UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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DT INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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2) Aggregate number of securities to which transaction applies:
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[DT INDUSTRIES LOGO]
MAY 21, 2002
Dear Fellow Stockholder:
I am pleased to inform you that after considerable effort we have
negotiated a major recapitalization transaction with several parties, including
a two-year extension of the maturity of our senior credit facility. As part of
the recapitalization, we will strengthen our balance sheet by adding
approximately $63.5 million to stockholders' equity and reducing our
indebtedness by approximately $66.2 million. We intend to accomplish this by
concurrently:
- selling 7,000,000 shares of our common stock in a private placement to
several current stockholders at a purchase price of $3.20 per share, for
an increase in capital of $22.4 million, less estimated transaction
costs;
- using approximately $16.1 million of the proceeds from the private
placement to repay outstanding indebtedness under our senior credit
facility, based upon estimated transaction costs and taxes; and
- reducing our outstanding subordinated debt by approximately $50.1 million
through an exchange of half of the aggregate principal amount of the
debt, plus all accrued and unpaid interest through March 31, 2002, for
6,260,658 shares of our common stock at an exchange price of $8.00 per
share.
Most importantly, these transactions will enable us to extend the maturity date
of our senior credit facility from July 2, 2002 to July 2, 2004. We believe this
recapitalization will help us meet our liquidity and capital resources needs,
both now and in the future as the economy, our industry and our business
hopefully grow stronger.
Execution of each component of the recapitalization is a condition to
completing the other components. Nasdaq's rules require stockholder approval for
the issuance of shares of common stock in the private placement. In addition,
the Company is contractually obligated to obtain stockholder approval for the
issuance of shares of common stock in the subordinated debt restructuring. While
stockholder approval is not required for the restructuring of our senior credit
facility, to complete that restructuring we must consummate the private
placement and the subordinated debt restructuring. Therefore, we cannot complete
the senior credit facility restructuring unless our stockholders approve the
issuance of shares of common stock in the private placement and the subordinated
debt restructuring.
A special meeting of stockholders to vote on the issuance of shares of
common stock in the private placement and the subordinated debt restructuring
will be held at the offices of Katten Muchin Zavis Rosenman at 525 West Monroe
Street, Suite 1600, Chicago, Illinois 60661, on June 19, 2002, at 9:30 a.m.,
Central Daylight Time. The attached Notice of Special Meeting and Proxy
Statement describes these matters, as well as the other aspects of the
recapitalization.
We look forward to seeing you on June 19, 2002 and urge you to return your
proxy card as soon as possible.
Sincerely,
[James J. Kerley Signature]
James J. Kerley
Chairman of the Board
[DT INDUSTRIES LOGO]
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DT INDUSTRIES, INC.
907 WEST FIFTH STREET
DAYTON, OHIO 45407
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 19, 2002
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To the Stockholders of
DT Industries, Inc.:
A Special Meeting of Stockholders of DT Industries, Inc., a Delaware
corporation (the "Company"), will be held at the offices of Katten Muchin Zavis
Rosenman at 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661, on June
19, 2002, at 9:30 a.m., Central Daylight Time, for the following purposes:
(1) To approve the Company's sale of 7,000,000 shares of common stock at a
purchase price of $3.20 per share in a private placement.
(2) To approve the Company's issuance of 6,260,658 shares of common stock
in exchange for $35,000,000 of outstanding preferred securities of the
Company's subsidiary trust, plus $15,085,254 of accrued and unpaid cash
distributions, at an exchange price of $8.00 per share. This will
result in the discharge of an equal principal amount of the Company's
junior subordinated debentures and an equal amount of accrued and
unpaid interest, all of which is held by the subsidiary trust for the
benefit of the holders of the trust preferred securities.
(3) To transact any other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
These proposals are more fully described in the Proxy Statement
accompanying this Notice.
Only stockholders of record at the close of business on May 6, 2002 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment or
postponement thereof.
Order of the Board of Directors,
/S/ DENNIS S. DOCKINS
Dennis S. Dockins
General Counsel and Secretary
Dayton, Ohio
May 21, 2002
ALL STOCKHOLDERS ARE URGED TO ATTEND THE SPECIAL MEETING IN PERSON OR BY PROXY.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE PAID ENVELOPE FURNISHED FOR THAT PURPOSE.
DT INDUSTRIES, INC.
907 WEST FIFTH STREET
DAYTON, OHIO 45407
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SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 19, 2002
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PROXY STATEMENT
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GENERAL
The accompanying proxy is solicited by the Board of Directors of DT
Industries, Inc., a Delaware corporation (the "Company"), for use at the Special
Meeting of Stockholders of the Company (the "Special Meeting") to be held at
9:30 a.m., Central Daylight Time, June 19, 2002, at the offices of Katten Muchin
Zavis Rosenman at 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661,
or at any adjournments or postponements thereof.
At the Special Meeting, stockholders will be asked to vote upon the
approval of (1) the Company's sale of 7,000,000 shares of its common stock at a
purchase price of $3.20 per share in a private placement described herein (the
"Private Placement") and (2) the Company's issuance of 6,260,658 shares of its
common stock in exchange for $35.0 million of the outstanding preferred
securities of the Company's subsidiary trust, plus approximately $15.1 million
of accrued and unpaid cash distributions, at an exchange price of $8.00 per
share, in connection with the Company's subordinated debt restructuring
described herein (the "TIDES Restructuring").
This Proxy Statement and accompanying form of proxy are first being mailed
to stockholders entitled to vote at the Special Meeting on or about May 22,
2002.
RECORD DATE AND OUTSTANDING SHARES
The Board of Directors has fixed the close of business on May 6, 2002 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Special Meeting or any adjournments or postponements thereof. As
of the record date, the Company had outstanding 10,387,274 shares of common
stock. Each holder of record of shares of common stock is entitled to one vote
for each share held as of the record date with respect to approval of the
issuance of shares of common stock in the Private Placement and the TIDES
Restructuring and any other matters that properly come before the Special
Meeting.
QUORUM; REQUIRED VOTE; ABSTENTIONS AND BROKER NON-VOTES
The presence, in person or by proxy, of the holders of a majority of the
shares of common stock issued and outstanding as of the record date constitutes
a quorum necessary for the transaction of business at the Special Meeting.
Abstentions and broker non-votes will be treated as shares that are present for
purposes of determining the presence of a quorum. Broker non-votes are executed
proxies returned by brokers holding shares in a brokerage account (sometimes
referred to as being held in "street name") that indicate that the brokers have
not received instructions from the beneficial owners of the shares represented
by the proxies and do not have the discretionary authority to vote the shares
with respect to a particular matter.
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The affirmative vote of the holders of a majority of the shares of common
stock represented in person or by proxy and entitled to vote at the Special
Meeting is required to approve the Company's issuance of shares of common stock
in the Private Placement and the TIDES Restructuring. The Company's executive
officers and directors beneficially owned in the aggregate approximately 3.5% of
the shares of common stock of the Company outstanding as of the record date and
have indicated that they will vote these shares in favor of the Company's
issuance of shares of common stock in both the Private Placement and the TIDES
Restructuring. The purchasers of the shares of common stock in the Private
Placement have agreed to vote, and to use their best efforts to cause certain
affiliates to vote, shares representing in the aggregate approximately 53.7% of
the shares of common stock outstanding as of the record date in favor of the
Company's issuance of shares of common stock in both the Private Placement and
the TIDES Restructuring. Please see "Security Ownership of Certain Beneficial
Owners and Management" for additional information concerning common stock
ownership, following completion of the Private Placement and the TIDES
Restructuring, of each stockholder that beneficially owns greater than 5% of the
Company's outstanding common stock and is, or has an affiliate, purchasing
shares in the Private Placement.
Abstentions will be considered present and entitled to vote at the Special
Meeting and, therefore, will have the same effect as votes against the issuance
of common stock in the Private Placement and the TIDES Restructuring. Broker
non-votes will be considered present but not entitled to vote at the Special
Meeting and, therefore, will have no effect on voting on these matters.
VOTING OF PROXIES
Stockholders may use the accompanying proxy card if they (1) are unable or
do not wish to attend the Special Meeting in person, or (2) wish to have their
shares voted by proxy even if they do attend the Special Meeting. You are
encouraged to vote your shares by proxy, even if you plan to attend the Special
Meeting, so that your vote will be counted if you later decide not to attend the
meeting. John M. Casper and Dennis S. Dockins, the persons named as proxies on
the proxy card accompanying this Proxy Statement, were selected by the Board of
Directors to serve in that capacity. John M. Casper is the Senior Vice
President--Finance and Chief Financial Officer of the Company, and Dennis S.
Dockins is the General Counsel and Secretary of the Company. The shares
represented by executed and returned proxies received before the Special
Meeting, and not revoked before they are exercised, will be voted in accordance
with the directions indicated thereon. If a stockholder does not indicate how
its executed proxy is to be voted, its shares will be voted in favor of the
approval of the proposals set forth herein. The Board of Directors of the
Company does not expect that any matter other than the approval of the issuance
of common stock in the Private Placement and the TIDES Restructuring will be
brought before the Special Meeting. If, however, other matters are properly
presented, the persons named as proxies will vote in accordance with their
judgment with respect to those matters. Each stockholder can revoke a proxy and
change its vote at any time before the Special Meeting by (1) delivering to the
Secretary of the Company a written notice revoking the proxy or a later-dated,
executed proxy card relating to the same shares, or (2) attending the Special
Meeting and voting in person (however, if a stockholder attends the Special
Meeting and does not vote, its proxy will still be voted).
If your shares of common stock are held in an account at a brokerage firm
or bank, your broker or bank is considered the stockholder of record of those
shares and is forwarding these proxy materials to you because you are considered
the beneficial owner. You have the right to direct your bank or broker how to
vote your shares. If you do not provide these directions and a broker or bank
holding your shares returns an executed proxy card indicating that it does not
have discretionary authority to vote on the approval of the issuance of shares
of common stock in the Private Placement or the TIDES Restructuring, this will
constitute a broker non-vote and have the effect described above. Your broker or
bank has enclosed or provided instructions for how to direct it to vote your
shares or how to change such vote.
SOLICITATION OF PROXIES
The Company will pay all the costs of soliciting proxies, including
preparing, printing and mailing this Proxy Statement. The initial solicitation
of proxies by mail may be supplemented by telephone, Internet or personal
solicitation by directors, officers and regular employees of the Company for no
additional
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compensation, other than normal overtime pay, if applicable. The Company may
also request banks, brokers and other intermediaries holding shares of common
stock beneficially owned by others to send this Proxy Statement to, and obtain
proxies from, the beneficial owners and will reimburse such intermediaries for
their reasonable expenses incurred by them in so doing.
PROPOSAL 1: APPROVAL OF THE COMPANY'S SALE OF 7,000,000 SHARES OF
COMMON STOCK AT A PURCHASE PRICE OF $3.20 PER SHARE IN A PRIVATE PLACEMENT
PROPOSAL 2: APPROVAL OF THE COMPANY'S ISSUANCE OF 6,260,658 SHARES OF COMMON
STOCK IN EXCHANGE FOR $35,000,000 OF OUTSTANDING PREFERRED SECURITIES OF THE
COMPANY'S SUBSIDIARY TRUST, PLUS $15,085,254 OF ACCRUED AND UNPAID CASH
DISTRIBUTIONS, AT AN EXCHANGE PRICE OF $8.00 PER SHARE
INTRODUCTION
The Company has negotiated a significant recapitalization transaction (the
"Recapitalization") that, if consummated, will:
- extend the maturity of its senior credit facility for two years and amend
certain terms of the facility (the "Bank Restructuring");
- increase the Company's stockholders' equity; and
- decrease the Company's indebtedness.
