Preliminary Proxy for Collins Industries, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement. |_| CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY (AS
|_| Definitive Proxy Statement. PERMITTED BY RULE 14a-6(e)(2))
|_| Definitive Additional Materials.
|_| Soliciting Material Pursuant to Section
240.14a-11(c) or Section 240.14a-12
Collins Industries, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
================================================================================
(5) Total fee paid:
------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filings by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
================================================================================
PRELIMINARY COPY
COLLINS INDUSTRIES, INC.
15 Compound Drive
Hutchinson, Kansas 67502
December ___, 2005
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Collins Industries, Inc. (the "Company") which will be held at 10:00 a.m.,
Central Standard Time, on Thursday, January 19, 2006, at the Dallas Marriott
Solana, 5 Village Circle, Westlake, Texas.
The principal business matter to be considered at the meeting will be the
approval of amendments to the Company's Articles of Incorporation to (i) effect
a reverse/forward stock split of the Company's outstanding Common Stock, whereby
the Company will effect a 1-for-300 reverse stock split, such that shareholders
owning fewer than 300 shares of Common Stock will have such shares cancelled and
converted into the right to receive $7.70 for each share of Common Stock held
prior to the reverse stock split, immediately followed by a 300-for-1 forward
stock split; and (ii) grant to the Company an option to acquire shares proposed
to be sold by shareholders subsequent to such reverse/forward stock split if,
after such sale, there would be 250 or more holders of record of the Common
Stock.
Attached you will find the Notice of Special Meeting of Shareholders, the
Company's proxy statement and a proxy for the meeting. It is important that your
shares be represented at the meeting, and we hope you will be able to attend the
meeting in person. Whether or not you plan to attend the meeting, please be sure
to vote as soon as possible. You may vote in person, by mail, by telephone or
via the Internet. Instructions to vote by each of these methods are enclosed.
We look forward to seeing you at the Special Meeting.
Sincerely yours,
/s/ Don L. Collins
Don L. Collins,
Chairman of the Board
================================================================================
PRELIMINARY COPY
COLLINS INDUSTRIES, INC.
15 Compound Drive
Hutchinson, Kansas 67502
--------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on Thursday, January 19, 2006
--------------------
TO THE SHAREHOLDERS OF
COLLINS INDUSTRIES, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Collins
Industries, Inc., a Missouri corporation (the "Company"), will be held at 10:00
a.m., Central Standard Time, on Thursday, January 19, 2006, at the Dallas
Marriott Solana, 5 Village Circle, Westlake, Texas, for the following purposes:
1. To approve amendments to the Company's Articles of Incorporation to
effect a reverse/forward stock split of the Company's outstanding Common
Stock, whereby the Company will effect a 1-for-300 reverse stock split,
such that shareholders owning fewer than 300 shares of Common Stock will
have such shares cancelled and converted into the right to receive the cash
consideration set forth herein, immediately followed by a 300-for-1 forward
stock split (the "Reverse/Forward Stock Split");
2. To approve an amendment to the Company's Articles of Incorporation
granting to the Company an option to acquire shares proposed to be sold by
shareholders subsequent to such reverse/forward stock split if, after such
sale, there would be 250 or more holders of record of the Common Stock; and
3. To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
All of the above matters are more fully discussed in the accompanying proxy
statement. Management is not aware of any other matters that will come before
the meeting.
The Board of Directors has fixed the close of business on November 11, 2005
as the Record Date for the determination of shareholders entitled to notice of
and vote at the Special Meeting and any adjournment thereof, and only
shareholders of record at such time will be so entitled to vote. The stock
transfer books of the Company will remain open between the Record Date and the
date of the meeting.
It is important that your shares be represented at the meeting. Please
complete, sign and return the enclosed proxy in the accompanying envelope
promptly, whether or not you intend to be present at the meeting. If you later
desire to revoke or change your proxy for any reason, you may do so at any time
before the voting, by delivering to the company a written notice of revocation
or a duly executed proxy bearing a later date or by attending the Special
Meeting and voting in person.
THE REVERSE/FORWARD STOCK SPLIT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, AND
NEITHER THE SECURITIES EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS PASSED UPON THE FAIRNESS OR MERITS OF THE REVERSE/FORWARD STOCK SPLIT OR
UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
================================================================================
By Order of the Board of Directors,
/s/ Don L. Collins
Don L. Collins,
Chairman of the Board
Dated: December ___, 2005
2
PRELIMINARY COPY
SUMMARY TERM SHEET
This summary term sheet, together with the "Questions and Answers About the
Meeting and Transactions" section that follows, highlights selected information
from the proxy statement and addresses the material terms of the proposed
transaction. For a complete description, you should carefully read the proxy
statement and all of its annexes before you vote.
As used in this proxy statement, unless the context requires otherwise,
"our," "us," "we" and the "Company" means Collins Industries, Inc.
Reverse/Forward Stock Split
• A special committee of independent directors of the Company's Board of
Directors (the "Special Committee"), reviewed and recommended to our
Board of Directors, and our Board of Directors has authorized
amendments to our Articles of Incorporation, the forms of which are
attached hereto as Annex A-1 and Annex A-2, that would effect a
1-for-300 reverse stock split of our Common Stock, followed by a
forward stock split of our Common Stock on a 300-for-1 basis (the
"Reverse/Forward Stock Split"). Shareholders owning fewer than 300
shares at the effective time of the transaction (the "Cashed Out
Shareholders") will receive $7.70 for each share. Shareholders who own
300 or more shares at the effective time of the transaction (the
"Continuing Shareholders") will not be entitled to receive any cash
for their fractional share interests resulting from the reverse stock
split. The forward stock split that will immediately follow the
reverse stock split will reconvert their whole shares and fractional
share interests back into the same number of shares of Common Stock
that they held immediately before the effective time of the
transaction. As a result, the total number of shares held by a
Continuing Shareholder will not change after completion of the
transaction.
• Our Board of Directors has also authorized an amendment to our
Articles of Incorporation, the form of which is attached hereto as
Annex A-3, that would include a standing option for us to repurchase
any shares of Common Stock proposed to be transferred by a Continuing
Shareholder if after such proposed transfer the number of shareholders
of record of our Common Stock would equal or exceed 250 (the "Right of
First Refusal"). For purposes of the Right of First Refusal, a
"transfer" would include any conveyance of Common Stock, whether
voluntary or involuntary, including but not limited to any sale, gift,
assignment, bequest, or devise. Immediately prior to the time the
amendment to our Articles of Incorporation including the Right of
First Refusal is filed with the Secretary of State of the State of
Missouri, our Board of Directors will adopt a resolution to create and
issue one share of capital stock that has the identical privileges,
powers, rights, qualifications, and limitations of the Common Stock,
except that the newly- issued share of capital stock will not be
subject to the Right of First Refusal. The price to be paid for the
shares purchased upon exercise of this option would be equal to (i)
the mean between the bid and asked prices (as published in the "pink
sheets") averaged over the 20 trading days on which the shares of
Common were actually quoted immediately preceding the date of exercise
of the option or (ii) if the Common Stock is not then quoted in the
"pink sheets," or if such determination cannot otherwise be made, the
fair market value of such shares as determined in good faith by our
Board of Directors.
• The Reverse/Forward Stock Split is part of a plan to permit the
Company to deregister the Common Stock and suspend its obligations to
file periodic and special reports under the Securities Exchange Act of
1934 (the "Exchange Act"). The Special Committee and our Board of
Directors have determined and reasonably believe that the
Reverse/Forward Stock Split is fair to and in the best interest of all
of our affiliated shareholders and unaffiliated shareholders,
including those being redeemed pursuant to the Reverse/Forward Stock
Split and those who will retain an equity interest in our Company
subsequent to the consummation of the Reverse/Forward Stock Split. See
also the information under "Additional Information Regarding the
Reverse/Forward Stock Split - Recommendation of the Board of
Directors" and "Special Factors - Fairness of the Reverse/Forward
Stock Split" in this proxy statement.
i
• The Reverse/Forward Stock Split requires the affirmative vote of
holders of a majority of the outstanding and issued shares of Common
Stock. Members of our Board of Directors and the executive officers of
the Company (the "Affiliated Shareholders") have indicated that they
intend to vote, or cause to be voted, shares that they directly or
indirectly control in favor of the Reverse/Forward Stock Split. The
shares of stock beneficially held by these directors and officers
represent approximately 30.24% of the voting power of the Company and,
if voted as indicated, we will need only an additional 19.86% of
shares of Common Stock to approve the Reverse/Forward Stock Split. See
also the information under "Additional Information Regarding the
Reverse/Forward Stock Split - Special Interests of the Affiliated
Shareholders in the Reverse/Forward Stock Split" and "Special Factors
- Effect of the Reverse/Forward Stock Split" in this proxy statement.
• Our Board of Directors recommends that all shareholders vote in favor
of the Reverse/Forward Stock Split. See also the information under
"Special Factors - Purpose of the Reverse/Forward Stock Split";
"Additional Information Regarding the Reverse/Forward Stock Split -
Recommendation of the Board of Directors"; and "Special Factors -
Fairness of the Reverse/Forward Stock Split" in this proxy statement.
• The Reverse/Forward Stock Split is not expected to affect our current
business plan or operations, except for the anticipated cost and
management time savings associated with termination of our public
reporting company obligations. See also the information under "Special
Factors - Effect of the Reverse/Forward Stock Split" in this proxy
statement.
• If the Reverse/Forward Stock Split is approved, we will be eligible to
cease filing periodic reports with the Securities and Exchange
Commission (the "SEC"). The purpose behind the proposal and the
benefits of deregistering the Common Stock include eliminating the
costs associated with filing documents under the Exchange Act with the
SEC, eliminating the costs of compliance with the Sarbanes-Oxley Act
of 2002 ("Sarbanes-Oxley") and related regulations, reducing the
direct and indirect costs of administering shareholder accounts and
responding to shareholder requests, and affording shareholders holding
fewer than 300 shares immediately before the transaction the
opportunity to receive cash for their shares without having to pay
brokerage commissions and other transaction costs. See also the
information under "Special Factors - Purpose of the Reverse/Forward
Stock Split"; "Additional Information Regarding the Reverse/Forward
Stock Split - Recommendation of the Board of Directors"; and "Special
Factors - Fairness of the Reverse/Forward Stock Split" in this proxy
statement.
• The Special Committee retained Stifel, Nicolaus & Company,
Incorporated ("Stifel") to provide an opinion as to the fairness, from
a financial point of view, of the Reverse/Forward Stock Split to the
Cashed Out Shareholders, whether the Cashed Out Shareholders are
affiliated or unaffiliated shareholders. The opinion was delivered to
the Special Committee, on October 31, 2005, to assist the Special
Committee with its consideration of the terms and conditions of the
Reverse/Forward Stock Split. In rendering its opinion, Stifel
performed a variety of financial analyses. The opinion states that,
based on and subject to the factors and assumptions set forth in the
opinion, $7.70 per share consideration is fair from a financial point
of view to the Cashed Out Shareholders. The full text of the written
opinion of Stifel, which sets forth assumptions made, procedures
followed, matters considered, and the qualifications and limitations
on the scope of the review undertaken in connection with the opinion,
is attached to this proxy statement as Annex B. The description of
Stifel's opinion is qualified in its entirety by reference to the full
text of the opinion. Shareholders are urged to, and should, read the
opinion carefully and in its entirety. For a more detailed description
of Stifel's opinion, see the information under "Special Factors -
Fairness of the Reverse/Forward Stock Split" and "Special Factors -
Opinion of Financial Advisor" in this proxy statement.
