80% of the percentage of the
outstanding shares of our Common Stock actually and constructively
owned by the U.S. Holder immediately before the purchase.
* Not Essentially Equivalent to a Dividend. Our purchase of a U.S.
Xxxxxx's shares of our Common Stock pursuant to the Offer will be
treated as "not essentially equivalent to a dividend" if it results in
a "meaningful reduction" in the U.S. Holder's proportionate interest
in us, given the U.S. Xxxxxx's particular facts and circumstances. The
IRS has indicated in a published ruling that even a small reduction in
the percentage interest of a stockholder whose relative stock interest
in a publicly held corporation is minimal and who exercises no control
over corporate affairs should constitute a "meaningful reduction."
U.S. Holders who intend to qualify for sale treatment by demonstrating
that the proceeds received from us are "not essentially equivalent to
a dividend" are strongly urged to consult their tax advisor because
this test will be met only if the reduction in such holder's
proportionate interest in us is "meaningful" given the particular
facts and circumstances of the holder in the context of the Offer. In
particular, depending on the total number of shares of our Common
Stock purchased pursuant to the Offer, it is possible that a tendering
stockholder's percentage interest in us (including any interest
attributable to shares of our Common Stock constructively owned by the
stockholder as a result of the ownership of options) could increase
even though the total number of shares of our Common Stock held by
such stockholder decreases.
If a U.S. Holder sells shares of our Common Stock to persons other than us,
gain or loss recognized on such sales will be capital gain or loss and will be
long-term capital gain or loss if the holder held the shares of our Common Stock
for more than one year at the date of the sale. If such sale occurs at or about
the time such holder also sells shares of our Common Stock pursuant to the
Offer, and the various sales effected by the U.S. Holder are part of an overall
plan to reduce or terminate such holder's proportionate interest in us, then the
sales to persons other than us may, for U.S. federal income tax purposes, be
integrated with the U.S. Holder's exchange of shares of our Common Stock
pursuant to the Offer and, if integrated, should be taken into account in
determining whether such holder satisfies any of the Section 302 tests with
respect to shares of our Common Stock sold to us.
Information Reporting and Backup Withholding. Payments made to holders in
the Offer may be reported to the IRS. In addition, under the U.S. federal income
tax laws, the Depositary will be required to backup withhold at the applicable
statutory rate on the purchase price paid to certain stockholders (who are not
"exempt" recipients) pursuant to the Offer. To avoid such backup withholding,
each such U.S. Holder must provide the Depositary with such stockholder's
taxpayer identification number and certify that such stockholder is not subject
to backup withholding. Stockholders who have not previously done so, may do so
by completing an IRS Form W-9, or otherwise establish to the satisfaction of the
Depositary that such stockholder is not subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the stockholder's
U.S. federal income tax liability if certain required information is furnished
to the IRS. Stockholders should consult their own tax advisors regarding
application of backup withholding in their particular circumstances and the
availability of, and procedure for obtaining, an exemption from backup
withholding under current Treasury Regulations.
Consequences of the Offer to Non-U.S. Holders of Shares. The U.S. federal
income tax treatment of our purchase of shares of our Common Stock from a
Non-U.S. Holder pursuant to the Offer will depend on whether such holder is
treated, based on the Non-U.S. Xxxxxx's particular circumstances, as having sold
the tendered shares of our Common Stock or as having received a distribution in
respect of such Non-U.S. Holder's shares of our Common Stock. The appropriate
treatment of the purchase of shares of our Common Stock will be determined in
the manner described above with respect to the U.S. federal income tax treatment
of a purchase of shares of our Common Stock pursuant to the Offer in the case of
U.S. Holders (see "Consequences of the Offer to U.S. Holders-Section 302
Tests-Determination of Sale or Distribution Treatment.").