The extension of the maturity date of the Company's senior credit facility
is essential because the Company will not be able to meet its obligations under
the facility if it matures on July 2, 2002 as currently scheduled, which could
lead to the initiation of bankruptcy proceedings. In order to obtain this
extension from its lenders, the Company determined that it is necessary to
concurrently (1) raise additional equity in the Private Placement to help pay
down some of the outstanding indebtedness under the senior credit facility and
(2) reduce its subordinated debt held by its subsidiary trust by exchanging half
of the trust's outstanding preferred securities, plus accrued and unpaid cash
distributions, for equity in the TIDES Restructuring. You are only being asked
to approve the Company's issuance of shares of common stock in the Private
Placement and the TIDES Restructuring.
REASON FOR THE STOCKHOLDER VOTE
The Company's common stock is listed on the Nasdaq National Market. Under
Nasdaq's rules, as a condition to continued listing on the Nasdaq National
Market, the Company must obtain stockholder approval prior to the sale or
issuance, other than in a public offering, of common stock (or securities
convertible into or exercisable for common stock) equal to 20% or more of the
common stock outstanding before the issuance at a price less than the greater of
the book or market value of the common stock. As of May 8, 2002, the date the
Company announced an agreement-in-principle regarding the Recapitalization, the
last reported sales price per share of the Company's common stock on the Nasdaq
National Market was $3.86, and as of May 9, 2002, the date the Company entered
into the share purchase agreement for the Private Placement (the "Share Purchase
Agreement"), the last reported sales price per share of the Company's common
stock on the Nasdaq National Market was $4.30. As of March 24, 2002, the book
value per share of the Company's common stock was $7.80. Because the number of
shares of common stock to be sold by the Company in the Private Placement will
be greater than 19.99% of the shares of common stock of the Company outstanding
prior to the transaction and the purchase price of $3.20 per share is below book
and market value, the Private Placement requires stockholder approval. In
addition, the Company is seeking stockholder approval of the issuance of shares
of common stock in the TIDES Restructuring because (1) the number of shares of
common stock to be issued by the Company will be greater than 19.99% of the
shares of common stock of the Company outstanding prior to the transaction and
the exchange price of $8.00 per share was below book value at the
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time the Company negotiated the TIDES Restructuring and (2) the Company agreed
with the TIDES holders to obtain such stockholder approval.
The Bank Restructuring, the TIDES Restructuring and the Private Placement
are all dependent upon one another for their completion. Therefore, if the
stockholders do not approve the issuance of shares of common stock in both the
Private Placement and the TIDES Restructuring, the Company will be unable to
consummate the Recapitalization. In that case, if the senior credit facility
expires as currently scheduled on July 2, 2002, the Company will not have
sufficient cash to satisfy its obligations under the credit facility, will not
be able to continue its operations as currently anticipated after that date and
may need to file for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code in order to continue operations with minimal disruption and
preserve the value of its assets.
THE BANK RESTRUCTURING
The Company uses its borrowings under the senior credit facility to fund
working capital requirements, capital expenditures and finance charges. The
senior credit facility, which consisted of an $86.2 million revolving credit
facility and a $6.6 million term credit facility as of May 15, 2002, was most
recently amended in August 2001 to extend the maturity date from July 2, 2001 to
July 2, 2002, reset the interest rate and provide for mandatory prepayments of
outstanding indebtedness. As a result of its financial performance in the second
and third quarters of fiscal year 2002, the Company is currently in default of
certain covenants, including the minimum trailing twelve-month earnings before
interest, taxes, depreciation, amortization and non-recurring items ("EBITDA")
and maximum funded debt to EBITDA financial covenants under the credit facility.
The Company is also in default under another financing arrangement and is
currently negotiating a forbearance on such default through August 1, 2002. The
Company has obtained a waiver from its lenders of the defaults under the senior
credit facility through July 2, 2002. Upon consummation of the Recapitalization,
these waivers will become permanent. As of May 15, 2002, total borrowing
availability under the revolving credit facility was approximately $28.6
million.
In connection with the Bank Restructuring, the Company and its lenders have
agreed to enter into a Twelfth Amendment to the Fourth Amended and Restated
Credit Facilities Agreement (the "Bank Amendment") whereby:
- the maturity date of the facility will be extended from July 2, 2002 to
July 2, 2004;
- the Company's total commitment (the term loan and revolver) under the
facility will be reduced from an expected $88.3 million at June 30, 2002
to $76.3 million upon completion of the Recapitalization;
- approximately $16.1 million of the proceeds from the Private Placement
will be used to repay outstanding indebtedness under the revolving credit
facility upon completion of the Recapitalization, based upon estimated
transaction costs and taxes;
- all revolver advances made under the credit facility and letters of
credit issued after consummation of the Bank Restructuring in excess of
$53.0 million will be subject to a monthly asset coverage test comprised
of 65% of eligible accounts and 25% of eligible inventory; and
- the interest rate per annum will be reset at the Eurodollar Rate plus
4.00% or the Prime Rate plus 3.50% for all revolver advances up to $53.0
million and the Prime Rate plus 4.00% for all revolver advances in excess
of $53.0 million.
The Bank Amendment will require the Company to make pro rata reductions of
the revolving loan commitment and outstanding principal under the term loan (1)
of $1.5 million per quarter commencing on September 30, 2002, (2) as a result of
excess cash flow for the fiscal year ending June 29, 2003, and (3) as a result
of proceeds from equity issuances after the Recapitalization. The Company will
also be required to apply to the scheduled quarterly reductions discussed above
up to $2.0 million from proceeds received from any future asset sales. In
addition, the Bank Amendment will modify various financial covenants in the
credit facility agreement relating to annual capital expenditure limitations,
minimum EBITDA thresholds, minimum quarterly net worth thresholds and various
financial performance ratios. The Company estimates that the total borrowing
availability under the revolving credit facility immediately after the
Recapitalization will be approximately $20.7 million, of which $17.0 million
will be subject to the monthly asset coverage test described above.
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The Bank Restructuring is conditioned upon, among other things, the
completion of both the Private Placement and the TIDES Restructuring and there
having been no material adverse change in the Company's prospects as a result of
the loss of a significant customer or revenue stream. The Bank Amendment will
also provide that an event of default will exist under the facility if any two
of Stephen J. Perkins, the Company's President and Chief Executive Officer, John
M. Casper, the Company's Senior Vice President--Finance and Chief Financial
Officer, and John F. Schott, the Company's Chief Operating Officer, are no
longer employed by, and fulfilling their current positions with, the Company,
other than as a result of death, disability or the Board of Directors exercising
its fiduciary duty. Upon completion of the Bank Restructuring, the Company must
pay the lenders an amendment fee equal to 1.00% of the outstanding principal of
the term loan plus the revolving loan commitment at closing. The Company must
also pay the lenders a 1.00% facility fee on June 2, 2002, July 2, 2003 and June
2, 2004.
THE TIDES RESTRUCTURING
On June 12, 1997, the Company completed a private placement to several
institutional investors of $70.0 million of 7.16% Convertible Preferred
Securities, or TIDES. The TIDES offering was made by a subsidiary of the
Company, DT Capital Trust, a Delaware business trust (the "Trust"), which also
issued $2,165,000 of 7.16% Convertible Common Securities to the Company. The
TIDES represent undivided beneficial ownership interests in the Trust, the sole
asset of which is the $72,165,000 aggregate principal amount of the 7.16%
Convertible Junior Subordinated Debentures Due 2012 of the Company (the "Junior
Debentures"). The Trust acquired the Junior Debentures from the Company with the
proceeds of the TIDES offering. As currently structured, the TIDES are
convertible at the option of the holders at any time into common stock of the
Company at a conversion price of $38.75 per share and are mandatorily redeemable
in 2012.
TIDES holders are entitled to receive cumulative cash distributions at an
annual rate of 7.16% of the liquidation preference of $50.00 per security,
accruing from the offering date of the TIDES and payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year. In connection with
the September 1999 amendment to its senior credit facility, the Company elected
to defer interest payments on the Junior Debentures for up to five years. As a
result, quarterly distributions on the TIDES have also been deferred during this
period. As of March 31, 2002, the Company has deferred $15,085,254 of quarterly
distributions on the TIDES.
As a condition to the Bank Restructuring and the Private Placement, the
Company and the Trust have entered into an exchange agreement with the TIDES
holders (the "TIDES Agreement") whereby they will convert (1) $35.0 million of
the outstanding TIDES into $35.0 million in aggregate principal amount of Junior
Debentures and (2) approximately $15.1 million of accrued and unpaid
distributions on the TIDES as of March 31, 2002 into approximately $15.1 million
of accrued interest on the Junior Debentures. These Junior Debentures and this
accrued interest will then be immediately exchanged for an aggregate of
6,260,658 shares of the Company's common stock, representing an exchange price
of $8.00 per share. The 6,260,658 shares of common stock to be issued upon
consummation of the TIDES Restructuring represent an increase of approximately
60% over the shares of common stock outstanding as of May 21, 2002. The Company
and the TIDES holders negotiated this exchange price to be the lesser of $8.00
per share or 2.5 times the purchase price of the shares of common stock being
sold in the Private Placement. With respect to the $35.0 million of TIDES that
will remain outstanding after the TIDES Restructuring is completed, the Company,
the Trust and the TIDES holders have agreed to amend the terms of these
securities to shorten the maturity date of the TIDES from May 31, 2012 to May
31, 2008 and reduce their conversion price from $38.75 to $14.00 per share.
Accordingly, the Company has reserved 2,500,000 shares of common stock for
issuance upon the future conversion of these remaining TIDES. The Company has
also negotiated a "distribution holiday" with the TIDES holders pursuant to
which distributions on the remaining TIDES will not accrue from April 1, 2002
through July 2, 2004. In addition, provided that the Company makes its first
distribution payment following the "distribution holiday," the Company shall
have the right from time to time thereafter to defer payments of distributions
on the TIDES through their maturity in 2008. Corresponding changes will be made
to the $35.0 million in aggregate principal amount of Junior Debentures that
will remain outstanding after the
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TIDES Restructuring is completed. In addition, upon the closing of the TIDES
Restructuring, the TIDES holders as a group will have the right to appoint one
representative to attend and observe meetings of the Company's Board of
Directors. This right will expire upon the exchange and conversion of all of the
remaining TIDES into shares of common stock.
The Company has agreed to file a registration statement with the Securities
and Exchange Commission (the "SEC") to register the resale of the common stock
issued upon exchange of the TIDES and the accrued distributions and issuable
upon conversion of the remaining TIDES as soon as practicable, but in any event
within 120 days, following the closing of the Recapitalization. However, the
TIDES holders have agreed to not sell, transfer or otherwise dispose of common
stock of the Company for a period of 180 days following consummation of the
Recapitalization. Under the TIDES Agreement, the Company will in general
indemnify TIDES holders against all losses, claims, damages, liabilities or
expenses to which they become subject that arise out of or are based upon (1) an
untrue statement or omission of a material fact in the registration statement or
the related prospectus, (2) any inaccuracy in the representations and warranties
of the Company contained in the TIDES Agreement within 18 months of the closing
of the TIDES Restructuring or (3) any failure of the Company to perform its
obligations under the TIDES Agreement or applicable law. The Company's aggregate
liability for breaches of its representations and warranties and failures to
perform its obligations under the TIDES Agreement is capped at $75 million. The
Company has also agreed to reimburse the TIDES holders for up to $100,000 of
their legal expenses incurred in connection with the TIDES Restructuring.
The completion of the TIDES Restructuring is contingent upon:
- the Company obtaining stockholder approval for the issuance of the shares
of common stock in the TIDES Restructuring;
- the completion of both the Bank Restructuring and the Private Placement;
and
- the satisfaction or waiver of customary closing conditions regarding the
continued accuracy of the Company's representations and warranties, the
Company's performance of its obligations under the TIDES Agreement and
the TIDES holders' receipt of an officer's certificate and legal
opinions.