• Under Missouri law, our Articles of Incorporation, and our Bylaws, no
appraisal or dissenters' rights are available to dissenting
shareholders of the Company who dissent from the Reverse/Forward Stock
Split. See also "Special Factors - Fairness of the Reverse/Forward
Stock Split" and the information under "Additional Information
Regarding the Reverse/Forward Stock Split - Dissenters' and Appraisal
Rights" in this proxy statement.
ii
• The Special Committee has set the cash consideration to be paid for
fractional shares fewer than one whole share resulting from the
reverse stock split at $7.70 per share of Common Stock. The Board of
Directors approved such price in good faith, based upon the
recommendation and approval of the Special Committee and factors the
Special Committee deemed relevant, as described in greater detail
under "Special Factors - Fairness of the Reverse/Forward Stock Split",
and "Additional Information Regarding the Reverse/Forward Stock Split
- Recommendation of the Board of Directors" in this proxy statement.
The "Affiliated Shareholders" are (i) Don L. Collins and Donald Lynn
Collins, who are members of the Board of Directors and executive
officers, (ii) Arch G. Gothard, III, Don S. Peters and William R.
Patterson, who are members of the Board of Directors, and (iii) Rodney
T. Nash, Randall A Swift, Cletus C. Glasener, Ron Sorensen, John L.
Dreasher, and Kent E. Tyler, who are executive officers, who together
own approximately 30.24% of the Company's outstanding Common Stock.
The percentage ownership of Common Stock beneficially owned by the
Affiliated Shareholders, as a group, will increase slightly from
approximately 30.24% before the Reverse/Forward Stock Split to 30.61%
after the Reverse/Forward Stock Split, which will not affect the
control of the Company.
• Following the Reverse/Forward Stock Split, the Company expects to have
approximately 172 shareholders of record and, as a result, the Company
intends to terminate the registration of the Common Stock under
Section 12(g) of the Exchange Act. This will mean that the Company's
duty to file periodic reports under Section 15(d) of the Exchange Act
will be suspended, and the Company will no longer be classified as a
public reporting company.
Please see the sections of this proxy statement entitled "Special Factors -
Effect of the Reverse/Forward Stock Split"; "Proposal No. 1 Amendment of the
Company's Articles of Incorporation to Effect the Reverse/Forward Stock Split -
Structure of the Reverse/Forward Stock Split"; "Proposal No. 2 Amendment to the
Company's Articles of Incorporation to Grant the Right of First Refusal"; and
"Additional Information Regarding the Reverse/Forward Stock Split - Dissenters'
and Appraisal Rights" for a more detailed discussion of the foregoing.
QUESTIONS AND ANSWERS ABOUT THE MEETING AND TRANSACTIONS
Q: Why am I receiving these materials?
A: The Board is providing these proxy materials for you in connection with a
special meeting, which will take place on Thursday, January 19, 2006 (the
"Special Meeting"). As a shareholder, you are invited to attend the Special
Meeting and are entitled to and requested to vote on the transaction described
in this proxy statement.
Q: What information is contained in these materials?
A: The information included in this proxy statement relates to the proposals to
be voted on at the Special Meeting, the voting process, and other required
information. Our Annual Report on Form 10-K for the fiscal year ended October
31, 2004, our Quarterly Report on Form 10-Q for the fiscal quarter ended July
31, 2005, and our Current Reports on Form 8-K announcing the changes in our
certifying accountant, filed on August 9, 2005 and August 31, 2005, are
incorporated by reference in this proxy statement.
Q: What is the time and place of the Special Meeting?
A: The Special Meeting will be held at 10:00 a.m., Central Standard Time, on
Thursday, January 19, 2006, at the Dallas Marriott Solana in Westlake, Texas.
Q: Who is soliciting my proxy?
A: The Board of Directors of Collins Industries, Inc.
iii
Q: What proposals will be voted on at the Special Meeting?
A: You are being asked to vote on the approval of the proposed amendments to our
Articles of Incorporation that will (i) provide for a 1-for-300 reverse stock
split followed immediately by a 300-for-1 forward stock split and (ii) grant to
the Company an option to acquire shares proposed to be transferred by
shareholders subsequent to the Reverse/Forward Stock Split if, after such
transfer, there would be 250 or more holders of record of the Common Stock.
Under the Reverse/Forward Stock Split, Shareholders whose shares are converted
into fewer than one share in the reverse stock split (meaning they held fewer
than 300 shares at the effective time of the transaction) will receive a cash
payment from the Company for their fractional share interests equal to $7.70 in
cash, without interest, for each share of Common Stock they held immediately
before the transaction. Shareholders who own 300 or more shares at the effective
time of the transaction will continue to own the same number of shares after the
transaction. The Company will have fewer than 300 shareholders of record after
the transaction, and intends to file a Form 15 with the SEC to deregister the
Company's Common Stock. Thereafter, the Company would no longer be subject to
the reporting and related requirements of the Exchange Act. In addition, any
trading in our Common Stock after the transaction will continue to occur only in
the "pink sheets" (a centralized quotation service that collects and publishes
market maker quotes for securities) or in privately negotiated sales. Please
note, however, that because market makers (and not the Company) quote our Common
Stock in the "pink sheets," we cannot guarantee that our Common Stock will
always be available for trading in the "pink sheets." You are also being asked
to transact such other business as may properly come before the meeting.
Q: What is the Company's voting recommendation?
A: Our Board of Directors has determined that the Reverse/Forward Stock Split
and Right of First Refusal are advisable and in the best interests of the
Company and its shareholders. Our Board of Directors has therefore unanimously
approved the Reverse/Forward Stock Split and Right of First Refusal and
recommends that you vote "FOR" approval of these matters at the Special Meeting.
Q: What shares can I vote?
A: You may vote all shares of the Company's Common Stock that you own as of the
close of business on the Record Date, which was November 11, 2005. These shares
include (i) shares held directly in your name as the "shareholder of record,"
and (ii) shares held for you as the "beneficial owner" either through a broker,
bank, or other nominee.
Q: What are the purposes of, and reasons for, the Reverse/Forward Stock Split?
A: The principal purpose of the Reverse/Forward Stock Split is to reduce the
number of our shareholders of record to fewer than 300, which will enable the
Company to deregister and terminate its obligations to file special and periodic
reports and make other filings with the SEC.
The following are the principal reasons considered by the Board of Directors in
pursing the Reverse/Forward Stock Split:
• eliminating the costs associated with filing documents under the
Exchange Act with the SEC;
• eliminating the costs of compliance with Sarbanes-Oxley and related
regulations;
• reducing the audit fees of our independent auditor;
• controlling the dissemination of certain business information, which
is currently disclosed in our periodic reports and, accordingly, made
available to our competitors, vendors, customers, and other interested
parties, potentially to our detriment;
iv
• eliminating the time and expenses resulting from management's and
employees' preparation of the reports required of public companies
under the Exchange Act and management of shareholder relations and
communications;
• reducing the direct and indirect costs of administering shareholder
accounts and responding to shareholder requests; and
• affording shareholders holding fewer than 300 shares immediately
before the transaction the opportunity to receive cash for their
shares without having to pay brokerage commissions and other
transaction costs.
Q: What is the purpose of the Right of First Refusal?
A: The purpose of the Right of First Refusal is to grant the Company any option
to acquire shares proposed to be transferred by shareholders subsequent to the
Reverse/Forward Stock Split, if after such transfer, there would be 250 more
holders of record of the Common Stock, thereby ensuring that the Company does
not, inadvertently, become subject to federal securities law reporting
requirements and Section 404 of Sarbanes-Oxley in the future.
Q: When will the transactions become effective?
A: The Reverse/Forward Stock Split is intended to take effect on the date we
file Certificates of Amendment to our Articles of Incorporation with the
Secretary of State of the State of Missouri, or on any later date that we may
specify in such Certificates of Amendment (the "Effective Date"). The Right of
First Refusal is intended to take effect on the date we file a Certificate of
Amendment to our Articles of Incorporation with the Secretary of State of the
State of Missouri, or on any later date that we may specify in such Certificate
of Amendment, which date shall be subsequent to the Effective Date of the
Reverse/Forward Stock Split.
Q: What does "deregistering" mean?
A: Following the Reverse/Forward Stock Split, the Company will have fewer than
300 shareholders of record, will be eligible to terminate the registration of
its Common Stock under the Exchange Act. In this regard, the Company will no
longer have to file periodic reports with the SEC, and its executive officers,
directors, and 10% shareholders will no longer be required to file reports
relating to their transactions in the Company's Common Stock with the SEC. Any
trading in our Common Stock will continue to occur only in "pink sheets" or in
privately negotiated sales. Please note, however, that because market makers
(and not the Company) quote our Common Stock in the "pink sheets," we cannot
guarantee that our Common Stock will always be available for trading in the
"pink sheets." As a result, this may reduce liquidity of our Common Stock.
Moreover, the lack of publicly available financial information and other
information may cause a decrease in the price at which the Company's Common
Stock trades.
Following the Reverse/Forward Stock Split and deregistration of our Common
Stock, our duty to file periodic reports with the SEC will be suspended and
access to information regarding our operations and financial results that is
currently available to the general public and investors will not be readily
available. Investors seeking information about us will have to contact us
directly to receive such information and we may elect not to provide investors
with requested information that we are not required by law to provide.
Notwithstanding, the Company intends to provide to shareholders information
regarding the Company's business and results of operation after the
Reverse/Forward Stock Split. Also, following the Reverse/Forward Stock Split,
the Company, directors, and executive officers will no longer be subject to the
liability provisions of federal securities laws or the provisions of
Sarbanes-Oxley, including the requirement that our chief executive officer and
chief financial officer certify the accuracy of the financial statements
contained in our SEC filings or restrictions on short-swing trading.
Q: What will I receive in the Reverse/Forward Stock Split?
A: If you own fewer than 300 shares of the Company's Common Stock immediately
before the effective time of the transaction, you will receive $7.70 in cash,
without interest, from the Company for each share that you own. If you own 300
or more shares of the Company's Common Stock at the effective time of the
transaction, you will not
v
receive any cash payment for your shares in connection with the transaction and
will continue to hold the same number of shares of the Company's Common Stock as
you did before the transaction.
Q: What is the difference between holding shares as a shareholder of record and
as a beneficial owner?
A: Many of our shareholders hold their shares through a broker, bank, or other
nominee rather than directly in their own name. As summarized below, there are
important distinctions between shares held of record and those owned
beneficially.
Shareholder of Record: If your shares are registered directly in your name with
our transfer agent, Mellon Investor Services LLC (the "Transfer Agent"), you are
considered, with respect to those shares, the shareholder of record, and these
proxy materials are being sent to you by us. As the shareholder of record, you
have the right to vote by proxy or in person at the Special Meeting. We have
enclosed proxy cards for you to use for the shares of Common Stock that you own.
Beneficial Owner: If your shares are held in a stock brokerage account or by a
bank or other nominee, you are considered the "beneficial owner" of shares held
in "street name" with respect to those shares, and the proxy materials are being
forwarded to you by your broker or other nominee. As the beneficial owner, you
have the right to direct your broker or other nominee how to vote and are also
invited to attend the Special Meeting. As the beneficial owner, however, you are
not the shareholder of record, and you may not vote these shares in person at
the Special Meeting unless you obtain a signed proxy appointment form from your
broker or other nominee giving you the right to vote the shares. To vote by
proxy, you must follow the voting instructions provided by your broker, bank or
other nominee.
Q: If I am a beneficial owner and hold shares in street name, will these shares
be subject to the terms of the Reverse/Forward Stock Split?
A: Beneficial owners of shares held in street name may or may not have their
shares affected by the Reverse/Forward Stock Split. Under Missouri law, the
proposed Reverse/Forward Stock Split would operate only at the record holder
level. Neither brokers and other nominees nor beneficial owners are record
holders. As a result, beneficial owners who hold fewer than 300 shares of Common
Stock in street name immediately before the reverse stock split would not have
their shares cashed out in the transaction. However, we plan to work with
brokers and nominees to offer to treat shareholders holding shares in street
name in substantially the same manner as shareholders whose shares are
registered in their names. Accordingly, we intend to establish a process by
which brokers and nominees will be able to submit to us to be cashed out in the
transaction shares held in street name in accounts that would qualify to be
cashed out in the transaction (accounts holding fewer than 300 shares of Common
Stock) but for the fact that they are not held of record by the beneficial
owner. However, your nominee would have discretion in determining whether to
accept our offer and would not be legally obligated to work with us to effect
the transaction with respect to shares held by you in street name. To determine
the transaction's effect on any shares you hold in street name, you should
contact your broker, bank, or other nominee. Whether or not your broker chooses
to effect the transaction with respect to shares you hold in street name, you
may ensure that such shares would be subject to the transaction by working
through your broker, bank, or other nominee to have such shares taken out of
street name and registered directly in your name.