A Non-U.S. Holder that satisfies any of the Section 302 tests explained
above will be treated as having sold the shares of our Common Stock purchased by
us pursuant to the Offer. A Non-U.S. Holder will generally not be subject to
U.S. federal income tax (and would be eligible to obtain a refund of any amounts
withheld as described below) on gain recognized on a sale of shares of our
Common Stock unless any one or more of the following is true:
* the gain is effectively connected with a trade or business of the
Non-U.S. Holder in the United States and, if certain tax treaties
apply, is attributable to a permanent establishment in the United
States maintained by such holder;
* in the case of an individual Non-U.S. Holder who holds the stock as a
capital asset, the individual is present in the United States for 183
or more days in the taxable year of the disposition and certain other
conditions are met; or
* in the case of a Non-U.S. Holder who owns or has owned, directly or
indirectly, during the relevant statutory period more than 5% of our
stock, we are or have been a "U.S. real property holding corporation"
and certain other requirements are met.
We do not believe that we have been or currently are a "U.S. real property
holding corporation." Individual Non-U.S. Holders who are treated, for U.S.
federal income tax purposes, as having sold their shares of our Common Stock to
us pursuant to the Offer and that are present in the United States for 183 days
or more during the year will be taxed on their gains from sale of shares of our
Common Stock, net of applicable U.S. gains and losses from sale or exchanges of
other capital assets incurred during the year, at a flat rate of 30%. Other
Non-U.S. Holders who are treated as having sold their shares of our Common Stock
to us pursuant to the Offer and that are subject to U.S. federal income tax on
such sale (as described above) generally will be taxed on such disposition in
the same manner in which a U.S. Holder would be taxed.
If a Non-U.S. Holder does not satisfy any of the Section 302 tests
explained above, the full amount received by the Non-U.S. Holder with respect to
our purchase of shares of our Common Stock under the Offer will be treated as a
distribution to the Non-U.S. Holder with respect to the Non-U.S. Holder's shares
of our Common Stock. The treatment, for U.S. federal income tax purposes, of
such distribution as a dividend, a tax-free return of capital, or as a capital
gain from the sale of shares of our Common Stock will be determined in the
manner described above with respect to the U.S. federal income tax treatment of
a purchase of shares of our Common Stock pursuant to the Offer in the case of
U.S. Holders (see "Consequences of the Offer to U.S. Holders-Characterization of
the Purchase-Distribution vs. Sale Treatment."). As described more fully below,
to the extent amounts received by a Non-U.S. Holder are treated as a dividend,
such Non-U.S. Holder will be subject to withholding.
Withholding For Non-U.S. Holders. Because, as described above, we cannot
predict whether any particular stockholder will be subject to sale or
distribution treatment, the Depositary generally will treat the cash received by
a Non-U.S. Holder participating in the Offer as a dividend distribution from us.
Accordingly, the Depositary generally will withhold U.S. federal income taxes
equal to 30% of the gross proceeds payable to the Non-U.S Holder or his or her
agent, unless (i) an exemption from, or a reduced rate of, withholding tax is
available under a tax treaty or such gross proceeds are effectively connected
with the conduct of a trade or business of the Non-U.S. Holder within the United
States and (ii) the stockholder so certifies on the appropriate IRS Form W-8 as
described below. To obtain a reduced rate of withholding under a tax treaty, a
Non-U.S. Holder must deliver to the Depositary before the payment a properly
completed and executed IRS Form W- 8BEN and/or W-8IMY. To obtain an exemption
from withholding on the grounds that the gross proceeds paid under the Offer are
effectively connected with the conduct of a trade or business within the United
States a Non-U.S. Holder must deliver to the Depositary a properly completed and
executed IRS Form W- 8ECI. If tax is withheld, a Non-U.S. Holder may be eligible
to obtain a refund of all or a portion of such tax withheld if such Non-U.S.
Holder satisfies one of the Section 302 tests described above or is otherwise
able to establish that no withholding or a reduced amount of withholding is due.
Backup withholding generally will not apply to amounts subject to the 30% or
treaty-reduced rate of U.S. federal income tax withholding.