In addition, any one or more of the TIDES holders beneficially owning in
the aggregate more than one-third of the TIDES may terminate their obligations
under the Exchange Agreement at any time after July 2, 2002 if the
Recapitalization has not closed on or before that date.
THE PRIVATE PLACEMENT
On May 9, 2002, as part of the Recapitalization, the Company entered into
the Share Purchase Agreement with several current stockholders to issue an
aggregate of 7,000,000 shares of common stock at a purchase price of $3.20 per
share in the Private Placement. The 7,000,000 shares to be issued pursuant to
the Share Purchase Agreement represent an increase of approximately 67% over the
shares of common stock outstanding as of May 21, 2002. See "Considerations of
the Board of Directors" for an explanation of how the purchase price in the
Private Placement was determined.
The Company's common stock is traded on the Nasdaq National Market under
the symbol "DTII." The last reported sales price per share of the Company's
common stock on the Nasdaq National Market was $3.86 on May 8, 2002, the date
the Company announced an agreement-in-principle regarding the Recapitalization,
$4.30 on May 9, 2002, the date of the Share Purchase Agreement, and $4.41 on May
20, 2002. The Company recommends that you obtain current market quotations for
the Company's common stock before you vote and before the Special Meeting
because the Company's stock price may fluctuate between now and such times.
The Company will use the proceeds of the Private Placement, less
approximately $5.0 million in estimated transaction costs, of which
approximately $0.7 million has already been paid, related to the
Recapitalization and approximately $2.0 million in U.S. federal income taxes
expected to be incurred by the Company as a result of the TIDES Restructuring,
as described below under "Federal Income Tax Consequences of the TIDES
Restructuring," to reduce the Company's outstanding debt under the revolving
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credit facility by approximately $16.1 million. These transaction costs include
a $5,000 flat fee payable to the lead purchaser for its legal and other
transaction expenses incurred in connection with the Private Placement.
Under the Share Purchase Agreement, the Company has agreed to file a
registration statement with the SEC to register the resale of the 7,000,000
shares of common stock issued in the Private Placement within 15 days after
consummation of the Recapitalization. In the event the registration statement is
not declared effective by the SEC on or before the 90th day following the
closing of the Recapitalization (the "Damages Date"), or the purchasers' use of
the related prospectus is suspended for more than 45 days in any 365-day period,
the Share Purchase Agreement provides that the Company will be required to pay
to each purchaser liquidated damages in an amount equal to 0.05% of the total
purchase price of the shares purchased by such purchaser under the Share
Purchase Agreement for each trading day after the Damages Date that the
registration statement is not declared effective or for each trading day in
excess of 45 days in any 365-day period that the purchasers' use of the
prospectus is suspended. Under the Share Purchase Agreement, the Company will in
general indemnify the purchasers and certain of their related parties against
all losses, claims, damages, liabilities or expenses to which they become
subject that arise out of or are based upon (1) an untrue statement or omission
of a material fact in the registration statement or the related prospectus, (2)
any inaccuracy in the representations and warranties of the Company contained in
the Share Purchase Agreement within 18 months of the closing of the Private
Placement or (3) any failure of the Company to perform its obligations under the
Share Purchase Agreement or applicable law. The Company's aggregate liability
for breaches of its representations and warranties and failures to perform its
obligations under the Share Purchase Agreement is capped at $22.4 million.
Under the Share Purchase Agreement, the Company also agreed to amend its
Amended and Restated Bylaws and its stock option plans to provide that, unless
approved by the holders of a majority of the shares of the Company's common
stock outstanding, the Company will not:
- grant stock options that have an exercise price less than the underlying
stock's fair market value on the grant date;
- reprice any outstanding stock options, including through the cancellation
of outstanding options and grant of replacement options with a lower
exercise price or accelerated vesting schedule or restricted stock;
- sell or issue any security convertible into, or exercisable or
exchangeable for, shares of common stock having a conversion, exercise or
exchange price per share that is subject to downward adjustment based on
the market price of the common stock at the time of conversion, exercise
or exchange; or
- in general, enter into any equity line or agreement to sell common stock
or any security convertible into, or exercisable or exchangeable for,
shares of common stock at a purchase, conversion, exercise or exchange
price per share that is fixed after the execution date of the agreement.
The completion of the Private Placement is contingent upon:
- the Company obtaining stockholder approval for the sale of the shares of
common stock in the Private Placement in accordance with Nasdaq's rules;
- the completion of both the Bank Restructuring and the TIDES
Restructuring; and
- the satisfaction or waiver of customary closing conditions regarding the
continued accuracy of the Company's representations and warranties, the
Company's performance of its obligations and the purchasers' receipt of
an officers' certificate and legal opinions.
In addition, any purchaser under the Share Purchase Agreement may terminate its
obligation to purchase shares of common stock under the agreement at any time
after July 2, 2002 if the Recapitalization has not closed on or before that
date.
8
FACTORS TO CONSIDER IF THE COMPANY CONSUMMATES THE RECAPITALIZATION
Stockholders that are not purchasing shares in the Private Placement will
suffer significant dilution of their ownership interest and voting power in the
Company as a result of the issuance of an aggregate of 13,260,658 shares of
common stock upon consummation of the Private Placement and the TIDES
Restructuring. The following table illustrates the dilutive effect of the
Recapitalization on stockholders' ownership interest in the Company based on the
number of shares of common stock outstanding as of May 21, 2002:
EQUITY OWNERSHIP
PRE-RECAPITALIZATION POST-RECAPITALIZATION
-------------------------------- --------------------------------
OUTSTANDING SHARES PERCENTAGE OUTSTANDING SHARES PERCENTAGE
OF COMMON STOCK OWNERSHIP OF COMMON STOCK OWNERSHIP
------------------ ---------- ------------------ ----------
Held by Private Placement Purchasers and
their Affiliates...................... 6,640,760(1) 63.9% 13,640,760 57.7%(2)
Held by TIDES Holders................... 0 0% 6,260,658 26.5%(2)
Held by Executive Officers and
Directors............................. 364,000 3.5% 364,000 1.5%(2)
Held by All Other Stockholders.......... 3,382,514 32.6% 3,382,514 14.3%(2)
---------- ----- ---------- -----
Total Ownership......................... 10,387,274 100% 23,647,932 100%
========== ===== ========== =====
-------------------
(1) Based on information provided by the purchasers in the Private Placement.
(2) Assuming the conversion of the $35.0 million of TIDES that will remain
outstanding after the Recapitalization and the issuance of no other shares
of common stock after the Recapitalization, of the 26,147,932 shares of
common stock that would be outstanding, 52.2% would be held by the Private
Placement Purchasers and their affiliates, 33.5% would be held by the TIDES
holders, 1.4% would be held by the Company's executive officers and
directors and 12.9% would be held by all other stockholders.
The Company believes that the Recapitalization will help the Company meet
its liquidity and capital resources needs and position it to effectively operate
and grow its business. The Company's actual results, performance, liquidity,
financial condition, prospects and opportunities, however, will be affected by,
among other things, the following factors:
- the economic condition of industries or markets served by the Company;
- delays or cancellations of customer orders;
- delays in shipping dates of products;
- the amount of cost overruns on projects;
- product warranty expenses;
- collectibility of past due customer receivables;
- significant restructuring or other special non-recurring charges;
- foreign currency exchange rate fluctuations;
- the Company's ability to achieve anticipated cost savings and to fully
implement project management systems in a timely manner;
- changes in interest rates;
- increased inflation;
9
- the outcome of pending litigation related to previously announced
restated financial statements; and
- the Company's ability to implement operational and financial systems to
manage the Company's decentralized operations.
EFFECT OF THE RECAPITALIZATION ON THE CAPITALIZATION OF THE COMPANY
The Recapitalization will have a significant impact on the capitalization
of the Company. The following table illustrates the Company's consolidated
capitalization as of March 24, 2002:
- on an actual basis; and
- on an as adjusted basis to give effect to the issuance of shares of
common stock in the Private Placement, the exchange of the TIDES and
Junior Debentures for shares of common stock in the TIDES Restructuring
and the reduction in outstanding debt under the senior credit facility in
connection with the Bank Restructuring.
The capitalization presented below on an as adjusted basis assumes
estimated transaction expenses relating to the Recapitalization of approximately
$5.0 million, of which approximately $0.7 million has already been paid, and an
estimated U.S. federal income tax liability relating to the Recapitalization of
approximately $2.0 million resulting from cancellation of indebtedness income of
$21.6 million that we have assumed will be realized in the TIDES Restructuring,
offset by the Company's projected net operating loss for its fiscal year ending
June 30, 2002. For additional information concerning how this estimated federal
income tax effect of the TIDES Restructuring was calculated, please see "U.S.
Federal Income Tax Consequences of the TIDES Restructuring."
MARCH 24, 2002
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
(UNAUDITED)
Senior secured term and revolving credit facility........... $ 68,836 $ 52,761
Other senior debt........................................... 7,074 7,074
-------- --------
Total senior debt................................. 75,910 59,835
-------- --------
Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust
holding solely convertible junior subordinated debentures
of the Company............................................ 85,085 35,000
-------- --------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding, actual
and as adjusted
Common stock, $0.01 par value; 100,000,000 shares
authorized; 10,387,274 shares outstanding, actual and
23,647,932 shares outstanding, as adjusted............. 113 246
Additional paid-in capital................................ 126,824 174,593
Accumulated deficit....................................... (19,968) (4,400)
Cumulative translation adjustment......................... (2,327) (2,327)
Unearned portion of restricted stock...................... (604) (604)
Less --
Treasury stock (988,488 shares), at cost.................. (23,068) (23,068)
-------- --------
Total stockholders' equity........................ 80,970 144,440
-------- --------
Total capitalization........................................ $241,965 $239,275
======== ========
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE TIDES RESTRUCTURING
The Company expects that consummation of the TIDES Restructuring will have
the following material U.S. federal income tax effects on the Company. This
discussion does not consider any state, local, foreign or other tax consequences
that may also result.
10
The determination of the fair market value of the 6,260,658 shares of the
Company's common stock that will be issued to the TIDES holders upon
consummation of the TIDES Restructuring will be based on the market price of the
Company's common stock on the date of the consummation of the TIDES
Restructuring. Although it cannot be known with certainty what this market price
will be, based on the current market price of the Company's common stock, the
Company expects that the aggregate fair market value of these shares of stock
will likely be substantially less than the $35.0 million of outstanding TIDES
plus the $15.1 million of the accrued cash distributions (and therefore the
related Junior Debentures and accrued interest) that these shares of common
stock will be issued to satisfy. To the extent the fair market value of these
shares of common stock is less than the amount of the Company's obligations that
the common stock will be deemed to satisfy, the Company will likely realize
taxable income from this cancellation of indebtedness ("COD"). As an example,
based on a five-day weighted average market price of approximately $4.32, as
reported on the Nasdaq National Market, for the period ending May 15, 2002, the
aggregate fair market value of the common stock of the Company that will be
issued to the TIDES holders would be approximately $27.1 million. If this value
were the market value of the Company's common stock as of the consummation of
the Recapitalization, it would result in COD for the Company in an amount equal
to approximately $20.5 million, net of approximately $2.5 million of transaction
costs and other allowable deductions related to the TIDES Restructuring.
As to the $35.0 million of the TIDES that will remain outstanding, the
amendment of the terms of these TIDES will likely constitute a "significant
modification" of the TIDES for federal income tax purposes. The amendment of the
TIDES would then be viewed as a taxable exchange of the old TIDES for the
modified TIDES in which the Company may potentially realize COD. Based on the
proposed issue price of the new TIDES of $33.9 million, as determined for
federal income tax purposes, the Company expects that this aspect of the TIDES
Restructuring will likely result in approximately $1.1 million of COD for the
Company based on the current applicable federal rate.