Q: How will the Company be operated after the Reverse/Forward Stock Split?
A: Assuming that the Company has fewer than 300 shareholders of record after the
transaction, the Company will file a Form 15 to deregister its Common Stock
under federal securities laws. Upon such filing, the Company would no longer be
subject to the reporting and related requirements under the federal securities
laws that are applicable to public companies. The Company expects its business
and operations to continue as they are currently being conducted and, except as
disclosed in this proxy statement, the transaction is not anticipated to have
any effect upon the conduct of such business. As a result of the transaction,
shareholders who receive cash for their shares in the transaction will no longer
have a continuing interest as shareholders of the Company and will not share in
any future earnings and growth of the Company. Also, any trading in our Common
Stock will continue to occur only in the "pink sheets" or in privately
negotiated sales. Please note, however, that because market makers (and not the
vi
Company) quote our Common Stock in the "pink sheets," we cannot guarantee that
our Common Stock will always be available for trading in the "pink sheets."
Q: What are the federal income tax consequences of the Reverse/Forward Stock
Split to me?
A: The receipt of the cash in the Reverse/Forward Stock Split will be taxable
for Federal income tax purposes. Shareholders who do not receive cash in the
Reverse/Forward Stock Split should not be subject to taxation as a result of the
transaction. To review the material tax consequences in greater detail, please
read the discussion under "Additional Information Regarding the Reverse/Forward
Stock Split - Material Federal Income Tax Consequences" in this proxy statement.
Q: If I own fewer than 300 shares, is there any way I can continue to be a
shareholder of the Company after the Reverse/Forward Stock Split?
A: If you own fewer than 300 shares before the Reverse/Forward Stock Split, you
can continue to be a shareholder of the Company after the transaction is to
purchase, prior to the Effective Date, sufficient additional shares to cause you
to own a minimum of 300 shares on the Effective Date. However, we cannot assure
you that any shares will be available for purchase.
Q: Is there anything I can do if I own 300 or more shares but would like to take
advantage of the opportunity to receive cash for my shares as a result of the
transaction?
A: If you own 300 or more shares before the transaction, you can only receive
cash for all of your shares if, prior to the Effective Date, you reduce your
stock ownership to fewer than 300 shares by selling or otherwise transferring
shares. However, we cannot assure you that any purchaser for your shares would
be available.
Q: What happens if I own a total of 300 or more shares beneficially, but I hold
fewer than 300 shares of record in my name and fewer than 300 shares with my
broker in "street name"?
A: An example of this would be that you have 200 shares registered in your own
name with our Transfer Agent, and you have 100 shares registered with your
broker in "street name." Accordingly, you are the beneficial owner of a total of
300 shares, but you do not own 300 shares of record or beneficially in the same
name. If this is the case, as a result of the Reverse/Forward Stock Split, you
would receive cash for the 200 shares you hold of record. You will also receive
cash for the 100 shares held in street name if your broker or other nominee
accepts our offer for each beneficial owner of fewer than 300 shares of Common
Stock held in the broker's or nominee's name to receive cash for fractional
shares. If the broker or nominee does not accept our offer, you would continue
to own a beneficial interest in our Common Stock. You may also elect to
consolidate shares registered in your own name with our Transfer Agent and
shares registered with your broker in "street name" such that you are the
registered or beneficial owner, as the case may be, of 300 or more shares in the
same name immediately prior to the Effective Date.
Q: Should I send in my stock certificates now?
A: No. After the Reverse/Forward Stock Split is completed, we will send
instructions on how to receive any cash payments you may be entitled to receive.
We will send such instructions and make such cash payments following the
Effective Date. No interest will accrue and no interest will be paid on any cash
payments. See the information under "The Reverse/Forward Stock Split - Exchange
of Certificates; Payment of Cash Consideration" in this proxy statement.
Q: How can I vote my shares without attending the Special Meeting?
A: Whether you hold your shares directly as the shareholder of record or
beneficially in street name, you may direct your vote without attending the
Special Meeting. You may vote by signing your proxy appointment form or, for
shares held in street name, by signing the voting instruction card included by
your broker or nominee and mailing it in the enclosed, pre-addressed envelope.
If you provide specific voting instructions, your shares will be voted as
vii
you instruct. If you sign but do not provide instructions, your shares will be
voted as described below in "How are votes counted?"
Q: Can I change my vote?
A: You may change your proxy instructions at any time prior to the vote at the
Special Meeting. For shares held directly in your name, you may change your vote
by signing a new proxy appointment form bearing a later date (which
automatically revokes the earlier dated proxy appointment form) or by attending
the Special Meeting and voting in person. Attendance at the Special Meeting will
not cause your previously signed proxy appointment to be revoked unless you
specifically so request. For shares held beneficially by you, you may change
your vote by submitting new voting instructions to your broker or nominee.
Q: How are votes counted?
A: You may vote "FOR," "AGAINST," or "ABSTAIN" on the Reverse/Forward Stock
Split and Right of First Refusal. If you "ABSTAIN," it has the same effect as a
vote "AGAINST." If you sign and date your proxy appointment form with no further
instructions, your shares will be voted "FOR" the approval of the
Reverse/Forward Stock Split and Right of First Refusal in accordance with the
recommendations of the Board of Directors.
You may receive more than one proxy appointment form depending on how you hold
your shares. Shares registered in your name are covered by one card. If you also
hold shares through a broker or other nominee, you also may get material from
them asking how you wish to act. To be sure that all of your shares are counted,
we encourage you to respond to each request you receive.
Q: What are the voting requirements to approve the Reverse/Forward Stock Split
and Right of First Refusal?
A: Approval of the Reverse/Forward Stock Split and Right of First Refusal will
require the affirmative vote of a majority of the outstanding shares of Common
Stock.
Q: What happens if I sell shares before the Special Meeting?
A: If you sell a sufficient number of shares so that you own fewer than 300
shares on the Effective Date, you will receive $7.70 cash for each share you own
immediately before the Effective Date.
Q: Where can I find the voting results of the Special Meeting?
A: We will announce preliminary voting results at the Special Meeting and
publish final results in a Current Report on Form 8-K filed with the SEC and by
amending the Schedule 13E-3 filed in connection with the Reverse/Forward Stock
Split.
Q: Am I entitled to dissenters' rights in connection with the Reverse/Forward
Stock Split?
A: Under Missouri law, our Articles of Incorporation, and our Bylaws, our
shareholders are not entitled to dissenter's rights in connection with the
Reverse/Forward Stock Split. See also "Special Factors - Fairness of the
Reverse/Forward Stock Split" and the information under "Additional Information
Regarding the Reverse/Forward Stock Split - Dissenters' and Appraisal Rights" in
this proxy statement.
Q: Am I entitled to dissenters' rights in connection with the Right of First
Refusal?
A: Under Missouri law, our Articles of Incorporation, and our Bylaws, our
shareholders are not entitled to dissenters' rights in connection with the Right
of First Refusal. See the information under the caption "Proposal No. 2
Amendment to Articles of Incorporation to Grant the Right of First Refusal -
Dissenters' and Appraisal Rights."
viii
Q: What are some of the advantages of the Reverse/Forward Stock Split?
A: The Special Committee and the Board of Directors believe that the
Reverse/Forward Stock Split will have, among others, the following advantages:
• The Company will terminate the registration of its Common Stock under
the Exchange Act, which will eliminate the significant tangible and
intangible costs of being a public reporting company, including the
initial costs of compliance with Section 404 of Sarbanes-Oxley of
$1,500,000, and the annual costs of compliance with Sarbanes-Oxley and
related regulations (with estimated tangible costs savings/cost
avoidance of approximately $845,000 before taxes annually, consisting
of (i) $200,000 in annual costs historically incurred, (ii) $550,000
in annual costs that would otherwise be expected to be incurred in
order to comply with Section 404 of Sarbanes-Oxley, and (iii) $95,000
in annual costs that would otherwise be expected to be incurred in
order to comply with other provisions of Sarbanes-Oxley).
• Management will be able to focus its time and resources on the
business' long-term goals and objectives.
• Shareholders holding fewer than 300 shares will be able to realize
complete liquidity at a premium to the market price and do so through
a transaction that will not include brokerage commissions and fees.
• The Company will be able to control the dissemination of certain
business information, which is currently disclosed in our periodic
reports and, accordingly, made available to our competitors, vendors,
customers, and other interested parties, potentially to our detriment.
Q: What are some of the disadvantages of the Reverse/Forward Stock Split?
A: The Special Committee and the Board of Directors believe that the
Reverse/Forward Stock Split will have, among others, the following
disadvantages:
• Shareholders owning fewer than 300 shares of the Company's Common
Stock will not have an opportunity to liquidate their shares at a time
and for a price of their choosing; instead, they will be cashed out
and will no longer be shareholders of the Company and will not have
the opportunity to participate in or benefit from any future potential
appreciation in the Company's value.
• While the Company intends to provide to shareholders information
regarding the Company's business and results of operation after the
Reverse/Forward Stock Split, we can make no assurances as to the type
of information that we will provide, the form in which the information
will be presented, and the frequency with which we will make such
information available. As such, shareholders remaining in the Company
following the Reverse/Forward Stock Split may not have available all
of the information regarding the Company's operations and results that
is currently available in the Company's filings with the SEC.
• The Company will no longer be subject to the liability provisions of
the Exchange Act.
• The Company will no longer be subject to the provisions of
Sarbanes-Oxley.
• The officers of the Company will no longer be required to certify the
accuracy of the Company's financial statements.
• While shareholders remaining in the Company following the
Reverse/Forward Stock Split will continue to be able to trade shares
of Common Stock on the "pink sheets," the market for such securities
may become less liquid as a result of the deregistration of the Common
Stock. In addition, because market makers (and not the Company) quote
our Common Stock in the "pink
ix
sheets," we cannot guarantee that our Common Stock will always be
available for trading in the "pink sheets."
• The deregistration and subsequent decreased liquidity of the Common
Stock may result in the Company having less flexibility in attracting
and retaining executives and other employees because equity-based
incentives (such as stock options) tend not to be viewed as having the
same value in a non-public reporting company.
• The Company will be less likely to be able to use stock to acquire
other companies, although we have not done this in many years.
• It will be more difficult for the Company to access the public equity
and public debt markets, although we have not done this in many years.
• It will be more difficult and more expensive for the Company to access
the private debt markets.
• It will be more difficult for our vendors and customers to determine
the creditworthiness of the Company.
Please see the section of this proxy statement entitled "Special Factors -
Effect of the Reverse/Forward Stock Split."
Q: Is there a method to prevent the number of holders of record of our Common
Stock from reaching 300, thereby making the Company a public reporting company?
A: We need to be able to keep the number of holders of record of our Common
Stock below 500 in order to avoid re-registering under the Exchange Act, and
below 300 in order to avoid filing public reports and complying with
Sarbanes-Oxley. Therefore, we are proposing to amend our Articles of
Incorporation to include the Right of First Refusal which would provide us with
a standing option for us to repurchase any shares of Common Stock proposed to be
transferred by a Continuing Shareholder if after such proposed transfer the
number of shareholders of record of our Common Stock would equal or exceed 250.
The price to be paid for the shares purchased upon exercise of this option would
be equal to (i) the mean between the bid and asked prices (as published in the
"pink sheets") averaged over the 20 trading days on which the shares of Common
were actually quoted immediately preceding the date of exercise of the option or
(ii) if the Common Stock is not then quoted in the "pink sheets," or if such
determination cannot otherwise be made, the fair market value of such shares as
determined in good faith by our Board of Directors.