NON-U.S. HOLDERS MAY BE SUBJECT TO INCOME TAX ON THE SALE OF SHARES
PURSUANT TO THE OFFER, EVEN IF SUCH HOLDERS WOULD NOT BE SUBJECT TO TAX IF THOSE
SAME SHARES WERE SOLD ON THE OPEN MARKET. IN ADDITION, NON-U.S. HOLDERS MAY BE
SUBJECT TO A 30% WITHHOLDING TAX ON THE SALE OF SHARES PURSUANT TO THE OFFER,
EVEN IF THE TRANSACTION IS NOT SUBJECT TO INCOME TAX. THE TAX CONSEQUENCES OF
THE OFFER TO NON-U.S. HOLDERS ARE COMPLEX AND SUCH HOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISORS REGARDING THE U.S. TAX CONSEQUENCES OF PARTICIPATION IN THE
OFFER, INCLUDING THE APPLICATION OF U.S. FEDERAL INCOME TAX WITHHOLDING RULES,
ELIGIBILITY FOR A REDUCTION OF OR AN EXEMPTION FROM WITHHOLDING TAX, AND THE
REFUND PROCEDURE.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY
AND IS NOT TAX ADVICE. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES TO YOU OF THE OFFER, INCLUDING THE APPLICABILITY
AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
14. Extension of the Offer; Termination; Amendment.
We expressly reserve the right to extend the period of time the Offer is
open and delay acceptance for payment of, and payment for, any shares of our
Common Stock by giving oral or written notice of such extension to the
Depositary and making a public announcement of such extension. During any such
extension, all shares of our Common Stock previously tendered and not properly
withdrawn will remain subject to the Offer.
We also expressly reserve the right, in our sole discretion, not to accept
for payment and not pay for any shares of our Common Stock not previously
accepted for payment or paid for, subject to applicable law, to postpone payment
for shares of our Common Stock or terminate the Offer by giving oral or written
notice of the termination or postponement to the Depositary and making a public
announcement of the termination or postponement.
Subject to compliance with applicable law, we further reserve the right, in
our reasonable discretion, to amend the Offer in any respect (including, without
limitation, by decreasing or increasing the consideration offered in the Offer
to holders of shares of our Common Stock) in our sole discretion. Amendments to
the Offer may be made at any time and from time to time by public announcement
of the amendment. In the case of an extension, the amendment shall be issued no
later than 9:00 a.m., New York City time, on the next business day after the
last previously scheduled or announced expiration date. Any public announcement
made pursuant to the Offer will be disseminated promptly to stockholders in a
manner reasonably designed to inform stockholders of the change. Without
limiting the manner in which we may choose to make a public announcement, except
as required by applicable law, we will have no obligation to publish, advertise
or otherwise communicate any public announcement other than by issuing a press
release to the Dow Xxxxx News Service or comparable service or furnishing such
information on a Form 8-K. If the amendment is material, we will extend the
Offer to ensure that at least five business days remain prior to expiration of
the offer and stockholders that have tendered their shares pursuant to the Offer
prior to the amendment shall have an opportunity to withdraw their shares.
Business day means any day other than a Saturday, Sunday or U.S. federal
holiday. Any period measured in business days includes the first day of such
period.
15. Fees and Expenses.
The following is a reasonably itemized statement of the fees and expenses
that have been incurred or that are estimated to be incurred in connection with
the Offer:
* $75,000 to the Company's legal counsel;
* $50,000 to Xxxx Street Partners for valuation report;
* $15,000 to the Depositary and $17,000 for printing and other costs in
connection with the mailing of this Offer to Purchase and related
materials;
* $1,247 SEC filing and XXXXX xxx; and
* $4,000 for miscellaneous fees and services.
We have retained American Stock Transfer and Trust Company to act as
Depositary in connection with the Offer. The Depositary will receive reasonable,
customary compensation for its services and will be reimbursed by us for
reasonable out-of-pocket expenses.
We will not pay any fees or commissions to brokers, dealers, commercial
banks, trust companies or other persons (other than fees to the Depositary as
described above) for soliciting tenders of shares pursuant to the Offer.
Stockholders holding shares through brokers or banks are urged to consult the
brokers or banks to determine whether transaction costs may apply if
stockholders tender shares through the brokers or banks and not directly to the
Depositary. We will, however, upon request, reimburse brokers, dealers,
commercial banks, trust companies or other nominees for customary mailing and
handling expenses incurred by them in forwarding the Offer to Purchase, the
Letter of Transmittal and related materials to the beneficial owners of shares
held by them as a nominee or in a fiduciary capacity. No broker, dealer,
commercial bank, trust company or other nominee has been authorized to act as
our agent or the agent of the Secretary or the Depositary for purposes of the
Offer. We will pay or cause to be paid all stock transfer taxes, if any, on our
purchase of shares.