In planning the Recapitalization, the Company expects to be able to reduce
its Recapitalization-related income (including the COD discussed above) that
would be recognized for federal income tax purposes through the utilization of
its current and accumulated net operating loss ("NOL"). Taken together and based
on the assumed market value of the Company's common stock and the proposed issue
price of the new TIDES discussed above, the two aspects of the TIDES
Restructuring discussed above would result in an amount of COD for the Company
equal to approximately $21.6 million. The Company estimates that it will have an
NOL of approximately $15.9 million as of the close of its taxable year ending
June 30, 2002. Factors that could cause the actual NOL to be more or less than
this estimate include differences in the Company's actual versus projected
fourth quarter results of operations, changes in estimates of book/tax temporary
differences and changes in federal tax laws. Because the Company may not have a
sufficient amount of NOL to offset completely the Recapitalization-related COD
it expects to realize, the Company may have a federal income tax liability in
respect of its Recapitalization-related COD. Based on the figures discussed
above, approximately $5.7 million of the COD would not be offset by the
Company's NOL, and would be recognized as taxable income for federal income tax
purposes. Assuming a 35% federal corporate income tax rate, this amount of
recognized COD would produce a Recapitalization-related federal income tax
liability of approximately $2.0 million based on information currently available
to the Company. Due to recent legislative changes, the Company expects that it
may also receive certain tax benefits that would be available to offset and
reduce this liability.
Notwithstanding the "distribution holiday" feature that is present in the
amended TIDES that will remain outstanding after consummation of the TIDES
Restructuring, federal income tax law requires the issuer of a debt instrument
to accrue and deduct certain types of interest at a constant rate over the life
of the debt instrument. Therefore, during the distribution holiday period,
although the Company will make no cash payments on the amended TIDES, the
Company should be entitled to take an interest deduction at a constant rate.
Additionally, following the distribution holiday, the interest deduction
allowable to the Company will likely be less than the amount of cash
distributions made on the TIDES, owing to the benefit that the Company received
in respect of having interest deductions during the interest holiday period.
11
When viewed together with the Private Placement of the common stock of the
Company, the issuance of the common stock of the Company in exchange for the
TIDES and the accrued cash distributions will likely result in an ownership
change of the Company for federal income tax purposes. This implies, in part,
that for the period beginning after the date as of which the ownership change is
deemed to have occurred, the Company would be limited in the utilization of any
NOL that it had immediately prior to such time. Under this rule, the amount of
any such NOL that the Company may utilize in future taxable years would be equal
to the fair market value of the Company, multiplied by the federal long-term
tax-exempt rate, which for May 2002 is 5.01%. The Company intends to effect the
Recapitalization such that the events that will give rise to COD will occur
prior to an ownership change of the Company. As explained above, the Company
expects to utilize its entire remaining NOL to offset this COD. As such,
following an ownership change of the Company, it is expected that the Company
would not have any NOL that would be subject to limitation under this rule.
CONSIDERATIONS OF THE BOARD OF DIRECTORS
The Board of the Directors of the Company has unanimously approved the
Recapitalization, believes that the Recapitalization is fair to, and in the best
interests of, the Company and its stockholders, and unanimously recommends that
its stockholders approve the issuance of shares of common stock in both the
Private Placement and the TIDES Restructuring at the Special Meeting.
The terms of the Recapitalization are the result of extensive negotiations
with the lenders, the TIDES holders and the Private Placement purchasers, as
well as their respective advisers. In reaching its decision to approve the
Recapitalization, the Board of Directors consulted with the Company's senior
management and the Company's financial and legal advisers and considered many
factors, including, but not limited to, the following:
- the current state of the Company's business, financial condition and
results of operations;
- the Company's anticipated liquidity and capital resources needs for the
next several years;
- the Company's inability to meet its obligations under its senior credit
facility if it expires on July 2, 2002 and to continue its operations as
currently contemplated beyond that date without the Recapitalization due
to insufficient cash and the lack of strategic alternatives;
- the impact that filing for bankruptcy would have on its business,
creditors and stockholders;
- the analysis presented by William Blair & Company, L.L.C. ("Blair") and
the fairness opinion of Blair delivered to the Board as described below
under "Fairness Opinion of Financial Adviser;"
- the reasonableness of the terms and conditions of the agreements relating
to the Bank Restructuring, TIDES Restructuring and Private Placement and
the Company's ability to satisfy such terms and conditions;
- the Company being allowed to register the resale of the shares of common
stock being issued in the Private Placement and the TIDES Restructuring
under the Securities Act after consummation of the Recapitalization;
- the current financial market conditions and the historical market prices,
volatility and trading volume of the Company's common stock;
- the likelihood that the Recapitalization would be completed prior to July
2, 2002;
- the likelihood of the issuance of common stock in both the Private
Placement and TIDES Restructuring being approved by its stockholders;
- the dilution of the ownership interest of the Company's existing
stockholders that are not purchasing shares in the Private Placement;
- the potential effect that the public announcement of the Recapitalization
would have on the market price of the Company's common stock; and
- the potential adverse effect on the market price of the Company's common
stock if the Recapitalization is not consummated.
12
Other significant factors considered by the Company's Board of Directors in
evaluating the Recapitalization were the Private Placement purchase price and
the number of shares to be issued in the Recapitalization. After preliminary
discussions with its lenders, the Company and its advisers determined that it
would be necessary to raise additional equity to reduce the Company's
indebtedness under its senior credit facility to enable the Company to obtain a
two-year extension of the facility's maturity. To raise sufficient equity to pay
down the facility, it was apparent that the Company would have to substantially
reduce its subordinated indebtedness. To effect such a reduction, the TIDES
holders were requiring that the exchange price for the TIDES and cash
distributions to be exchanged for common stock upon consummation of the TIDES
Restructuring be equal to the lesser of $8.00 per share or 2.5 times the
purchase price in the equity offering. In light of the foregoing, the Board of
Directors, while consulting with management and its advisers, considered various
factors in agreeing to a fixed purchase price of $3.20 per share, including the
following:
- At the time the negotiations occurred, the market price of the common
stock was approximately $3.20 per share and the average trading volume of
the common stock for the prior thirty-day period was approximately 12,000
shares per day.
- Establishing a fixed purchase price in the equity offering would remove
an element of uncertainty and market risk from the Recapitalization and
ensure that the parties would be committed to the terms of their
respective transactions early in the negotiations. The early commitments
and lack of uncertainty and market risks were important because each
component of the Recapitalization is dependent on the completion of each
other component and the Company needs to execute the Bank Amendment and
close the Bank Restructuring as soon as possible prior to the senior
credit facility's maturity on July 2, 2002.
- A fixed purchase price with no collar or walk-away rights would require
the purchasers to participate in the Private Placement at that price even
if the market price of the common stock declined, though it would also
require the Company to sell the shares at that price even if the market
price of the common stock increased.
- In light of the need to raise enough capital to pay down indebtedness
under the facility and the correlation between the purchase price in the
Private Placement and the exchange price in the TIDES Restructuring, a
fixed purchase price would cap the amount of ownership and voting
dilution that stockholders would experience if the market price of the
common stock declined, though it would also fix the amount of dilution
even if the market price of the common stock increased.
The Company's Board of Directors also considered structuring the equity
offering as a public rights offering, but, after consultation with its advisers,
determined that such an offering would substantially complicate the negotiations
of the other components of the Recapitalization and disrupt the timing of the
Recapitalization by subjecting the purchase price and number of shares sold to
market forces and requiring the Company to go through a potentially lengthy
registration process with the SEC.
The foregoing discussion of the information and factors considered by the
Board of Directors in determining that the Recapitalization is fair to, and in
the best interests of, the Company and its stockholders is not intended to be
exhaustive, but is believed to include the material factors the Board of
Directors considered in connection with its evaluation of the Recapitalization.
In view of the wide variety of factors considered and the complexity of such
matters, the Board of Directors did not attempt to quantify, rank or otherwise
assign relative weights to the specific factors it considered in reaching its
decision.
FAIRNESS OPINION OF FINANCIAL ADVISER
The Company retained Blair to assist the Company's Board of Directors in
its examination of the fairness, from a financial point of view, to the Company
of the Recapitalization. At the request of the Company's Board of Directors, on
April 8, 2002 Blair delivered to the Company's Board of Directors its oral
opinion, which it subsequently confirmed in writing. The opinion states that, as
of that date and based upon and subject to the assumptions and qualifications
stated in its opinion, (1) the consideration to be received by the Company in
the Bank Restructuring in exchange for the new benefits provided to the
Company's lenders; (2) the
13
consideration to be received by the Company in the TIDES Restructuring in
exchange for the new benefits provided to the TIDES holders; and (3) the
consideration to be received by the Company in the Private Placement in exchange
for the Company's issuance of shares of its common stock, taken as a whole and
assuming that all of the transactions contemplated by the Recapitalization close
contemporaneously, was fair from a financial point of view to the Company.
The full text of Blair's written opinion, dated April 8, 2002, which
describes the assumptions made, general procedures followed, matters considered,
and limitations on the scope of review undertaken by Blair in rendering its
opinion, is attached as Appendix A to this Proxy Statement and is incorporated
in this document by reference. Blair's opinion is addressed to the Company's
Board of Directors for the purpose of its evaluation of the Recapitalization and
is directed only to the fairness of the Recapitalization, as of the date of the
opinion and from a financial point of view, to the Company. Blair's opinion is
not a recommendation to the Board of Directors or the stockholders of the
Company as to the advisability or merits of the Recapitalization or how a
stockholder of the Company should vote with respect to the Company's issuance of
shares of common stock in the Private Placement or the TIDES Restructuring. The
following summary of Blair's opinion is qualified in its entirety by reference
to the full text of the opinion attached as Appendix A. Stockholders are urged
to read carefully the opinion in its entirety.
In connection with Blair's review of the proposed Recapitalization and the
preparation of its opinion, Blair examined: (1) a term sheet dated April 1, 2002
outlining the Bank Amendment and the Bank Restructuring; (2) a term sheet dated
March 1, 2002 outlining the TIDES Agreement (including a draft of the Amended
and Restated Declaration of Trust, First Supplemental Indenture and the
Amendment and Confirmation to the Guarantee Agreement attached thereto); (3) a
draft of the Share Purchase Agreement dated March 7, 2002; (4) certain audited
historical financial statements of the Company at and for each of the five
one-year periods ended June 1997 through 2001; (5) the unaudited financial
statements of the Company at and for the six months ended December 23, 2001; (6)
certain internal business, operating and financial information and forecasts of
the Company (the "Forecasts") prepared by the senior management of the Company;
(7) information regarding the terms and conditions of other comparable revolving
credit facilities Blair deemed relevant; (8) information regarding the terms of
other comparable private equity placements Blair deemed relevant; (9) the
financial position and operating results of the Company compared with those of
certain other publicly-traded companies that Blair deemed relevant; (10) current
and historical market prices and trading volumes of the common stock of the
Company and other companies that Blair deemed relevant; (11) a draft of this
Proxy Statement dated March 28, 2002; and (12) certain other publicly available
information concerning the Company. No single company or transaction used in the
above analyses as a comparison is identical to the Company or the
Recapitalization. In addition, Blair held discussions with Company management to
discuss the foregoing. Blair also held discussions and negotiations with the
Company's lenders concerning the Company's current default under its senior
credit facility and the Bank Restructuring, the TIDES holders concerning the
TIDES Restructuring and prospective purchasers of the Company's shares of common
stock in the Private Placement. In addition, Blair assisted the Company in
identifying and evaluating strategic alternatives to the Recapitalization. Blair
considered other matters, which it deemed relevant to its inquiry, and took into
account such accepted financial and investment banking procedures and
considerations as Blair deemed relevant.