Q: The Company has been publicly held for many years; what are some of the
reasons for deregistering the Common Stock now?
A: The Board of Directors believes that the Company currently derives no
material benefit from being a public reporting company. In addition to the
direct financial burden of being a public reporting company, even prior to the
delisting of the Common Stock from the Nasdaq National Market on May 16, 2005,
the trading market in the Company's Common Stock has not provided liquidity to
its shareholders, nor does the Company expect that it will permit the Company to
use its stock as currency for acquisitions or other transactions in the future.
Additionally, the scarce trading volume results in substantial spikes in the
trading price when actual trades are made in the market.
Please see the sections of this proxy statement entitled "Special Factors -
Reasons for the Reverse Stock Split" and "Additional Information Regarding the
Reverse Stock Split - Market for the Common Stock."
Q: What are some of the factors supporting the Board of Directors' determination
to recommend approval of the Reverse/Forward Stock Split?
A: The Board of Directors based its determination to recommend approval of the
Reverse/Forward Stock Split proposal on several factors. Importantly, the Board
considered the relative advantages and disadvantages discussed above and under
"Special Factors - Reasons for the Reverse Stock Split" and "Special Factors -
Fairness of the
x
Reverse/Forward Stock Split" in this proxy statement. The Board of Directors
also considered certain other factors, including:
• The financial presentations and analyses of management and the opinion
of Stifel regarding the Reverse/Forward Stock Split proposal and the
Special Committee and Board of Directors' discussions and conclusions
about the fairness, from a financial point of view, of the proposed
per pre-split share price of $7.70 to be paid for fractional shares to
the Company's unaffiliated shareholders owning fewer than 300 shares
of Common Stock;
• The projected tangible and intangible cost savings/cost avoidance to
the Company by terminating its public reporting company status; and
• Attempts of the Company's shareholders to achieve liquidity in the
existing trading market would be frustrated due to the low average
daily trading volume of the Company's Common Stock, where only a small
number of shares could be purchased or sold without the risk of
significantly increasing or decreasing the trading price.
Please see the section of this proxy statement entitled "Special Factors -
Fairness of the Reverse/Forward Stock Split."
Q: What are the interests of the Company's directors and officers in the
Reverse/Forward Stock Split?
A: In considering the Board of Directors' recommendation to approve the
Reverse/Forward Stock Split proposal, shareholders should be aware that, as a
result of the transaction, the Company estimates that the percentage of its
outstanding Common Stock beneficially owned by its directors and officers,
collectively, will increase slightly from 30.24% to approximately 30.61% of the
Company's Common Stock. It is not anticipated that the Reverse/Forward Stock
Split will have any affect on the directors and executive officers of the
Company, other than with respect to their relative share ownership. Because the
number of total outstanding shares of Common Stock of the Company will be
reduced approximately 1.21% as a result of the Reverse/Forward Stock Split, the
directors and executive officers, as a group, will hold a slightly larger
relative percentage of the Company. As of the Record Date, the directors and
executive officers collectively beneficially held 2,005,582 shares, or 30.24% of
our Common Stock. Based on our estimates, taking into account the effect of the
Reverse/Forward Stock Split, the directors and executive officers will
collectively beneficially hold 2,005,582 shares, or 30.61% of our Common Stock.
Day-to-day management and control of the Company will not be affected by the
Reverse/Forward Stock Split.
Q: What is the total cost of the Reverse/Forward Stock Split to the Company?
A: The Company estimates that the total cost of the Reverse/Forward Stock Split
to the Company will be approximately $943,164, of which the Company will pay
approximately $618,164 to cash out fractional shares and approximately $325,000
of legal, accounting, and financial advisory fees and other costs to effect the
Reverse/Forward Stock Split. This total amount could be larger or smaller if the
estimated number of fractional shares that will be outstanding after the
Reverse/Forward Stock Split changes as a result of purchases or sales of Common
Stock by unaffiliated shareholders.
Q: How will the Company fund the Reverse/Forward Stock Split?
A: The Company will fund the costs incurred by us in connection with the
Reverse/Forward Stock Split from borrowings under our revolving credit facility
with Fleet Capital Corporation ("Fleet"), as amended. Please see the section of
this proxy statement entitled "Additional Information Regarding the
Reverse/Forward Stock Split - Source of Funds and Expenses."
xi
TABLE OF CONTENTS
Page
SUMMARY TERM SHEET.............................................................i
QUESTIONS AND ANSWERS ABOUT THE MEETING AND TRANSACTIONS.....................iii
TABLE OF CONTENTS............................................................xii
INTRODUCTION...................................................................1
Proxies and Election Inspectors...........................................1
Who Can Vote at the Special Meeting.......................................2
Vote Required.............................................................3
SPECIAL FACTORS................................................................3
Purpose of the Reverse/Forward Stock Split................................3
Reasons for the Reverse Stock Split.......................................3
Inability to Realize Benefits Normally Associated with Public
Reporting Company Status..................................................6
Reasons for the Forward Stock Split.......................................6
Effect of the Reverse/Forward Stock Split.................................6
Effects on Shareholders...................................................7
Effects on Shareholders With Fewer Than 300 Shares of Common Stock........7
Effects on Shareholders With 300 or More Shares of Common Stock...........8
Effects on the Company....................................................9
No Change in Authorized Capital or Par Value.............................10
Failure to Effect Reverse/Forward Stock Split............................10
Anticipated Accounting Treatment.........................................10
Federal Income Tax Consequences..........................................10
Regulatory Approvals.....................................................11
Alternatives to the Reverse/Forward Stock Split..........................11
Fairness of the Reverse/Forward Stock Split..............................12
Procedural Fairness......................................................13
Factors Considered.......................................................13
Substantive Fairness.....................................................14
Factors Considered.......................................................14
Advantages of the Reverse/Forward Stock Split............................14
Disadvantages of the Reverse/Forward Stock Split.........................17
Fairness Determination of the Special Committee..........................18
Fairness Determination of the Board of Directors.........................20
Opinion of Financial Advisor.............................................20
PROPOSAL NO. 1 AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION..........25
Structure of the Reverse/Forward Stock Split.............................25
Background of the Reverse/Forward Stock Split............................27
Costs of Proxy Solicitation and the Reverse/Forward Stock Split..........33
ADDITIONAL INFORMATION REGARDING THE REVERSE/FORWARD STOCK SPLIT..............34
Special Interests of the Affiliated Shareholders in the
Reverse/Forward Stock Split..............................................34
Source of Funds and Expenses.............................................34
Dissenters' and Appraisal Rights.........................................35
Recommendation of the Board of Directors.................................35
Material Federal Income Tax Consequences.................................36
Federal Income Tax Consequences to Shareholders Who Receive Cash
in Connection with the Reverse/Forward Stock Split.......................36
Capital Gain and Loss....................................................37
Special Rate for Certain Dividends.......................................38
Backup Withholding.......................................................38
Market for Common Stock..................................................38
Dividend Policy..........................................................39
Financial Information....................................................39
Summary Financial Information............................................39
xii
THE REVERSE/FORWARD STOCK SPLIT...............................................40
Mechanics of the Reverse/Forward Stock Split.............................40
Conversion of Shares in the Reverse/Forward Stock Split..................41
Exchange of Certificates; Payment of Cash Consideration..................42
Effective Time of the Reverse/Forward Stock Split........................43
PROPOSAL NO. 2 AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO GRANT THE RIGHT OF FIRST REFUSAL......................................44
Special Interests of the Affiliated Shareholders in the Right
of First Refusal.........................................................44
Dissenters' and Appraisal Rights.........................................45
Recommendation of the Board of Directors.................................45
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS........................45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................46
PROPOSAL FOR NEXT SPECIAL MEETING.............................................47
GENERAL.......................................................................47
Cost of Proxy Materials..................................................47
Other Matters............................................................47
Where You Can Find More Information......................................47
Documents Incorporated By Reference......................................48
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS....................................................................48
ANNEX A-1 - PROPOSED FORM OF AMENDMENT TO ARTICLES OF INCORPORATION TO EFFECT
REVERSE STOCK SPLIT
ANNEX A-2 - PROPOSED FORM OF AMENDMENT TO ARTICLES OF INCORPORATION TO EFFECT
FORWARD STOCK SPLIT
ANNEX A-3 - PROPOSED FORM OF AMENDMENT TO ARTICLES OF INCORPORATION TO GRANT
RIGHT OF FIRST REFUSAL
ANNEX B - THE FINANCIAL ADVISOR'S FAIRNESS OPINION
PROXY CARD
xiii
PRELIMINARY COPY
PROXY STATEMENT
COLLINS INDUSTRIES, INC.
--------------------
SPECIAL MEETING OF SHAREHOLDERS
January 19, 2006
--------------------
INTRODUCTION
The accompanying proxy is being solicited by the Board of Directors of
Collins Industries, Inc., a Missouri corporation (the "Company"), on behalf of
the Company for use at a special meeting of shareholders to be held at 10:00
a.m., Central Standard Time, on Thursday, January 19, 2006 (the "Special
Meeting"), at the Dallas Marriott Solana, 5 Village Circle, Westlake, Texas and
at any adjournment thereof. The approximate date on which the proxy statement
and the form of proxy are being sent to shareholders is on or about [December
19], 2005. The cost of preparing and mailing the enclosed material is to be
borne by the Company.
At the Special Meeting, the following matters will be considered:
1. The approval of amendments to the Company's Articles of
Incorporation to effect a reverse/forward stock split of the Company's
outstanding Common Stock, whereby the Company will effect a 1-for-300
reverse stock split, such that shareholders owning fewer than 300 shares of
Common Stock will have such shares cancelled and converted into the right
to receive the cash consideration set forth herein, immediately followed by
a 300-for-1 forward stock split (the "Reverse/Forward Stock Split");
2. The approval of an amendment to the Company's Articles of
Incorporation granting to the Company an option to acquire shares proposed
to be sold by shareholders subsequent to the Reverse/Forward Stock Split
if, after such sale, there would be 250 or more holders of record of the
Common Stock (the "Right of First Refusal"); and
3. The transaction of such other business as may properly come before
the meeting or any adjournment(s) thereof.
The Board of Directors recommends that shareholders vote FOR the amendments to
the Company's Articles of Incorporation to (i) effect the Reverse/Forward Stock
Split and (ii) grant to the Company the Right of First Refusal. The Company's
principal office is located at 15 Compound Drive, Hutchinson, Kansas 67502. The
Company's telephone number is 620-663-5551.
THE REVERSE/FORWARD STOCK SPLIT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, AND
NEITHER THE SECURITIES EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS PASSED UPON THE FAIRNESS OR MERITS OF THE REVERSE/FORWARD STOCK SPLIT OR
UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Proxies and Election Inspectors
Proxies that are properly executed and duly returned to the Company will be
voted in accordance with the instructions contained therein. If no instruction
is given with respect to any proposal to be acted upon, the proxy will be voted
in favor of the proposals set forth therein. Each proxy granted may be revoked
at any time prior to its exercise by the subsequent execution and submission of
a revised proxy, by written notice to the Company, or by voting in person at the
Special Meeting.
1
Votes cast by proxy or in person at the Special Meeting will be counted by
the persons appointed by the Company to act as election inspectors for the
meeting. The election inspectors will treat shares represented by proxies that
reflect abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum and for purposes of determining the
outcome of any matter submitted to the shareholders for a vote.
The election inspectors will treat shares referred to as "broker non-votes"
(i.e., shares held by brokers or nominees as to which instructions have not been
received from the beneficial owners or persons entitled to vote that the broker
or nominee does not have discretionary power to vote on a particular matter) as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. However, for purposes of determining the outcome of any
matter as to which the broker has physically indicated on the proxy that it does
not have discretionary authority to vote, those shares will be treated as not
present and will be tabulated as if the votes were not cast for the matters
indicated (even though those shares are considered entitled to vote for quorum
purposes and may be entitled to vote on other matters).