16. Accounting Consequences.
The Offer will not affect the par value of the Company's Common Stock,
which will remain at $0.10 per share. The Offer will result in an increase in
per share net income or loss and net book value of the Company's Common Stock
because fewer shares of the Company's Common Stock will be outstanding. The
Company's Annual Report on Form 10-K for the year ended July 31, 2007,
incorporated herein by reference, does not reflect the Offer.
17. Miscellaneous.
We are not aware of any jurisdiction where the making of the Offer is not
in compliance with applicable law. If we become aware of any jurisdiction where
the making of the Offer or the acceptance of shares pursuant to the Offer is not
in compliance with any applicable law, we will make a good faith effort to
comply with the applicable law. If, after a good faith effort, we cannot comply
with the applicable law, the Offer will not be made to, nor will tenders be
accepted from or on behalf of, the holders of shares residing in that
jurisdiction. In any jurisdiction where the securities, "blue sky" or other laws
require the Offer to be made by a licensed broker or dealer, the Offer will be
deemed to be made on our behalf by one or more registered brokers or dealers
licensed under the laws of the jurisdiction. Pursuant to Exchange Act Rule
13e-3, we have filed with the SEC the Schedule 13E-3, which contains additional
information relating to the Offer. The Schedule 13E-3, including the exhibits
and any amendments thereto, may be examined, and copies may be obtained, at the
same places and in the same manner set forth in Section 10 with respect to
information concerning our company.
We have not authorized any person to make any recommendation on our behalf
as to whether or not you should tender your shares in the Offer. We have not
authorized any person to give any information or to make any representation in
connection with the Offer other than those contained in this document or in the
Letter of Transmittal. Any recommendation or any such information or
representation made by anyone else must not be relied upon as having been
authorized by Xxxxxxxx Industries, Incorporated. The Depositary or the
Secretary.
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF
AS TO WHETHER OR NOT YOU SHOULD TENDER YOUR SHARES IN THE OFFER. WE HAVE NOT
AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN
CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS DOCUMENT OR IN THE
LETTER OF TRANSMITTAL. ANY RECOMMENDATION OR ANY SUCH INFORMATION OR
REPRESENTATION MADE BY ANYONE ELSE MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY XXXXXXXX INDUSTRIES, INCORPORATED. THE DEPOSITARY OR THE
SECRETARY.
XXXXXXXX INDUSTRIES, INCORPORATED
[----------------]
The Letter of Transmittal and certificates for shares, and any other
required documents should be sent or delivered by each stockholder or the
stockholder's broker, dealer, commercial bank, trust company or nominee to the
Depositary at one of its addresses set forth below. To confirm delivery of
shares, stockholders are directed to contact the Depositary. Stockholders
submitting certificates representing shares to be tendered must deliver such
certificates together with the Letter of Transmittal and any other required
documents by mail or overnight courier. Facsimile copies of share certificates
will not be accepted.
The Depositary for the Offer is:
American Stock Transfer and Trust Company
By Mail:
American Stock Transfer and Trust Company Operations Center
ATTN: Reorganization Department
0000 00xx Xxxxxx
Brooklyn, New York 11219
(000) 000-0000
----------
Any questions or requests for assistance may be directed to the attention
of the Secretary at the Company's telephone number and address set forth below.
Requests for additional copies of the Offer to Purchase, this Letter of
Transmittal or related documents may be directed to the attention of the
Secretary at the Company's telephone number or address set forth below. You may
also contact your broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Offer.
The Company's corporate secretary is Xxxxxxxx X. Xxxxxx (the "Secretary").
The Company's executive offices are located at
0000 X.X. Reading Drive, Manassas, Virginia 20109
and our phone number is (000) 000-0000
The Company's mailing address is
P.O. Box 1770, Manassas, Virginia 20108