In rendering its opinion, Blair assumed and relied on, without independent
verification, the accuracy and completeness of all the information examined by
or otherwise reviewed or discussed with Blair for the purposes of its opinion,
including the Forecasts provided by the Company's management and management's
forecast of an impending liquidity crisis. Blair was advised by the senior
management of the Company that the Forecasts examined by Blair had been
reasonably prepared on bases and assumptions reflecting the best currently
available estimates and judgments of the senior management of the Company. In
that regard, Blair assumed, with the Company's consent, that (1) the Company
would achieve operating results that are substantially similar to those set
forth in the Forecasts; and (2) all material assets and liabilities (contingent
or otherwise) of the Company are as set forth in the Company's financial
statements and other information made available to Blair. Blair expressed no
opinion with respect to the Forecasts or the estimates, assumptions and
judgments on which they were based.
14
Blair's opinion was based upon economic, market, financial and other
conditions as in effect on, and information made available to Blair as of, the
date of its opinion. The opinion noted that subsequent developments might affect
the opinion. Blair expressly disclaimed any undertaking or obligation to advise
any person of any change in any matter affecting its opinion that might come or
be brought to its attention after the date of such opinion.
Blair noted that its opinion was limited to the fairness, from a financial
point of view, to the Company. Blair did not express any opinion as to the price
at which the common stock of the Company would trade at any future time or as to
the effect of the Recapitalization on the trading price of the common stock of
the Company. Blair did not make or obtain an independent valuation or appraisal
of the assets, liabilities or solvency of the Company.
Set forth below is a description, in summary form, of the principal
elements of the analyses made by Blair in arriving at its opinion. The summary
is not a complete description of the analyses performed or factors considered by
Blair. The preparation of a fairness opinion is a complex process that involves
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances.
Therefore, such an opinion is not readily susceptible to summary description.
The preparation of a fairness opinion does not involve a mathematical evaluation
or weighing of the results of the individual analyses performed. In rendering
its opinion, Blair was required to exercise its professional judgment, based on
its experience and expertise in considering a wide variety of analyses taken as
a whole. Each of the analyses conducted by Blair was carried out in order to
provide a different perspective on the Recapitalization and add to the total mix
of information available. Blair did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to fairness. Rather, in reaching its conclusion, Blair considered the
results of the analyses in light of each other and ultimately reached its
opinion based on the results of all analyses taken as a whole. Blair did not
place particular reliance or weight on any particular analysis, but instead
concluded its analyses, taken as a whole, supported its determination.
Accordingly, notwithstanding the separate factors summarized below, Blair
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all analyses and factors, may create an incomplete view of the evaluation
process underlying its opinion.
No company or transaction used in Blair's analyses, as a comparison, is
directly comparable to the Company or the Recapitalization. In performing its
analyses, Blair made numerous assumptions with respect to industry performance,
business and economic conditions and other matters. The analyses performed by
Blair are not necessarily indicative of future actual values and future results,
which may be significantly more or less favorable than suggested by such
analyses.
OVERVIEW OF BLAIR'S OPINION
In rendering its opinion, Blair assessed the following:
1. The likely effect on the Company of not consummating the
Recapitalization or a comparable transaction;
2. An analysis of the elements of the Recapitalization; and
3. An analysis of the overall impact of the Recapitalization.
LIKELY EFFECT ON THE COMPANY OF NOT CONSUMMATING THE RECAPITALIZATION OR A
COMPARABLE TRANSACTION
Blair took into account the financial difficulties and liquidity issues
facing the Company if it did not consummate the Recapitalization (or a
comparable transaction). Blair's opinion was based, in part, on the likelihood
that without the Recapitalization (or a comparable transaction), the Company
would face a severe liquidity crisis. Further, in forming its opinion, Blair
considered that without the Recapitalization (or a comparable transaction), it
is likely that the Company would not have the capital necessary to support its
operations, achieve its financial forecasts and repay its debt and TIDES
obligations, which would most likely have a significantly negative effect on the
value of its common stock. Blair noted that as of the date of its
15
opinion, the Company was in default under its senior credit facility and another
financing agreement. The Company had obtained a temporary waiver from its
lenders of such default under the senior credit facility through May 15, 2002,
and the Bank Amendment term sheet provided for the Bank Amendment to contain a
waiver of such default pending the consummation of the Recapitalization.
Subsequent to April 8, 2002, the Company has also obtained a temporary waiver
through May 15, 2002 of such default under the other financing arrangement and
the Company is currently negotiating a forbearance through August 1, 2002 with
respect to such default. If, however, the Company did not execute the Bank
Amendment prior to May 15, 2002, and failed to obtain a permanent waiver
thereafter, such defaults could have given rise to certain rights to the
Company's lenders, including the right to accelerate the maturity of the
indebtedness.
ANALYSIS OF THE ELEMENTS OF THE RECAPITALIZATION
Blair's opinion is to the financial fairness to the Company of the
Recapitalization taken as a whole. In formulating its opinion, however, Blair
did consider the effect of each element of the Recapitalization as set forth
below. Blair relied on the judgment of the Company's management that the
Recapitalization, taken as a whole, would provide the Company with adequate
capital to operate its business.
1. BANK RESTRUCTURING
The Bank Restructuring, as more specifically described above under "The
Bank Restructuring," will benefit the Company in two primary ways. First, the
Bank Restructuring will secure for the Company a credit facility with sufficient
availability for two years longer than the Company's current senior credit
facility. In light of current market conditions and the Company's financial
condition, it was unlikely that the Company could secure a substitute credit
facility on terms as favorable to the Company as those contained in the Bank
Amendment. Second, the Bank Restructuring has secured for the Company a waiver
of defaults under the current senior credit facility and, therefore, avoided an
acceleration of the Company's outstanding indebtedness thereunder. In addition,
the Bank Restructuring will: (1) lower the overall borrowing rates; (2) modify
certain financial covenants under the senior credit facility and reset all
covenants under the senior credit facility to fit the Forecasts; and (3)
decrease mandatory scheduled reductions of the senior credit facility from $2.0
million per month to $1.5 million per quarter commencing on September 30, 2002.
2. TIDES RESTRUCTURING
The TIDES Restructuring, as more specifically described above under "The
TIDES Restructuring," will facilitate the Bank Restructuring and the Private
Placement by reducing the Company's overall leverage.
As part of the TIDES Restructuring, $35.0 million of original par amount of
the TIDES and approximately $15.1 million of accrued and unpaid distributions on
the TIDES as of March 31, 2002 will be converted into $35.0 million in aggregate
principal amount of Junior Debentures and approximately $15.1 million of accrued
interest on the Junior Debentures, respectively. These Junior Debentures and
this accrued interest will then be immediately exchanged for an aggregate of
6,260,658 shares of the Company's common stock, representing an exchange price
of $8.00 per share. In addition, distributions on the TIDES will be forgiven
from March 31, 2002 through July 2, 2004, representing a savings of
approximately $5.6 million. Although the exchange price of $8.00 per share
represents a significant discount to the original conversion price of $38.75,
the new conversion price represents a substantial premium to the Company's
closing common stock price of $4.00 per share on April 3, 2002 and the price to
be paid in the Private Placement.
Certain other terms of the TIDES Restructuring are not favorable to the
Company. The conversion price for the remaining TIDES will be reduced to $14.00
per share, a significant discount from the original conversion price of $38.75
but a substantial premium to the market price of the Company's common stock as
of April 3, 2002. Also the maturity date of the TIDES will be shortened from May
31, 2012 to May 31, 2008.
Blair analyzed the benefits of converting $50,085,000 of TIDES into shares
of common stock versus the reduction in the conversion price and other
unfavorable aspects of the TIDES Restructuring. The conversion of the TIDES will
reduce the overall leverage of the Company which was necessary in order to
facilitate the
16
Bank Restructuring and the Private Placement. In addition, Blair compared the
potential effect of the TIDES Restructuring on the "implied equity value" of the
Company's common stock (as described below). Blair first calculated the market
capitalization of the Company's common stock plus the principal amount of the
Company's debt less cash and equivalents and the principal amount of the TIDES
("Enterprise Value") of the Company. Based on this Enterprise Value of the
Company, Blair calculated the implied equity value for the Company, and the
resulting implied equity value per share, by deducting from the Enterprise Value
the aggregate amount of the Company's debt and the outstanding TIDES, together
with the accrued and unpaid distributions on the TIDES. Using the same
Enterprise Value of the Company, Blair then calculated the implied equity value
for the Company, and the resulting implied equity value per share, assuming the
completion of the TIDES Restructuring. Blair noted that the implied equity value
and the implied equity value per share of the Company, assuming the completion
of the TIDES Restructuring, compared favorably to those values implied before
the completion of the TIDES Restructuring. Blair believes this theoretical
increase in implied equity value is due to the conversion of $50,085,000 of
TIDES and the accrued and unpaid distributions thereon into common stock at a
conversion price of $8.00 per share which represents a premium to the implied
equity value per share before the conversion as well as to the Company's closing
common stock price of $4.00 per share on April 3, 2002. Moreover, Blair noted
that the $5.6 million distribution holiday further offset the unfavorable
attributes of the TIDES Restructuring, namely the lower conversion price and the
accelerated maturity of the remaining TIDES.
3. PRIVATE PLACEMENT
The Private Placement, as more specifically described above under the
"Private Placement," will facilitate the Bank Restructuring by reducing the
Company's overall leverage.
The Private Placement will consist of the sale of 7,000,000 shares of the
Company's common stock. The price per share will be $3.20, a 20.0% discount to
the Company's closing common stock price of $4.00 per share on April 3, 2002,
although at the time the Company began negotiations to establish the purchase
price, the market price of the Company's common stock was approximately $3.20
per share.
In assessing the Private Placement, Blair took into consideration the
relatively illiquid trading market for the Company's common stock. From April 3,
2001 to April 3, 2002, the average daily trading volume for the Company's common
stock was 13,702 shares. In addition, the ten largest holders of the Company's
common stock held approximately 87.1% of the Company's total shares outstanding.
Blair compared the 20% discount described above to the discounts to market
prices in 88 private placements of common stock from 1997 to the present for
industrial and manufacturing companies.
Information regarding the discount implied by the Private Placement and the
discounts in the selected private placements is set forth in the following
table:
APPROXIMATE MARKET
% (DISCOUNT) CAPITALIZATION FOR PLACEMENT AS A % OF
TO MARKET ISSUER MARKET CAPITALIZATION
------------ ------------------ ---------------------
PROPOSED RESTRUCTURING
April 3, 2002............................. (20.0)% $ 41.5 million 53.9%
One Day................................... (16.0)%
One Week.................................. (21.0)%
One Month................................. (15.3)%
Thirty Day Average........................ (19.3)%
Sample Mean................................. (28.8)% $110.1 million 19.0%
Sample Median............................... (22.4)% $ 67.7 million 9.4%
The discount information presented in the above table for the Company is
calculated using the closing share price on April 3, 2002 as well as one day,
one week and one month prior to April 3, 2002, in addition to a thirty day
average as compared to the $3.20 share price to be received by the Company in
the Private Placement. The discount information presented in the above table for
the 88 transactions gives the sample
17
mean and median discount information using the closing share price of the
issuing companies at the closing date as compared to the share price of the
private placements in the 88 transactions.
Blair observed that the discount for the Private Placement was below the
sample mean and median even though the Private Placement was larger relative to
the Company's market capitalization than the offerings in the sample. In
addition, Blair noted that the Company's common stock is infrequently traded and
relatively illiquid when compared to some of the offerings in the sample.