Who Can Vote at the Special Meeting
Currently, the only class of voting securities of the Company is its common
stock, par value $.10 per share, which we refer to as the Common Stock, each
share of which entitles the holder thereof to one vote. As of November 11, 2005
(the "Record Date"), there were 6,633,013 shares of Common Stock outstanding and
entitled to vote at the Special Meeting or any adjournment thereof. Immediately
prior to the time the amendment to our Articles of Incorporation including the
Right of First Refusal is filed with the Secretary of State of the State of
Missouri, our Board of Directors will adopt a resolution to create and issue one
share of capital stock that has the identical privileges, powers, rights,
qualifications, and limitations of the Common Stock, except that the
newly-issued share of capital stock will not be subject to the Right of First
Refusal.
You may vote all of the Common Stock that you own as of the close of
business on the Record Date, which includes shares held directly in your name as
the "shareholder of record" and shares held for you as the "beneficial owner"
either through a broker, bank, or other nominee. Many of our shareholders hold
their shares through a broker, bank, or other nominee rather than directly in
their own name. As summarized below, there are some important distinctions
between shares held of record and those owned beneficially.
Shareholder of Record: If your shares are registered directly in your name
with our transfer agent, Mellon Investor Services LLC (the "Transfer
Agent"), you are considered, with respect to those shares, the shareholder
of record, and these proxy materials are being sent to you by us. As the
shareholder of record, you have the right to vote by proxy or in person at
the Special Meeting. We have enclosed proxy cards for you to use for the
shares of Common Stock that you own.
Beneficial Owner: If your shares are held in a stock brokerage account or
by a bank or other nominee, you are considered the "beneficial owner" of
shares held in "street name" with respect to those shares, and the proxy
materials are being forwarded to you by your broker or other nominee. As
the beneficial owner, you have the right to direct your broker or other
nominee how to vote and are also invited to attend the Special Meeting. As
the beneficial owner, however, you are not the shareholder of record, and
you may not vote these shares in person at the Special Meeting unless you
obtain a signed proxy appointment form from your broker or other nominee
giving you the right to vote the shares. To vote by proxy, you must follow
the voting instructions provided by your broker, bank, or other nominee.
All holders of Common Stock may attend the Special Meeting in person. If
you are a beneficial owner of Common Stock held by a broker, bank or other
nominee (i.e., in "street name"), you will need proof of ownership to be
admitted to the Special Meeting. A recent brokerage statement or letter from a
bank or broker are examples of proof of ownership. Only holders of record of
Common Stock as of the Record Date or their duly appointed proxies may cast
their votes in person at the Special Meeting.
Whether you hold your shares directly as shareholder of record or
beneficially in street name, you may direct your vote without attending the
Special Meeting. You may vote shares registered in your name by signing your
proxy card and shares held in street name by following the voting instructions
provided by your broker, bank,
2
or nominee. If you provide specific voting instructions, your shares will be
voted as you instruct. If you sign and return a proxy card without specifying
your voting instructions, your shares will be voted as described above in
"Questions and Answers About the Meeting and Transactions."
Vote Required
A majority of the outstanding shares of Common Stock, represented in person
or by proxy, will constitute a quorum for the purposes of approving the
amendments to our Articles of Incorporation to (i) effect the Reverse/Forward
Stock Split and (ii) grant to the Company the Right of First Refusal. Assuming
the presence of a quorum, the affirmative vote of a majority of the shares of
Common Stock issued and outstanding and entitled to vote at the Special Meeting
is required for the adoption of the proposals set forth herein.
As of the Record Date, our directors and executive officers held a total of
approximately 30.24% of the Common Stock entitled to vote at the Special
Meeting. Our directors and executive officers have indicated that they will vote
"FOR" the Reverse/Forward Stock Split and Right of First Refusal at the Special
Meeting.
SPECIAL FACTORS
Purpose of the Reverse/Forward Stock Split
The primary purpose of the Reverse/Forward Stock Split is to enable the
Company to deregister and terminate its obligations to file special and periodic
reports and make other filings with the Securities and Exchange Commission (the
"SEC"). The purpose behind the proposal and the benefits of deregistering the
Common Stock include eliminating the costs associated with filing documents
under the Securities Exchange Act of 1934 (the "Exchange Act") with the SEC,
eliminating the costs of compliance with the Sarbanes-Oxley Act of 2002
("Sarbanes-Oxley") and related regulations, reducing the direct and indirect
costs of administering shareholder accounts and responding to shareholder
requests, and affording shareholders holding fewer than 300 shares immediately
before the transaction the opportunity to receive cash for their shares without
having to pay brokerage commissions and other transaction costs.
By purchasing the shares of the holders of fewer than 300 shares, we will:
• Reduce the number of the Company's shareholders of record to fewer
than 300 persons, which will allow us to terminate the registration of
the Common Stock under Section 12(g) of the Exchange Act and suspend
the Company's duty to file periodic reports with the SEC;
• Eliminate the administrative burden and expense of maintaining small
shareholder accounts;
• Permit these small shareholders to liquidate their shares of Common
Stock at a fair price, without having to pay brokerage commissions, as
we will pay all transaction costs in connection with the
Reverse/Forward Stock Split; and
• Cause minimal disruption to shareholders owning 300 or more shares of
Common Stock.
Reasons for the Reverse Stock Split
We incur direct and indirect costs associated with compliance with the
Exchange Act's filing and reporting requirements imposed on public companies.
The cost of compliance has increased significantly with the implementation of
the provisions of Sarbanes-Oxley. We also incur substantial indirect costs as a
result of, among other things, the executive time expended to prepare and review
our public filings. As we have relatively few executive personnel, these
indirect costs can be substantial.
We incur direct and indirect costs associated with the filing and reporting
requirements imposed on SEC reporting companies. As an SEC reporting company, we
are required to prepare and file with the SEC, among other items, the following:
3
• Annual Reports on Form 10-K;
• Quarterly Reports on Form 10-Q;
• Proxy statements and annual reports required by Regulation 14A under
the Exchange Act; and
• Current Reports on Form 8-K.
In addition, we pay for the costs of preparing our directors' and officers'
Section 16(a) reports (Forms 3, 4 and 5) and Section 13(d) reports (Schedule 13D
or Schedule 13G) (for directors or officers that are 5% shareholders). The costs
associated with these reports and other filing obligations are a significant
overhead expense, including professional fees for our auditors and legal
counsel, printing and mailing costs, internal compliance costs, and transfer
agent costs. These related costs have been increasing over recent years, and we
believe that they will continue to increase, particularly as a result of the
additional reporting and disclosure obligations imposed on SEC reporting
companies by the recently enacted Sarbanes-Oxley.
The Board of Directors and, as a group, the executive officers and
directors of the Company (the "Affiliated Shareholders") believe that by
deregistering the Common Stock and suspending the Company's periodic reporting
obligations, the Company will experience an initial special annual cost
savings/cost avoidance of approximately $845,000, consisting of (i) $200,000 in
annual costs historically incurred, (ii) $550,000 in annual costs that would
otherwise be expected to be incurred in order to comply with Section 404 of
Sarbanes-Oxley, and (iii) $95,000 in annual costs that would otherwise be
expected to be incurred in order to comply with other provisions of
Sarbanes-Oxley. Such estimated annual costs are further described in greater
detail below:
Historical Fees:
Legal fees $ 70,000
Printing, mailing, and filing costs 10,000
Audit and quarterly review fees 105,000
Other fees 15,000
--------------------
Total $ 200,000
Section 404 Fees:
Third party planning, testing, and documentation $ 150,000
Audit fees 200,000
Internal Personnel 150,000
Other Fees 50,000
--------------------
Total $ 550,000
Other Sarbanes-Oxley Compliance Fees:
Legal fees $ 20,000
Audit fees 50,000
Other fees 25,000
--------------------
Total $ 95,000
Total $ 845,000
4
Such estimated cost savings/cost avoidance reflect, among other things: (i)
a reduction in audit and related fees, (ii) a reduction in legal fees related to
securities law compliance, (iii) the elimination of costs associated with filing
periodic reports with the SEC, (iv) the reduction in management time spent on
compliance and disclosure matters attributable to our Exchange Act filings, (v)
the lower risk of liability that is associated with non-reporting (as
distinguished from public reporting) company status, (vi) the cost savings of
approximately $550,000 per annum of not having to comply with the new internal
control audit requirements imposed by Section 404 of Sarbanes-Oxley, and (vii)
the reduction in direct miscellaneous clerical and other expenses.
The cost savings/cost avoidance figures set forth above are only estimates.
The actual cost savings/cost avoidance we realize from no longer being a public
reporting company may be higher or lower than such estimates. Estimates of the
special cost savings/cost avoidance to be realized if the Reverse/Forward Stock
Split is consummated are based upon (i) the actual costs to us of the services
and disbursements in each of the categories listed above that were reflected in
our recent financial statements and (ii) the allocation to each category of
management's estimates of the portion of the expenses and disbursements in such
category believed to be solely or primarily attributable to our public reporting
company status.
It is important to note that in addition to the above-referenced special
estimated annual cost savings/cost avoidance, the consummation of the
Reverse/Forward Stock Split and subsequent deregistration of the Common Stock
would result in a significant one-time cost savings/cost avoidance due to the
Company's not being subject to the new internal control audit requirements
imposed by Section 404 of Sarbanes-Oxley. Preparing the Company to comply with
Section 404 of Sarbanes-Oxley for the Company's fiscal year ending October 31,
2007 would require significant expenditures prior to that date, including costs
related to computer software and hardware, fees to third parties for compliance
planning, assessment, documentation and testing, and costs related to internal
personnel. These costs are estimated to exceed $1,500,000, and are comprised of
expenditures relating to the following: (i) the preparation for Section 404
implementation, including the development, testing, and documentation of Company
policy and internal controls for the Company and each of its subsidiaries, (ii)
the Company's Audit Committee's extensive review and oversight of the Section
404 implementation process, (iii) the purchase of new computer software and
hardware to more effectively monitor and document internal controls, (iv) the
training of internal personnel and management, (v) the hiring of additional
internal personnel for areas which require additional controls, (vi) the hiring
of third-parties to provide consulting and to conduct compliance planning,
assessment, documentation, and testing, and (vii) the initial review, audit, and
attestation of the Company's external auditors. The majority of these expenses
will be non-recurring. However, on an ongoing basis, the Company will need to
comply with the requirements of Section 404 of Sarbanes-Oxley, and review and
update these processes and resources. The cost of annual compliance in fiscal
year 2007 and each year thereafter is estimated at $550,000 per year.
We expect the actual cost savings/cost avoidance of being a non-reporting
company to be much greater than simply eliminating the estimated historical
out-of-pocket costs. As a result of recent corporate governance scandals, the
legislative and litigation environment resulting from those scandals, the costs
of being a public reporting company in general, and the costs of our remaining a
public reporting company in particular, are expected to continue to increase in
the near future. Moreover, new legislation, such as Sarbanes-Oxley, will likely
continue to have the effect of increasing the compliance burdens and potential
liabilities of being a public reporting company. This and other proposed
legislation will likely continue to increase audit fees and other costs of
compliance such as securities counsel fees, increase outside director fees and
increase potential liability faced by our officers and directors.
In some instances, management's cost saving/cost avoidance expectations
were based on information provided by third parties or upon verifiable
assumptions. For example, our auditors have informed us, informally, that there
will be a reduction in auditing fees if we no longer continue as a public
reporting company. In addition, the costs associated with retaining legal
counsel to assist with complying with the Exchange Act reporting requirements
will be eliminated if we no longer file reports with the SEC and are otherwise
not required to comply with the disclosure requirements that apply to public
reporting companies.
5
Inability to Realize Benefits Normally Associated with Public Reporting Company
Status
An additional reason for the Reverse/Forward Stock Split relates to the
inability of the Company to realize many of the benefits normally presumed to
result from being a public reporting company, such as the following:
• A typical advantage from being a public reporting company comes from
the ability to use company stock, as opposed to cash or other
consideration, to effect acquisitions. The Company has monitored
competing manufacturers and attempted to identify other complimentary
businesses. It is not aware of, and does not expect to identify, an
acquisition opportunity that would likely employ the Common Stock as
acquisition consideration, or require access to public equity markets
to raise additional capital.
• Public companies can also obtain financing by issuing securities in a
public offering. Given the maturity of the markets it serves, and the
adequacy of private debt markets, the Company has not needed to access
the capital markets in such a manner in recent years and does not
presently intend to do so.
• Public companies often endeavor to use company stock to attract,
retain and motivate employees. In recent years, due to the limited
market price increases, the Company has used the Common Stock in such
a manner on a limited basis.
• An enhanced company image often accompanies public reporting company
status. The Company has determined that due to its size and other
factors, the Company has not enjoyed an appreciable enhancement in
company image as a result of its public reporting company status.
In light of the foregoing, the Board of Directors and the special committee
of independent directors of the Company's Board of Directors (the "Special
Committee") believe the benefits associated with maintaining our status as a
public reporting company and maintaining our small shareholder accounts are
substantially outweighed by the costs, both financial and operational,
associated therewith. The Board of Directors and the Special Committee believe
that it is in the best interests of the Company to eliminate the administrative
burden and costs associated with maintaining its status as a public reporting
company and its small shareholder accounts. The Board of Directors and the
Special Committee have determined that the Reverse/Forward Stock Split is the
most expeditious and economical way of liquidating the holdings of small
shareholders and changing our status from that of a public reporting company to
that of a more closely-held, non-reporting company. The Board of Directors, upon
the recommendation and approval of the Special Committee, has determined that
the reverse stock split ratio should be 1-for-300 and that the forward stock
split ratio should be 300-for-1. Numerous factors were considered in reaching
its determination. For a more detailed discussion, please see "Additional
Information Regarding the Reverse/Forward Stock Split - Recommendation of the
Board of Directors" and "Special Factors - Fairness of the Reverse/Forward Stock
Split" in this proxy statement.
Reasons for the Forward Stock Split
Effecting the forward stock split immediately after the reverse stock split
benefits the Company by (i) preventing the Common Stock from having an unusually
high value per share, which tends to decrease the liquidity of shares, and (ii)
avoiding the need to adjust the exercise price of any awards previously granted
under the Company's 1995 Stock Option Plan and 1997 Omnibus Incentive Plan (the
"Stock Incentive Plans").
Effect of the Reverse/Forward Stock Split
If the Reverse/Forward Stock Split is consummated, we intend to apply for
termination of registration of the Common Stock under the Exchange Act as soon
as practicable after completion of the Reverse/Forward Stock Split. The
Reverse/Forward Stock Split is expected to reduce the number of shareholders of
record of the Company from approximately 466 to approximately 172. Upon the
termination of our reporting obligations under the Exchange Act, the Common
Stock will remain eligible for quotation on the "pink sheets," as described
below. However, the completion of the Reverse/Forward Stock Split and the
deregistration of the Common Stock under the Exchange Act may cause the trading
market for shares of the Common Stock to be significantly reduced and as
6
result, adversely affect the liquidity of the Common Stock. In addition, because
market makers (and not the Company) quote our Common Stock in the "pink sheets,"
we cannot guarantee that our Common Stock will always be available for trading
in the "pink sheets."
Effects on Shareholders
As used in this proxy statement, the term "Affiliated Shareholder" means
any shareholder who is one of our directors or officers, and the term
"unaffiliated shareholder" means any shareholder other than an Affiliated
Shareholder. The Reverse/Forward Stock Split will generally affect the Company's
Affiliated Shareholders and unaffiliated shareholders the same. As a result, we
expect that the percentage ownership of our officers and directors as a group
would increase slightly from 30.24% before the Reverse/Forward Stock Split to
30.61% after the Reverse/Forward Stock Split. Although there is a slight change
in the percentage of Common Stock collectively beneficially owned by the
Affiliated Shareholders of the Company, it will not affect the control of the
Company. For more information on our officers' and directors' security
interests, please refer to the section below entitled "Security Ownership of
Directors and Executive Officers."
The effects of the Reverse/Forward Stock Split would vary based on whether
or not all or any portion of the shareholder's shares would be cashed out in the
transaction. The determination of whether or not any particular shares of Common
Stock would be cashed out in the Reverse/Forward Stock Split would be based on
whether the holder of those shares holds fewer than 300 shares of Common Stock
and whether such shares are held of record or in street name with a broker or
other nominee. Because a shareholder may hold a portion of her shares of record
and a portion of her shares in street name, a shareholder may have a portion of
her shares subject to the terms of the Reverse/Forward Stock Split and a portion
not subject to the Reverse/Forward Stock Split depending on the procedures and
determination of her broker or other nominee.
Effects on Shareholders With Fewer Than 300 Shares of Common Stock
If the Reverse/Forward Stock Split is implemented, shareholders holding
fewer than 300 shares of Common Stock immediately before the Reverse/Forward
Stock Split (the "Cashed Out Shareholders"):
• will not receive a fractional share of Common Stock as a result of the
Reverse/Forward Stock Split;
• will instead receive cash equal to $7.70 per share for each share of
Common Stock held immediately before the Reverse/Forward Stock Split
in accordance with the procedures described in this proxy statement;
• will have no further ownership interest in the Company with respect to
cashed out shares and will no longer be entitled to vote as
shareholders;
• will not be required to pay any service charges or brokerage
commissions in connection with the Reverse/Forward Stock Split; and
• will not receive any interest on the cash payments made as a result of
the Reverse/Forward Stock Split.
Cash payments to Cashed Out Shareholders as a result of the Reverse/Forward
Stock Split will be subject to income taxation. For a discussion of the federal
income tax consequences of the Reverse/Forward Stock Split, please see
"Additional Information Regarding the Reverse/Forward Stock Split - Material
Federal Income Tax Consequences" in this proxy statement.
If you would otherwise be a Cashed Out Shareholder as a result of your
owning fewer than 300 shares of Common Stock, but you would rather continue to
hold Common Stock after the Reverse/Forward Stock Split and not be cashed out,
you may do so by taking either of the following actions:
7
• Purchase a sufficient number of additional shares of Common Stock on
the open market and have them registered in your name and consolidated
with your current record account, if you are a record holder, or have
them entered in your account with a nominee (such as your broker or
bank) in which you hold your current shares so that you hold at least
300 shares of Common Stock in your record account immediately before
the Effective Date (as defined below) of the Reverse/Forward Stock
Split; or
• If applicable, consolidate your accounts so that together you hold at
least 300 shares of Common Stock in one record account immediately
before the Effective Date (as defined below) of the Reverse/Forward
Stock Split.
You will have to act far enough in advance so that the purchase of any
Common Stock and/or consolidation of your accounts containing Common Stock is
completed by the close of business prior to the Effective Date of the
Reverse/Forward Stock Split. The "Effective Date" is the date upon which the
Certificates of Amendment to our Articles of Incorporation become effective and
may not be prior to the date of the Special Meeting.
Effects on Shareholders With 300 or More Shares of Common Stock
If the Reverse/Forward Stock Split is implemented, shareholders holding 300
or more shares of Common Stock immediately before the Reverse/Forward Stock
Split (the "Continuing Shareholders"):
• will not be affected in terms of the number of shares of Common Stock
held before and after the Reverse/Forward Stock Split;
• will be the only persons entitled to vote as shareholders after the
consummation of the Reverse/Forward Stock Split;
• will not receive cash for any portion of their shares; and
• may experience a reduction in liquidity with respect to the Common
Stock due to the expected termination of the registration of the
Common Stock under the Exchange Act.
In the event that we terminate the registration of the Common Stock under
the Exchange Act, we will no longer be required to file public reports of our
financial condition and other aspects of our business with the SEC. While the
Company intends to provide to shareholders information regarding the Company's
business and results of operation after the Reverse/Forward Stock Split, we can
make no assurances as to the type of information that we will provide, the form
in which the information will be presented, and the frequency with which we will
make such information available. As such, shareholders remaining in the Company
following the Reverse/Forward Stock Split may not have available all of the
information regarding the Company's operations and results that is currently
available in the Company's filings with the SEC. We may also decide to provide
certain financial and other information on our web site at some time in the
future.
Further, in the event that we terminate the registration of the Common
Stock under the Exchange Act, the Company will no longer be subject to the
provisions of Sarbanes-Oxley or the liability provisions of the Exchange Act.
Also, the officers of the Company will no longer be required to certify the
accuracy of the Company's financial statements.
Effective May 16, 2005, the Common Stock was delisted from the Nasdaq
National Market. The Company has determined not to have the Common Stock
relisted on a national exchange. Any trading in the Common Stock since being
delisted has occurred through the "pink sheets." In the event that we terminate
the registration of the Common Stock under the Exchange Act, the Common Stock
will no longer be eligible for trading on any securities market except through
the "pink sheets," which shareholders may not find to be an adequate source of
liquidity. Furthermore, there is no assurance that shares of the Common Stock
will be available for purchase or sale after the Reverse/Forward Stock Split has
been consummated. Lastly, because market makers (and not the Company) quote our
Common Stock in the "pink sheets," we cannot guarantee that our Common Stock
will always be available for
8
trading in the "pink sheets." For further discussion of the market for the
Common Stock, please refer to the section below entitled "Additional Information
Regarding the Reverse/Forward Stock Split - Market for Common Stock."
The deregistration and subsequent decreased liquidity of the Common Stock
may result in the Company having less flexibility in attracting and retaining
executives and other employees because equity-based incentives (such as stock
options) tend not to be viewed as having the same value in a non-public
reporting company. Further, the Company will be less likely to be able to use
stock to acquire other companies (although we have not done this in many years),
it will be more difficult for the Company to access the public equity and public
debt markets (although we have not done this in many years), it will be more
difficult and more expensive for the Company to access the private debt markets,
and it will be more difficult for our vendors and customers to determine the
creditworthiness of the Company.
Effects on the Company
If consummated, the Reverse/Forward Stock Split will permit us to terminate
the registration of the Common Stock under the Exchange Act. We intend to apply
for termination of such registration as soon as practicable after the
Reverse/Forward Stock Split.
The Reverse/Forward Stock Split is intended to reduce the number of
shareholders of record of the Company to fewer than 300. The completion of the
Reverse/Forward Stock Split and the deregistration of the Common Stock under the
Exchange Act will render the Common Stock ineligible for listing or quotation on
any stock exchange or other automated quotation system. After the
Reverse/Forward Stock Split, our Common Stock will remain eligible for quotation
on the "pink sheets." However, Continuing Shareholders may find the public
market for shares of Common Stock to be significantly reduced. In addition,
because market makers (and not the Company) quote our Common Stock in the "pink
sheets," we cannot guarantee that our Common Stock will always be available for
trading in the "pink sheets."
As a result of the approximately 80,281 pre-split shares of Common Stock
that are expected to be cashed out at $7.70 per share, for a total cost
(including expenses) of $943,164, (i) the aggregate shareholders' equity of the
Company as of July 31, 2005, would reduce from approximately $24,700,511 on a
historical basis to approximately $23,757,347 on a pro forma basis; and (ii) the
book value par share of Common Stock as of July 31, 2005, would decrease from
$3.93 per share on a historical basis to approximately $3.83 on a pro forma
basis.
We have no current plans to issue Common Stock after the Reverse/Forward
Stock Split other than pursuant to our Stock Incentive Plans, but we reserve the
right to do so at any time and from time to time at such prices and on such
terms as the Board of Directors determines to be in the best interests of the
Company. Continuing Shareholders will not have any preemptive or other
preferential rights to purchase any of our stock that we may issue in the
future, unless such rights are specifically granted to the shareholders.
While the Company has no present plan to do so, after the Reverse/Forward
Stock Split has been consummated, the Company may, from time to time, repurchase
shares of Common Stock pursuant to a repurchase program, privately negotiated
sale, or other transaction. Whether or not the Company seeks to purchase shares
in the future will depend on a number of factors, including the Company's
financial condition, operating results, and available capital at the time.