ANALYSIS OF OVERALL IMPACT OF THE RECAPITALIZATION
In order to assess the financial impact of the Recapitalization, taken as a
whole, on the Company, Blair performed certain valuation analyses to estimate
the value of the Company. Then, Blair compared the per share value of the
Company's common stock prior to the Recapitalization, referred to as the "Pre-
Recapitalization Value," with the estimated per share value of the Company's
common stock after giving effect to the Recapitalization, referred to as the
"Post-Recapitalization Value."
The valuation analyses performed by Blair included:
1. Analysis of Selected Publicly Traded Companies: Blair compared the
financial position and operating results of the Company with those of
certain other publicly traded companies that Blair deemed relevant;
2. Analysis of Selected Comparable Acquisition Transactions: Blair
reviewed purchase price multiples of selected merger and acquisition
transactions as well as transactions similar to the Recapitalization that
it deemed relevant; and
3. Discounted Cash Flow Analysis: Blair estimated the net present
value of the unleveraged free cash flows that the Company, after the
Recapitalization, could produce from fiscal 2002 through fiscal 2006 based
on projections provided by the Company's management.
1. ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES
Blair reviewed and compared certain financial information relating to the
Company to corresponding financial information for eight publicly traded
companies that were selected based on their comparability with the Company. The
eight selected companies were: (1) ATS Automation Tooling Systems Inc.; (2)
Brooks Automation Inc.; (3) Dover Corporation; (4) Milacron Inc.; (5) Molins
Plc; (6) Nordson Corporation; (7) Rockwell Automation, Inc.; and (8) Unova Inc.
(collectively, the "Selected Companies").
Blair chose the Selected Companies because they are publicly traded
companies with general business, operating and financial characteristics
reasonably comparable to those of the Company. Although Blair utilized the
trading multiples of the Selected Companies at April 3, 2002 to estimate the
value of the Company, none of the Selected Companies is identical to the
Company. Accordingly, the analysis of the Selected Companies involved complex
considerations and judgments concerning the differences in financial and
operating characteristics and other factors that would necessarily affect the
analysis of trading multiples of the Selected Companies.
Among the information Blair considered were: (1) revenues; (2) earnings
before interest, taxes and non-recurring items ("EBIT"); (3) earnings before
interest, taxes, depreciation, amortization and non-recurring items ("EBITDA");
(4) net income; (5) earnings per share ("EPS"); (6) gross profit margins; (7)
EBIT margins; (8) net income margins; (9) growth in revenue and net income; and
(10) capital structure. Blair analyzed the Selected Companies in terms of the
Enterprise Value as a multiple of revenue, EBITDA and EBIT in addition to equity
value as a multiple of calendar 2002 and 2003 estimated earnings. The multiples
for the Selected Companies were based on the most recent publicly available
financial information as publicly disclosed for each of the Selected Companies
and EPS estimates for 2002 and 2003 from Bloomberg L.P., and used closing share
prices as of April 3, 2002.
18
Information regarding the multiples from Blair's analysis of the Selected
Companies is set forth in the following table:
COMPARABLE COMPANY
MEAN AND MEDIAN RESULTS
----------------------------
CATEGORY RANGE MEAN MEDIAN
-------- ----- ---- ------
Enterprise Value/Latest Twelve Months Revenue............... 0.40x-2.62x 1.40x 1.46x
Enterprise Value/Latest Twelve Months EBITDA................ 5.3x-17.0x 12.6x 13.2x
Enterprise Value/Latest Twelve Months EBIT.................. 7.1x-29.5x 23.1x 28.5x
Equity Value/Calendar 2002 Estimated Earnings............... 20.6x-42.7x 28.0x 24.3x
Equity Value/Calendar 2003 Estimated Earnings............... 16.1x-50.0x 23.3x 19.2x
Blair considered the results of its review of the Selected Companies and
selected multiples that it believed to be appropriate in light of the growth
prospects and operating characteristics of the Company relative to the Selected
Companies. The analysis of the Selected Companies produced an implied Enterprise
Value of the Company ranging from $162 million to $237 million.
2. ANALYSIS OF SELECTED COMPARABLE ACQUISITION TRANSACTIONS
Blair reviewed twelve completed acquisition transactions that it deemed
relevant. These transactions were chosen based on a review of acquired companies
that possessed business, operating and financial characteristics that generally
were comparable to the Company. The twelve transactions reviewed were (acquired
company/acquiror): (1) Arguss Communications, Inc./Dycom Industries, Inc.; (2)
PRI Automation, Inc./ Brooks Automation, Inc.; (3) United Dominion Industries
Limited/SPX Corporation; (4) Siddons Ramset Limited/Illinois Tool Works, Inc.;
(5) Pinnacle Automation, Inc./FKI Plc; (6) Gleason Corporation/Investor Group;
(7) Furon Company/Norton Company; (8) Scotsman Industries, Inc./Berisford plc;
(9) Herr-Voss Industries, Inc./The Monarch Machine Tool Company; (10) Gradall
Industries, Inc./JLG Industries, Inc.; (11) Trident International, Inc./Illinois
Tool Works, Inc; and (12) RA Jones & Company, Inc./BWI plc (collectively, the
"Selected Transactions").
Although Blair utilized the transaction multiples of these companies to
estimate the value of the Company, none of the companies is identical to the
Company. Accordingly, any analysis of the Selected Transactions involved complex
considerations and judgments concerning the differences in financial and
operating characteristics and other factors that would necessarily affect the
value of the Company versus the values of the companies in the Selected
Transactions. Blair reviewed the consideration paid in the Selected Transactions
in terms of the Enterprise Value of such transactions as a multiple of revenue,
EBITDA and EBIT for the latest twelve months prior to announcement of such
transactions.
Information regarding the multiples from Blair's analysis of the Selected
Transactions is set forth in the following table:
COMPARABLE TRANSACTION
MEAN AND MEDIAN RESULTS
----------------------------
CATEGORY RANGE MEAN MEDIAN
-------- ----- ---- ------
Enterprise Value/Latest Twelve Months Revenue............... 0.68x-2.67x 1.25x 1.09x
Enterprise Value/ Latest Twelve Months EBITDA............... 4.8x-12.6x 8.1x 8.2x
Enterprise Value/ Latest Twelve Months EBIT................. 7.6x-20.0x 11.3x 10.1x
Blair considered the results of its review of the Selected Transactions and
selected multiples that it believed to be appropriate taking into consideration
the growth prospects and operating characteristics of the Company relative to
the acquired companies in the analysis of the Selected Transactions. The
analysis of the Selected Transactions produced an implied Enterprise Value of
the Company ranging from $184 million to $225 million.
19
3. DISCOUNTED CASH FLOW ANALYSIS OF THE COMPANY
Using a discounted cash flow analysis, Blair estimated the net present
value of the unleveraged free cash flows that the Company, after the
Recapitalization, could produce from fiscal 2002 through fiscal 2006 based on
projections provided by Company management. In calculating the terminal value,
Blair assumed multiples of Enterprise Value to EBITDA ranging from 6.0x to 8.0x
in 2006, which multiples Blair believed to be appropriate in such analysis. The
annual free cash flows and terminal value were discounted to determine a net
present value of the unleveraged equity value of the Company after the
Recapitalization. Discount rates in the range of 16.0% to 20.0% were chosen
based upon an analysis of the weighted average cost of capital for the Selected
Companies described above. The discounted cash flow analysis conducted by Blair
produced implied Enterprise Values for the Company ranging from $206 million to
$282 million.
Summary of Company Total Valuation
Blair considered the results of the analysis of the Selected Companies, the
analysis of Selected Transactions and the discounted cash flow analysis of the
Company and various other factors, including its assessment of general,
economic, market, financial and other conditions, and estimated an Enterprise
Value of the Company ranging from $180 million to $220 million.
Using this range of estimated Enterprise Values of the Company, Blair
calculated the resulting implied equity values for the Company including an
implied equity value per share. Using the same estimated Enterprise Values of
the Company, Blair then calculated the implied equity value for the Company
including an implied equity value per share assuming the completion of the
Recapitalization. Blair noted that the implied equity value and the implied
equity value per share of the Company, assuming the completion of the
Recapitalization, compared favorably to those values implied before the
completion of the Recapitalization at the lower end and the midpoint of the
range of Enterprise Values, while at the higher end of the range of Enterprise
Values the implied equity value and the implied equity value per share of the
Company, assuming the completion of the Recapitalization, compared unfavorably
to those values implied before the completion of the Recapitalization.
SUMMARY OF OPINION
Blair's opinion is based in part on the three factors described below, with
reference to the other considerations and limitations listed above:
1. Without the Recapitalization (or a comparable transaction), the
Company would face a severe liquidity crisis and would likely not have the
capital necessary to support its operations, achieve its financial
forecasts and repay its debt and TIDES obligations, which would most likely
have a significantly negative effect on the value of its common stock;
2. The elements of the Recapitalization (a) represent a reasonably
favorable trade-off of benefits and disadvantages and (b) are comparable to
comparable transactions completed by other companies; and
3. The overall impact of the Recapitalization, taken as a whole, on
the Company's implied equity value and implied equity value per share
compared favorably to those values implied before the completion of the
Recapitalization at the lower end and the midpoint of the range of
Enterprise Values estimated by Blair, while at the higher end of the range
of Enterprise Values estimated by Blair, the implied equity value and the
implied equity value per share of the Company, assuming the completion of
the Recapitalization, compared unfavorably to those values implied before
the completion of the Recapitalization.
Based upon and subject to the foregoing, it is Blair's opinion as
investment bankers that, as of the date of its opinion, taken as a whole, (1)
the consideration to be received by the Company in the Bank Restructuring in
exchange for the new benefits provided to the lenders; (2) the consideration to
be received by the Company in the TIDES Restructuring in exchange for the new
benefits provided to the TIDES holders; and (3) the
20
consideration to be received by the Company in the Private Placement in exchange
for the Company's issuance of its common stock is fair, from a financial point
of view, to the Company.
ENGAGEMENT OF BLAIR
The Company's Board of Directors retained Blair pursuant to an engagement
letter dated October 18, 2001 to render certain investment banking services in
connection with the Recapitalization. Blair was selected because of its
experience and expertise in transactions similar to the Recapitalization and its
reputation as a nationally recognized investment banking firm. Blair has
previously provided investment banking services to the Company and may, from
time to time, trade the securities of the Company for its own account and for
the account of its customers, and accordingly may at any time hold a long or
short position in such securities.
Pursuant to the engagement letter, the Company paid Blair a non-refundable
advisory fee of $350,000 related to the TIDES Restructuring, all of which has
been paid. The Company has also agreed to pay Blair an opinion fee of $750,000,
which became payable upon Blair advising the Board as to the fairness of the
Recapitalization. This opinion fee would also have become payable if Blair had
advised the Board that it was unable to render an opinion to such effect. In
connection with the Private Placement, the Company has agreed to pay Blair 3.0%
of the total consideration received by the Company from its stockholders of
record as of October 18, 2001, and 6.0% of the total consideration received by
the Company from all other investors, subject to a minimum fee of $500,000.
The engagement letter also provides that the Company will reimburse Blair
for all out-of-pocket expenses (including reasonable fees and expenses of
Blair's counsel and any other independent experts retained by Blair) reasonably
incurred by Blair in connection with its engagement by the Company. The Company
and Blair also entered into a separate letter agreement dated October 18, 2001,
whereby the Company agreed to indemnify Blair against certain liabilities in
connection with Blair's services under the engagement letter.
In addition to the foregoing, Blair was retained by the Company in 2001
under a separate engagement letter to provide certain financial advisory
services related to a new or amended senior credit facility. Under this
engagement letter, the Company agreed to pay Blair a fee of 0.35% of the total
committed funds related to the credit facility, of which $250,000 has been paid
and is non-refundable and approximately $17,000 will be due upon the closing of
the Recapitalization.