We expect to use approximately $943,164 of cash to complete the
Reverse/Forward Stock Split, including the transaction costs, and that this use
of cash will not have any materially adverse effect on our liquidity, results of
operation, or cash flow. Because we do not know the exact amount of shares that
would be cashed out, we can only estimate the total amount to be paid to
shareholders in the Reverse/Forward Stock Split. We have sufficient funds
available under our credit facility with Fleet and believe that such funds will
be more than offset by anticipated cost savings. For further discussion of our
financing of the Reverse/Forward Stock Split, please refer to the section below
entitled "Special Factors - Source of Funds and Expenses."
If implemented, the Reverse/Forward Stock Split will not have any effect on
the compensation to be received by our directors or executive officers or on our
employment arrangements with our executive officers. We refer you to the
information under the heading "Security Ownership of Directors and Executive
Officers" for
9
information regarding our current officers and directors and their stock
ownership. We expect that upon the completion of the Reverse/Forward Stock
Split, the shares beneficially owned by our directors and executive officers
will comprise approximately 30.61% of the then issued and outstanding shares of
Common Stock. Although there is a slight change in the percentage of Common
Stock collectively beneficially owned by the executive officers and directors of
the Company, it will not affect the control of the Company.
No Change in Authorized Capital or Par Value
After giving effect to the Reverse/Forward Stock Split, our authorized
capital will remain at 20,000,000 shares, of which 17,000,000 is Common Stock
and 3,000,000 is capital stock, other than Common Stock. Additionally, the par
value of the Common Stock will remain $0.10 per share following consummation of
the Reverse/Forward Stock Split. We intend to return all shares of Common Stock
purchased by us from Cashed Out Shareholders to authorized, but unissued shares
of Common Stock.
Immediately prior to the time the amendment to our Articles of
Incorporation including the Right of First Refusal is filed with the Secretary
of State of the State of Missouri, our Board of Directors will adopt a
resolution to create and issue one share of capital stock that has the identical
privileges, powers, rights, qualifications, and limitations of the Common Stock,
except that the newly-issued share of capital stock will not be subject to the
Right of First Refusal. Missouri law permits the stock of any class or series to
be made subject to redemption by the company at its option, or at the option of
the holders of such stock, or upon the happening of a specified event; provided,
that at the time of such redemption the company has outstanding shares of at
least one class or series of stock with full voting powers which are not subject
to the redemption. Thus, in order for the Company to implement the Right of
First Refusal, it is required to issue at least one new share of capital stock
that has the identical privileges, powers, rights, qualifications, and
limitations of the Common Stock, but that is not subject to the Right of First
Refusal.
After giving effect to the issuance of one share of non-redeemable common
stock, our authorized capital will remain at 20,000,000 shares, of which
17,000,000 is Common Stock, one is non-redeemable common stock, and 2,999,999 is
capital stock, other than Common Stock.
Failure to Effect Reverse/Forward Stock Split
Although the Board of Directors believes that the Reverse/Forward Stock
Split will be consummated and that the Company will deregister, we cannot
guarantee that the Reverse/Forward Stock Split will result in the Company
deregistering the Common Stock. Even if shareholder approval of the
Reverse/Forward Stock Split is obtained, the Board of Directors will not
implement the Reverse/Forward Stock Split if it determines that the
Reverse/Forward Stock Split (i) would result in the number of shareholders of
record remaining to be 300 or more or (ii) would not be in the Company's best
interest. As a result, the Company would continue to be a public reporting
company and would continue to file annual and quarterly reports on Form 10-K and
Form 10-Q. The Board of Directors considered the possibility that the
Reverse/Forward Stock Split may not be implemented.
Anticipated Accounting Treatment
We anticipate accounting for the purchase of the outstanding Common Stock
from shareholders in the Reverse/Forward Stock Split as treasury stock.
Federal Income Tax Consequences
The decision to engage in the Reverse/Forward Stock Split at this time is
not the result of any tax consequences of the transaction. We believe that the
Reverse/Forward Stock Split will not result in material federal income tax
consequences to the Company. In addition, Continuing Shareholders who do not
receive any cash as a result of the Reverse/Forward Stock Split should not
recognize any gain or loss as a result of the Reverse/Forward Stock Split. A
Continuing Shareholder's tax basis and holding period in the Common Stock should
remain unchanged after the Reverse/Forward Stock Split. On the other hand,
Cashed Out Shareholders generally will recognize capital gain or loss for
federal income tax purposes as a result of the Reverse/Forward Stock Split. Such
gain or loss will be measured by the difference between the cash received by
such Cashed Out Shareholder and the
10
aggregate adjusted tax basis in such Cashed Out Shareholder's stock. For a more
detailed discussion of the federal tax consequences of the Reverse/Forward Stock
Split, please refer to the section below entitled "Additional Information
Regarding the Reverse/Forward Stock Split - Material Federal Income Tax
Consequences."
Regulatory Approvals
We are not aware of any material governmental or regulatory approval
required for completion of the Reverse/Forward Stock Split, other than
compliance with the relevant federal and state securities laws and the corporate
laws of the State of Missouri.
Alternatives to the Reverse/Forward Stock Split
In making the determination to proceed with the Reverse/Forward Stock
Split, the Board of Directors and the Special Committee considered the
feasibility of certain other alternative transactions, as described below:
• Issuer Tender Offer. The Board of Directors and the Special Committee
also considered the feasibility of an issuer tender offer to
repurchase the shares of Common Stock and held by unaffiliated
shareholders of the Company. A principal disadvantage of this type of
transaction relates to the Company's ability or willingness to secure
the debt financing needed to effect a tender offer in which there is
full participation by unaffiliated shareholders. In addition, due to
the voluntary nature of such a transaction, the Company would have no
assurance that the transaction would result in a sufficient number of
shares being tendered. Moreover, the tender offer rules regarding the
treatment of shareholders, including pro-rata acceptance of offers
from shareholders, make it difficult to ensure that the Company would
be able to significantly reduce the number of record shareholders. As
a result of these disadvantages, the Board of Directors and the
Special Committee determined not to pursue this alternative.
• Partial Cash-Out Merger. The Board of Directors and the Special
Committee also considered the feasibility of a transaction in which
the Company would cash out shareholders owning less than a specified
number of shares by merging a newly-formed subsidiary of the Company
with and into the Company. While the effect of this transaction would
be similar to that of a reverse stock split, the Board and Directors
and the Special Committee rejected this alternative because the
proposed Reverse/Forward Stock Split would be simpler and more
cost-effective than a partial cash-out merger.
• Traditional Stock Repurchase Program. The Board of Directors and the
Special Committee also considered a plan whereby the Company would
periodically repurchase shares of the Common Stock on the open market
at then current market price. The Company rejected such an approach.
Repurchasing enough shares in this manner to enable the Company to
deregister under the Exchange Act would likely take an extended period
of time, have no assurance of success and be of undeterminable cost.
• Odd-Lot Repurchase Program. The Board of Directors and the Special
Committee also considered the feasibility of a transaction in which
the Company would announce to its shareholders that it would
repurchase, at a designated price per share, the shares of common
stock held by any shareholder who holds less than a specified number
of shares (that is fewer than 100 shares) and who offers such shares
for sale pursuant to the terms of the program. A principal
disadvantage of such an approach, however, results from the voluntary
nature of the program. Because shareholders would not be required to
participate in the program, the Company could not be certain at the
outset whether a sufficient number of odd-lot shareholders would
participate and thereby result in the number of shareholders being
reduced to below 300. In terms of timing, such a program, especially
after giving effect to any extensions of deadlines for tendering into
the program, would likely necessitate a longer time frame than that of
a reverse stock split. As a result of these disadvantages, the Board
of Directors and the Special Committee rejected this alternative.
11
• Reverse Stock Split Without a Forward Stock Split. The Board of
Directors and the Special Committee also considered this alternative,
which would accomplish the objective of reducing the number of
shareholders of the Company below the 300 threshold. In a reverse
stock split without a subsequent forward stock split, we would acquire
not only the interests of the cashed out shareholders, but also the
fractional share interests of those shareholders who are not cashed
out (as compared to the proposed transaction in which only those
shareholders whose shares are converted to fewer than one whole share
after the reverse stock split would have their fractional interests
cashed out; and all fractional interests held by shareholders holding
more than one whole share after the reverse stock split would be
reconverted to whole shares in the forward stock split). The Board of
Directors and the Special Committee rejected this alternative due to
the higher cost involved with conducting a reverse stock split without
a forward stock split. In addition, effecting the forward stock split
immediately after the reverse stock split benefits the Company by (i)
preventing the Common Stock from having an unusually high value per
share, which tends to decrease the liquidity of shares, and (ii)
avoiding the need to adjust the exercise price of any awards
previously granted under the Company's Stock Incentive Plans.
• Maintaining the Status Quo. The Board of Directors and the Special
Committee also considered maintaining the status quo. In that case,
the Company would continue to incur the expenses of being a public
reporting company without enjoying the benefits traditionally
associated with having public reporting company status. The Board of
Directors and the Special Committee believe that maintaining the
status quo is not in the best interests of the Company and rejected
this alternative.
Fairness of the Reverse/Forward Stock Split
In order to provide a fair consideration of this transaction, the Board of
Directors created the Special Committee consisting of three non-employee
directors, Arch G. Gothard, III, Don S. Peters and William R. Patterson. The
Special Committee was given the authority to evaluate the appropriateness of a
transaction that would permit the Company to deregister our Common Stock, as
well as the desired transaction structure, terms and conditions of any such
transaction.
Messrs. Gothard, Peters, and Patterson were chosen to serve on the Special
Committee because they are "independent," as such term is defined under Rule
10A-3 of the Exchange Act. None are currently employed as an officer or employee
of the Company, beneficially own, directly or indirectly, more than 10% of the
Common Stock, or hold any other relationship which, in the opinion of the Board
of Directors, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director. The members of the Special
Committee, Messrs. Gothard, Peters, and Patterson, in addition to being
independent directors of the Company, have been board members since 1987, 1983,
and 1998, respectively, and are familiar with our business and prospects.
The Special Committee has fully reviewed and considered the terms, purpose,
alternatives, and effects of the Reverse/Forward Stock Split and has determined
and reasonably believes that the Reverse/Forward Stock Split is in the best
interests of the Company and is substantively and procedurally fair to each
group of affiliated and unaffiliated shareholders of the Company, including the
unaffiliated Cashed Out Shareholders who, individually, will receive cash in
lieu of fractional shares fewer than one whole share and the unaffiliated
Continuing Shareholders, individually, who will remain shareholders of the
Company after the Reverse/Forward Stock Split. After studying the
Reverse/Forward Stock Split and its anticipated effects on our shareholders, the
Special Committee unanimously approved the Reverse/Forward Stock Split.
The Board of Directors and the Special Committee believe that they have a
fiduciary responsibility to all shareholders of the Company, including the
Cashed Out Shareholders as well as the Continuing Shareholders. Paying excessive
cash consideration to shareholders with fewer than 300 shares of Common Stock
would not be fair to the Continuing Shareholders remaining after the
Reverse/Forward Stock Split, while paying inadequate cash consideration would
not be fair to our Cashed Out Shareholders receiving such consideration in
exchange for their shares. In upholding its fiduciary responsibility to all of
the shareholders of the Company, the Special Committee reviewed and considered
the terms, alternatives, and effects of the Reverse/Forward Stock Split on each
of the Cashed Out Shareholders, the Continuing Shareholders, and the Company.
The Special Committee considered the
12
presentation and valuation analyses of Stifel, Nicolaus & Company, Incorporated,
a regional investment banking firm ("Stifel"), as outlined in its fairness
opinion, which is discussed in greater detail in the section below entitled
"Special Factors - Opinion of Financial Advisor."