21
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
SALE OF 7,000,000 SHARES OF COMMON STOCK AT A PURCHASE PRICE OF $3.20 PER SHARE
IN THE PRIVATE PLACEMENT.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
COMPANY'S ISSUANCE OF 6,260,658 SHARES OF COMMON STOCK IN EXCHANGE FOR
$35,000,000 OF TIDES, PLUS $15,085,254 OF ACCRUED AND UNPAID CASH DISTRIBUTIONS,
AT AN EXCHANGE PRICE OF $8.00 PER SHARE.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
HOLDERS OF MORE THAN FIVE PERCENT BENEFICIAL OWNERSHIP
The following table sets forth information concerning the beneficial
ownership of common stock as of May 21, 2002 by each person who is known by the
Company to own beneficially in excess of 5% of the Company's outstanding common
stock. Except as otherwise indicated, to the Company's knowledge, all persons
listed below have sole voting and investment power with respect to their shares
of common stock.
SHARES OF OWNERSHIP
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENTAGE
------------------------ ------------ ----------
State of Wisconsin Investment Board(1)...................... 1,959,100 18.9%
Ironwood Capital Management, L.L.C.(2)...................... 1,583,490 15.2%
Putnam Investments, LLC(3).................................. 1,489,070 14.3%
Robert W. Plaster(4)........................................ 1,105,300 10.6%
Dimensional Fund Advisors, Inc.(5).......................... 825,000 7.9%
Royce & Associates, Inc.(6)................................. 689,000 6.6%
Fidelity Management & Research(7)........................... 532,000 5.1%
-------------------
(1) The number of shares of common stock shown as beneficially owned was derived
from a Schedule 13G/A dated February 15, 2002 and filed with the SEC by
State of Wisconsin Investment Board ("SWIB"). After giving effect to the
purchase of shares in the Private Placement by SWIB and the concurrent
completion of the TIDES Restructuring, SWIB will beneficially own 4,459,239
shares of common stock representing 18.86% of the Company's outstanding
shares of common stock. The address of SWIB is P.O. Box 7842, Madison, WI
53707.
(2) The number of shares of common stock shown as beneficially owned was derived
from information provided by Ironwood Capital Management, LLC ("ICM") and a
Schedule 13G dated May 10, 2002 and filed with the SEC jointly by ICM,
Warren J. Isabelle ("Isabelle"), Richard L. Droster ("Droster"), Donald
Collins ("Collins") and ICM/Isabelle Small-Cap Value Fund (the "Fund").
According to the Schedule 13G, ICM, Isabelle, Droster and Collins each has
shared voting power with respect to 1,096,590 shares of common stock and
shared dispositive power with respect to 1,583,490 shares of common stock,
and the Fund has shared voting and dispositive power with respect to 653,800
shares of common stock. After giving effect to the purchase of shares in the
Private Placement by ICM's affiliates, including the Fund, and the
concurrent completion of the TIDES Restructuring, ICM will beneficially own
2,883,490 shares of common stock representing approximately 12.2% of the
Company's outstanding shares of common stock. The address of each of ICM,
Isabelle, Droster, Collins and the Fund is 21 Custom House Street, Boston,
MA 02110.
(3) The number of shares of common stock shown as beneficially owned was derived
from information provided by Putnam Investments, LLC ("Putnam Investments")
and a Schedule 13G/A dated February 5, 2002 and filed with the SEC jointly
by Putnam Investments, Marsh & McLennan Companies, Inc. ("Marsh"), Putnam
Investment Management, LLC ("PIM") and Putnam Advisory Company, LLC ("PAC").
According to the Schedule 13G/A: (a) Putnam Investments has shared voting
power with respect to 461,135 shares of common stock and shared dispositive
power with respect to 1,465,280 shares of common stock, (b) PIM has shared
dispositive power with respect to 416,735 shares of common stock, and (c)
PAC has shared voting power with respect to 461,1315 shares
22
of common stock and shared dispositive power with respect to 1,048,545
shares of common stock. After giving effect to the purchase of shares in the
Private Placement by Putnam Investments' affiliates and the concurrent
completion of the TIDES Restructuring, Putnam Investments will beneficially
own 2,489,070 shares of common stock representing 10.5% of the Company's
outstanding shares of common stock. The address of each of Putnam
Investments, PIM and PAC is One Post Office Square, Boston, MA 02109.
(4) The number of shares of common stock shown as beneficially owned was derived
from a Schedule 13D/A dated January 25, 2001 and filed with the SEC by
Robert W. Plaster. The address of Robert W. Plaster is P.O. Box 1600,
Lebanon, MO 65536.
(5) The number of shares of common stock shown as beneficially owned was derived
from a Schedule 13G/A dated January 30, 2002 and filed with the SEC by
Dimensional Fund Advisors, Inc. ("Dimensional"). The address of Dimensional
is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(6) The number of shares of common stock shown as beneficially owned was derived
from a Schedule 13G/A dated February 7, 2002 and filed with the SEC by Royce
& Associates, Inc. ("Royce"). After giving effect to the purchase of shares
in the Private Placement by Royce's affiliates and the concurrent completion
of the TIDES Restructuring, Royce will beneficially own 1,239,000 shares of
common stock representing 5.2% of the Company's outstanding shares of common
stock. The address of Royce is 1414 Avenue of the Americas, New York, NY
10019.
(7) The number of shares of common stock shown as beneficially owned was derived
from a Schedule 13G/A dated February 14, 2002 and filed with the SEC jointly
by Fidelity Management & Research Company ("FMRC"), Fidelity Low Priced
Stock Fund (the "Fund"), FMR Corp. ("FMR"), Edward C. Johnson 3d and Abigail
P. Johnson. According to the Schedule 13G/A, FMRC, a wholly-owned subsidiary
of FMR, is the beneficial owner of 536,500 shares of common stock in its
capacity as investment adviser to the Fund, which owns the shares. Edward C.
Johnson 3d and FMR, through their control of FMRC and the Fund, each has
dispositive power with respect to these shares. According to the Schedule
13G/A, Edward C. Johnson 3d, Abigail P. Johnson and members of the Johnson
family, through their ownership of voting common stock of FMR, may be deemed
to be a controlling group with respect to FMR, and therefore have
dispositive power with respect to these shares. According to the Schedule
13G/A, the Board of Trustees for the funds managed by FMRC has sole voting
power with respect to these shares. After giving effect to the purchase of
shares in the Private Placement by the Fund and the concurrent completion of
the TIDES Restructuring, FMRC will beneficially own 1,782,000 shares of
common stock representing 7.5% of the Company's outstanding shares of common
stock. The address of each of FMRC, the Fund, FMR, Edward C. Johnson 3d and
Abigail P. Johnson is 82 Devonshire Street, Boston, MA 02109.
23
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of common stock as of May 9, 2002 by (1) each director of
the Company; (2) each person who served as chief executive officer of the
Company during the Company's fiscal year ended June 24, 2001; (3) the two other
most highly compensated executive officers of the Company for the Company's
fiscal year ended June 24, 2001; and (4) all directors and executive officers of
the Company as a group.
SHARES OF OWNERSHIP
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENTAGE
------------------------ ------------ ----------
William H.T. Bush(1)(2)..................................... 31,012 *
John M. Casper(3)........................................... 74,000 *
Charles A. Dill(4)(5)....................................... 42,247 *
Stephen J. Gore(6).......................................... 156,579 1.49%
James J. Kerley(7)(8)....................................... 124,697 1.19%
Robert C. Lannert(9)........................................ 12,133 *
Lee M. Liberman(1)(10)...................................... 53,539 *
John F. Logan(11)(12)....................................... 88,780 *
Stephen J. Perkins.......................................... 200,000 1.93%
Charles F. Pollnow(1)(13)................................... 42,874 *
John F. Schott(14).......................................... 65,000 *
------- ----
All directors and executive officers as a group (11
persons)(15).............................................. 888,461 8.26%
======= ====
-------------------
* Less than 1.0%
(1) Includes 10,750 shares issuable pursuant to options currently exercisable
or exercisable within 60 days of May 9, 2002, pursuant to the terms of the
Company's 1994 Directors Nonqualified Stock Option Plan.
(2) Includes 7,262 common stock equivalent units credited under the Company's
Directors Deferred Compensation Plan.
(3) Includes 4,000 shares issuable pursuant to options currently exercisable
or exercisable within 60 days of May 9, 2002.
(4) Includes 8,250 shares issuable pursuant to options currently exercisable
or exercisable within 60 days of May 9, 2002, pursuant to the terms of the
Company's 1994 Directors Nonqualified Stock Option Plan.
(5) Includes 23,997 common stock equivalent units credited under the Company's
Directors Deferred Compensation Plan.
(6) Consists solely of shares issuable pursuant to options currently
exercisable or exercisable within 60 days of May 9, 2002.
(7) Includes 18,250 shares issuable pursuant to options currently exercisable
or exercisable within 60 days of May 9, 2002, pursuant to the terms of the
Company's 1994 Directors Nonqualified Stock Option Plan.
(8) Includes 101,447 common stock equivalent units credited under the
Company's Directors Deferred Compensation Plan.
(9) Consists solely of Common stock equivalent units credited under the
Company's directors Deferred Compensation Plan.
(10) Includes 25,289 common stock equivalent units credited under the Company's
Directors Deferred Compensation Plan.
(11) Includes 67,000 shares issuable pursuant to options currently exercisable
or exercisable within 60 days of May 9, 2002.
(12) Includes 11,780 common stock equivalent units credited under the Company's
Directors Deferred Compensation Plan.
24
(13) Includes 24,624 common stock equivalent units credited under the Company's
Directors Deferred Compensation Plan.
(14) Includes 34,000 shares issuable pursuant to options currently exercisable
or exercisable within 60 days of May 9, 2002.
(15) Includes an aggregate of 317,929 shares issuable pursuant to options
currently exercisable or exercisable within 60 days of May 9, 2002 and
206,532 common stock equivalent units credited under the Company's
Directors Deferred Compensation Plan.
STOCKHOLDER PROPOSALS
Rule 14a-8 of the Securities Exchange Act of 1934 provides that stockholder
proposals for the 2002 Annual Meeting of Stockholders must be received at the
Company's principal executive office no later than June 7, 2002 to be considered
by the Company for possible inclusion in the proxy materials for that meeting.
In addition, the Company's Amended and Restated By-laws provide that
stockholders desiring to bring business before the 2002 Annual Meeting of
Stockholders must provide written notice to the Company no earlier than 150 days
and no later than 90 days prior to the date of the Annual Meeting, which the
Company currently plans to hold on or about November 7, 2002. The written notice
must include the information required by Section 14 of the Amended and Restated
By-laws. These By-law requirements for advance notice of stockholder proposals
are separate and apart from the requirements of Rule 14a-8 described above.
By Order of the Board of Directors,
/S/ DENNIS S. DOCKINS
Dennis S. Dockins
General Counsel and Secretary
Dayton, Ohio
May 21, 2002
ALL STOCKHOLDERS ARE REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY
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APPENDIX A
WILLIAM BLAIR & COMPANY
LIMITED LIABILITY COMPANY
April 8, 2002
Board of Directors
DT Industries, Inc.
907 West Fifth Street
Dayton, Ohio 45407
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to DT Industries, Inc., a Delaware corporation (the "Company"), of (i)
the consideration to be received by the Company in the Senior Credit Facility
Restructuring (as defined below) in exchange for the new benefits provided to
the Banks (as defined below); (ii) the consideration to be received by the
Company in the TIDES Restructuring (as defined below) in exchange for the new
benefits provided to the Holders (as defined below); and (iii) the consideration
to be received by the Company in the Private Placement (as defined below) in
exchange for the Company's issuance of its Common Stock, taken as a whole and
assuming that all of the transactions contemplated by the Recapitalization close
contemporaneously. The "Recapitalization" means and includes the following:
(a) The Company and Bank of America, N.A., as Administrative Agent for
itself and the other lenders (the "Banks") under the Company's Fourth
Amended and Restated Credit Facilities Agreement (the "Senior Credit
Facility"), will enter into a 12th Amendment thereto (the "Bank Agreement")
pursuant to which certain terms and conditions of the Senior Credit
Facility will be amended, including, without limitation, extending its term
from July 2, 2002 to July 2, 2004, revising the applicable interest rate,
modifying certain financial covenants and reducing total commitment (under
both the revolver and term loan) from $94.8 million to $76.8 million (the
"Senior Credit Facility Restructuring");
(b) The Company and the holders (the "Holders") of the 7.16%
Convertible Preferred Securities (Term Income Deferrable Equity, or
"TIDES") of DT Capital Trust, a subsidiary of the Company, will enter into
an Exchange Agreement (the "TIDES Agreement") pursuant to which (i) the
Holders will exchange $35 million of the TIDES and $15,085,254 of accrued
and unpaid payment-in-kind distributions on the TIDES as of March 31, 2002
for shares of Common Stock of the Company at a conversion price of $8.00
per share (and the related $35 million principal amount of the junior
subordinated debentures of the Company held by DT Capital Trust and accrued
and unpaid interest thereon will be discharged), and (ii) certain terms and
conditions of the remaining outstanding $35 million of TIDES will be
amended, including, without limitation, lowering the Common Stock
conversion price for such TIDES from $38.75 to $14.00 per share and
accelerating the maturity date from May 31, 2012 to May 31, 2008 (the
"TIDES Restructuring"); and
(c) The Company will issue and sell in a private placement,
principally to certain existing stockholders of the Company (the "Private
Placement"), 7 million shares of Common Stock of the Company at a price of
$3.20 per share pursuant to a Share Purchase Agreement (the "Purchase
Agreement").
The Bank Agreement, the TIDES Agreement and the Purchase Agreement, taken
together, are referred to herein as the "Recapitalization Agreements."
In connection with our review of the proposed Recapitalization and the
preparation of our opinion herein, we have examined: (a) a term sheet dated
April 1, 2002 outlining the Bank Agreement and the Senior Credit Facility
Restructuring; (b) a term sheet dated March 1, 2002 outlining the TIDES
Agreement (including a draft of Amended and Restated Declaration of Trust, First
Supplemental Indenture and the Amendment and Confirmation to the Guarantee
Agreement attached thereto); (c) a draft of the Purchase Agreement dated March
27, 2002; (d) certain audited historical financial statements of the Company at
and for each of the five one-year periods ended June 1997 through 2001; (e) the
unaudited financial statements of the Company at
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and for the six months ended December 23, 2001; (f) certain internal business,
operating and financial information and forecasts of the Company (the
"Forecasts") prepared by the senior management of the Company; (g) information
regarding the terms and conditions of other comparable revolving credit
facilities we deemed relevant; (h) information regarding the terms of other
comparable private equity placements we deemed relevant; (i) the financial
position and operating results of the Company compared with those of certain
other publicly traded companies that we deemed relevant; (j) current and
historical market prices and trading volumes of the Common Stock of the Company
and other companies that we deemed relevant; (k) a draft of the Proxy Statement
dated March 28, 2002 relating to obtaining stockholders' approval of the
Company's issuance of Common Stock in the Private Placement and the TIDES
Restructuring; and (l) certain other publicly available information concerning
the Company. No single company or transaction used in the above analyses as a
comparison is identical to the Company or the Recapitalization. In addition, we
have held discussions with Company management to discuss the foregoing. We have
also held discussions and negotiations with the Banks concerning the Company's
current default under the Senior Credit Facility and the Senior Credit Facility
Restructuring, the Holders of the TIDES concerning the TIDES Restructuring and
prospective purchasers of the Company's shares of Common Stock in the Private
Placement. In addition, we assisted the Company in identifying and evaluating
strategic alternatives to the Recapitalization. We have considered other
matters, which we have deemed relevant to our inquiry, and have taken into
account such accepted financial and investment banking procedures and
considerations, as we have deemed relevant.
We also have taken into account the financial difficulties and liquidity
issues facing the Company if it does not consummate the Recapitalization (or a
comparable transaction). Our opinion herein is based, in part, on the likelihood
that without the Recapitalization (or a comparable transaction), the Company
will face a severe liquidity crisis. We note that as of the date of this letter,
the Company is in default under its Senior Credit Facility and another financing
agreement. The Company has obtained a temporary waiver from its lenders of such
defaults through May 15, 2002, and the Bank Agreement term sheet provides for
the Bank Agreement to contain a waiver of such defaults pending the consummation
of the Recapitalization. If, however, the Company does not execute the Bank
Agreement prior to May 15, 2002 and fails to obtain a permanent waiver
thereafter, such defaults may give rise to certain rights to the Banks,
including, without limitation, the acceleration of the maturity of the
indebtedness under the Senior Credit Facility.
In rendering our opinion, we have assumed and relied on, without
independent verification, the accuracy and completeness of all the information
examined by or otherwise reviewed or discussed with us for the purposes of this
opinion, including, without limitation, the Forecasts provided by the Company's
management and management's forecast of an impending liquidity crisis. We have
not made or obtained an independent valuation or appraisal of the assets,
liabilities or solvency of the Company. We have been advised by the senior
management of the Company that the Forecasts examined by us have been reasonably
prepared on bases and assumptions reflecting the best currently available
estimates and judgments of the senior management of the Company. In that regard,
we have assumed, with your consent, that (i) the Company will achieve operating
results that are substantially similar to those set forth in the Forecasts and
(ii) all material assets and liabilities (contingent or otherwise) of the
Company are as set forth in the Company's financial statements and other
information made available to us. We express no opinion with respect to the
Forecasts or the estimates, assumptions and judgments on which they were based.
Our opinion herein is based upon economic, market, financial and other
conditions existing on, and other information disclosed to us as of, the date of
this letter. We have relied on counsel to the Company as to the legal rights and
obligations of the Company in connection with the Recapitalization, the
Recapitalization Agreements, and the Company's existing agreements affected by
the Recapitalization, including, without limitation, the Senior Credit Facility.
We have assumed that the Recapitalization will be consummated on the terms that
we reviewed, whether described in the term sheets or in the draft
Recapitalization Agreement and are referred to above without any waiver of any
material terms or conditions by the Company. It should be understood that,
although subsequent developments may affect this opinion, we do not have any
obligation to update, revise or reaffirm this opinion.
William Blair & Company, L.L.C. has been engaged in the investment banking
business since 1935. We regularly undertake the valuation of investment
securities in connection with public offerings, private
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placements, business combinations, estate and gift tax valuations and similar
transactions. In the ordinary course of our business, we may from time to time
trade the securities of the Company for our own account and for the accounts of
customers, and accordingly may at any time hold a long or short position in such
securities. We have acted as financial advisor to the Company in connection with
the Recapitalization and will receive fees from the Company for our services, a
portion of which is contingent upon consummation of the Recapitalization. In
addition, the Company has agreed to indemnify us against certain liabilities
arising out of our engagement.
We are familiar with the Company, having provided certain investment
banking services to the Company from time to time, including advising the
Company in connection with its extension and amendment of the Senior Credit
Facility in August 2001.
We are expressing no opinion herein as to the price at which the Common
Stock of the Company will trade at any future time or as to the effect of the
Recapitalization on the trading price of the Common Stock of the Company. Such
trading price may be affected by a number of factors, including, but not limited
to, (i) dispositions of the shares of Common Stock of existing stockholders or
holders of Common Stock acquired in the TIDES Restructuring and the Private
Placement within a short period of time after the effective date of the
Recapitalization, (ii) changes in prevailing interest rates and other factors
which generally influence the price of securities, (iii) adverse changes in the
current capital markets, (iv) the occurrence of adverse changes in the financial
condition, business, assets, results of operations or prospects of the Company
or in the industries in which the Company operates or serves, (v) any necessary
actions by or restrictions of federal, state or other governmental agencies or
regulatory authorities, and (vi) timely and contemporaneous completion of the
Recapitalization on the terms and conditions set forth in the term sheets and
draft Recapitalization Agreements that we reviewed and are referred to above.
Our financial advisory services and our opinion are being provided for the
use and benefit of the Board of Directors of the Company in connection with its
consideration of the Recapitalization as provided for, and limited by, our
engagement letter dated October 18, 2001. Our opinion is limited to the
fairness, from a financial point of view, to the Company. Our opinion is not a
recommendation to the Board of Directors or the stockholders of the Company as
to the advisability or merits of the Recapitalization or how a stockholder of
the Company should vote with respect to the Company's issuance of Common Stock
in the Private Placement or the TIDES Restructuring. Our opinion does not
address the solvency of the Company before or after the Recapitalization or its
ability to remain solvent thereafter. This letter may not be disclosed or
otherwise referred to without our prior written consent, except that this
opinion may be included in its entirety in a proxy statement mailed to the
stockholders by the Company and filed with the Securities and Exchange
Commission in connection with obtaining stockholders' approval of the Company's
issuance of Common Stock in the Private Placement and the TIDES Restructuring.
In addition, this opinion may be described and referred to in such proxy
statement provided that such description and reference is approved by us prior
to the use of such description or reference.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, taken as a whole, (i) the consideration to
be received by the Company in the Senior Credit Facility Restructuring in
exchange for the new benefits provided to the Banks; (ii) the consideration to
be received by the Company in the TIDES Restructuring in exchange for the new
benefits provided to the Holders; and (iii) the consideration to be received by
the Company in the Private Placement in exchange for the Company's issuance of
its Common Stock is fair, from a financial point of view, to the Company.
Very truly yours,
/s/ WILLIAM BLAIR & COMPANY, L.L.C.
WILLIAM BLAIR & COMPANY, L.L.C.
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[DT INDUSTRIES LOGO]
DT INDUSTRIES, INC.
SPECIAL MEETING OF STOCKHOLDERS
JUNE 19, 2002
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NOTICE AND PROXY STATEMENT
[FRONT SIDE OF PROXY CARD]
PROXY DT INDUSTRIES, INC. PROXY
DAYTON, OHIO
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 19, 2002
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned acknowledges receipt of the Proxy Statement and Notice
of Special Meeting of Stockholders of DT Industries, Inc., each dated May 21,
2002, and appoints John M. Casper and Dennis S. Dockins, or either of them, with
full power to act alone, the proxies and true and lawful attorneys-in-fact of
the undersigned to vote all shares of stock of said Company which the
undersigned is entitled to vote at the Special Meeting of Stockholders of the
Company to be held at the offices of Katten Muchin Zavis Rosenman at 525 West
Monroe Street, Suite 1600, Chicago, IL 60661, on June 19, 2002, at 9:30 a.m.,
Central Daylight Time, and at any adjournment or postponement thereof, with the
same effect as if the undersigned were present and voting such shares on the
following matter and in the following manner:
(continued on reverse side)
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FOLD AND DETACH HERE
[BACK SIDE OF PROXY CARD]
The Board of Directors recommends a vote FOR the following proposals:
1. To approve the Company's sale of 7,000,000 shares of common stock at a
purchase price of $3.20 per share in a private placement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To approve the Company's issuance of 6,260,658 shares of common stock
in exchange for $35,000,000 of outstanding preferred securities of the
Company's subsidiary trust, plus $15,085,254 of accrued and unpaid cash
distributions, at an exchange price of $8.00 per share.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Please mark this box if you plan to attend the meeting [ ]
The shares represented in this proxy will be voted in accordance with the
specifications made. IF NO SPECIFICATIONS ARE MADE, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS. THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE MEETING.
Dated: , 2002
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Signature(s):
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Please date and sign exactly as name(s) appears on the stock certificate. If
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person. This proxy votes all shares held in all capacities unless
specified.