The Special Committee has set the cash consideration to be paid to Cashed
Out Shareholders at $7.70 per share of Common Stock, and the Board of Directors,
upon recommendation and approval of the Special Committee, approved such
determination. The Special Committee retained Stifel as its financial advisor in
connection with the Reverse/Forward Stock Split. Stifel completed its valuation
analysis dated as of October 28, 2005, indicating that the going concern value
of the Common Stock ranged from $6.47 to $8.12. On October 31, 2005, Stifel
delivered its opinion, subsequently confirmed in writing, to the Special
Committee that, as of such date, and based on and subject to the factors and
assumptions set forth in that opinion, the $7.70 per share consideration offered
in the Reverse/Forward Stock Split is fair, from a financial point of view, to
the Cashed Out Shareholders. The Special Committee believes that $7.70 per
share, which is above the median and within the range, is a fair price to all
the affiliated and unaffiliated shareholders of the Company, including the
unaffiliated Cashed Out Shareholders and the unaffiliated Continuing
Shareholders. The Board of Directors relied on the recommendations provided by
the Special Committee and, after discussing the Special Committee's rationale,
the Board of Directors unanimously adopted the Special Committee's
recommendation in its entirety.
Procedural Fairness
The Special Committee reasonably believes that the Reverse/Forward Stock
Split is procedurally fair to the unaffiliated shareholders, including the
unaffiliated Cashed Out Shareholders, individually, and the unaffiliated
Continuing Shareholders, individually. The factors considered by the Special
Committee in reaching its conclusion as to the procedural fairness of the
Reverse/Forward Stock Split are discussed below.
Factors Considered
To ensure procedural fairness, the Board of Directors established the
Special Committee solely of independent directors and deferred control of
evaluation and structure of the transaction to their review. The Special
Committee (i) used its best efforts to establish the terms of the transaction by
taking precautions such as hiring an independent financial advisor to give a
fairness opinion and (ii) fully informed itself of all aspects of the
transaction through attendance at and participation in Special Committee
meetings at which the independent financial advisor provided information and
advice. Such procedures tend to ensure the fairness and integrity of this type
of a transaction.
The procedure whereby the Special Committee determined whether to approve
the transaction and whether the terms of the transaction were procedurally fair
to the unaffiliated shareholders included the consideration by the Special
Committee of the following factors, each of which, in the view of the Special
Committee, supported the determination to recommend approval of the transaction:
(i) current market prices of the Company's stock; (ii) historical market prices
of the Company's stock; (iii) the net book value of the Company; (iv) going
concern value; and (v) the presentation and opinion of Stifel, as set forth in
"Special Factors - Opinion of Financial Advisor".
The Special Committee considered separately each aforementioned factor, but
did not assign specific weight to the factors in a formulaic fashion, and it did
not make a determination as to why any particular specified factor, as a result
of the deliberations by the Special Committee, should be assigned any weight.
That said, the Special Committee relied on and participated in the presentations
by Stifel described in "Special Factors - Opinion of Financial Advisor."
Although the members of the Special Committee are not experts in the areas
addressed by Stifel, the Special Committee, after a full discussion with Stifel,
believed the analysis of the factors presented by Stifel was reasonable and
relied upon and adopted such analysis in making its recommendation to the Board
of Directors.
The Company was not obligated to take any of these actions, but took them
in an effort to ensure that the Reverse/Forward Stock Split is procedurally fair
to the shareholders of the Company, including the unaffiliated shareholders.
13
The Reverse/Forward Stock Split is not structured in such a way so as to
require the approval of at least a majority of the unaffiliated shareholders of
the Company. In addition, an unaffiliated representative has not been retained
to act solely on behalf of unaffiliated shareholders for the purposes of
negotiating the terms of the Reverse/Forward Stock Split and/or preparing a
report concerning the fairness of the transaction. In assessing the
Reverse/Forward Stock Split, the Special Committee understood that (i) the
Affiliated Shareholders, who together own 30.24% of the voting power of the
Common Stock outstanding and entitled to vote at the Special Meeting, have
indicated that they will vote in favor of the Reverse/Forward Stock Split at the
Special Meeting and (ii) no appraisal or dissenters' rights are available under
Missouri law to shareholders of the Company who dissent from the Reverse/Forward
Stock Split. Despite the foregoing, the Special Committee reasonably believes
that the Reverse/Forward Stock Split is procedurally fair to the unaffiliated
shareholders of the Company, including the unaffiliated Cashed Out Shareholders
and unaffiliated Continuing Shareholders of the Company.
In evaluating the procedural fairness of the Reverse/Forward Stock Split
with respect to unaffiliated shareholders in particular, the Special Committee
noted that the percentage ownership of Continuing Shareholders, whether
affiliated or unaffiliated, will be practically unchanged from their percentage
ownership prior to the Reverse/Forward Stock Split. The Cashed Out Shareholders
hold only approximately 1.2% of the outstanding Common Stock, and the
Reverse/Forward Stock Split would not differentiate between affiliated
shareholders and unaffiliated shareholders on the basis of affiliate status. The
sole determining factor in whether a shareholder will become a Cashed Out
Shareholder or a Continuing Shareholder as a result of the Reverse/Forward Stock
Split is the number of shares of Common Stock held by such shareholder as of the
effective time of the transaction. In addition, any shareholder that would
otherwise be a Cashed Out Shareholder as a result of owning fewer than 300
shares of Common Stock, but would rather continue to hold Common Stock after the
Reverse/Forward Stock Split and not be cashed out, may do so by purchasing a
sufficient number of additional shares on the open market such that the
shareholder holds at least 300 shares of Common Stock in the shareholder's
record account immediately before the Effective Date of the Reverse/Forward
Stock Split. Therefore, the Special Committee determined not to condition the
proposed Reverse/Forward Stock Split upon the independent approval of either the
unaffiliated shareholders or the Cashed Out Shareholders. For a more detailed
discussion, please see the sections entitled "Fairness of the Reverse/Forward
Stock Split - Advantages of the Reverse/Forward Stock Split - No material change
in percentage ownership of Continuing Shareholders," and "Special Factors -
Effects on Shareholders - Effects on Shareholders With Fewer Than 300 Shares of
Common Stock" in this proxy statement.
Substantive Fairness
The Special Committee reasonably believes that the Reverse/Forward Stock
Split is substantively fair to the unaffiliated shareholders, including the
unaffiliated Cashed Out Shareholders, individually, and the unaffiliated
Continuing Shareholders, individually. The factors considered by the Special
Committee in reaching its conclusion as to the substantive fairness of the
Reverse/Forward Stock Split are discussed below.
Factors Considered
In addition to the procedural fairness concerns analyzed by the Special
Committee (as discussed above under the section "Special Factors - Procedural
Fairness"), the Special Committee considered the advantages of the
Reverse/Forward Stock Split, as discussed below, in reaching its conclusion as
to the substantive fairness of the Reverse/Forward Stock Split to our
unaffiliated Cashed Out Shareholders and the Continuing Shareholders, as well as
the factors identified in the section below entitled "Special Factors -
Substantive Fairness - Disadvantages of the Reverse/Forward Stock Split." The
Special Committee did not assign specific weight to the following factors in a
formulaic fashion, but did place special emphasis on the opportunity for
unaffiliated shareholders to sell their holdings at a premium without paying
brokerage commissions, as well as the significant cost and time savings for the
Company.
Advantages of the Reverse/Forward Stock Split:
(1) Opportunity for unaffiliated shareholders holding fewer than 300
shares of Common Stock to sell holdings at a premium.
(a) Historical Market Prices
14
In connection with the Reverse/Forward Stock Split, the Special Committee
set the price to be paid to the Cashed Out Shareholders at $7.70 per share. The
$7.70 cash out consideration represents a (i) 15.0% premium over the closing
price for the Common Stock on October 28, 2005 (the most recent practicable date
prior to the announcement of the Reverse/Forward Stock Split) which was $6.70
per share; (ii) a 13.6% premium over the average closing price of the Common
Stock over the 30 trading days prior to and including October 28, 2005, which
was $6.78 per share; (iii) a 33.0% premium over the one year average market
price of the Common Stock, which was $5.79 per share; and (iv) a 60.0% premium
over the three year average market price of the Common Stock, which was $4.81
per share. In setting the price to be paid to the Cashed Out Shareholders at
$7.70 per share, the Special Committee considered the recent increase in the
closing price for the Common Stock prior to the announcement of the
Reverse/Forward Stock Split, as well as the cyclicality of the Company and the
Company's apparent position near the top of the current business cycle.
The following table summarizes certain indications of value, including the
aforementioned current and historical market prices of the Common Stock, each as
defined above. The column labeled "Percentage Premium" indicates the percentage
premium that the $7.70 cash out consideration represents in relation to the
applicable indication of value. The Company's net book value per share is
discussed in greater detail below. For further discussion regarding how the
Special Committee determined the cash out consideration, please see the section
above entitled "Proposal No. 1 Amendment to the Company's Amended and Restated
Articles of Incorporation - Background of the Reverse/Forward Stock Split."
Dollar Percentage
Value Amount Premium
----- ------ ----------
Current Market Closing Price as of October 28, 2005 $ 6.70 15.0%
Thirty Day Average Market (Closing) Price 6.78 13.6%
One-Year Average Market (Closing) Price 5.79 33.0%
Three-Year Average Market (Closing) Price 4.81 60.0%
Net book value per share at July 31, 2005 3.93 96.0%
(b) Liquidation Value
In connection with its deliberations, the Special Committee did not
consider, and did not request that Stifel evaluate, the Company's liquidation
value. The Special Committee did not view the Company's liquidation value to be
a relevant measure of valuation given that the cash out consideration
significantly exceeded the book value per share of the Company, and it was the
Special Committee's view that the Company is far more valuable as a going
concern than its net book value per share of $3.93 as of July 31, 2005. The net
book value per share as of July 31, 2005 is nearly half of the current market
price of the Common Stock, and is considerably lower than average closing price
of the Common Stock over the 30 trading days prior to and including October 28,
2005, and the one year average market price of the Common Stock. Further, the
Special Committee believes that the Company's value is derived from the cash
flows generated from its continuing operations, rather than from the value of
its assets that might be realized in a liquidation of the Company, particularly
when taking into account the costs of liquidation. In light of these facts,
Stifel did not use liquidation value as a variable for ascertaining a fair price
for the Reverse/Forward Stock Split, and instead relied on the following
analyses (as discussed in greater detail below in the section entitled "Special
Factors - "Opinion of Financial Advisors"): historical market price, comparable
public company analysis, merger and acquisitions comparisons, discounted cash
flow analysis, and present value of a share analysis in reaching its conclusions
about the fairness of the transaction.
(c) Going Concern, Net Book Value, and Discounted Cash Flows
As of July 31, 2005, the book value per share of Common Stock was $3.93. As
discussed above, although book value was a factor that was considered by the
Special Committee in determining the consideration to be paid to the Cashed Out
Shareholders, the Special Committee determined that it was not directly
relevant. The Special
15
Committee believes that the book value per share is not a useful basis on which
to value the shares of Common Stock. Net book value is based upon the historical
cost of a company's assets and ignores the value of a company as a going
concern. The value of items such as positive business reputation, a trained
workforce, and established customer accounts are ignored in computing net book
value. However, the Special Committee noted that the per share cash out price of
$7.70 payable in the Reverse/Forward Stock Split reflected a 96.0% premium on
the Company's July 31, 2005 book value per share. Conversely, the value of the
Company as a going concern takes into consideration, among other things, such
intangible assets as the Company's business reputation, established customer
base, and trained and experienced management and employees. In reaching their
determination of going concern value, the Special Committee considered Stifel's
presentations regarding going concern and discounted cash flow. For further
discussion, please see the section below entitled "Special Factors - Opinion of
Financial Advisor."
(2) Significant cost and time savings for the Company.
By reducing the number of shareholders of record to fewer than 300 and
deregistering the Common Stock under the Exchange Act, we expect to save (i)
approximately $200,000 per year in professional fees and expenses that we have
historically incurred in connection with the preparation and filing of reports
required by the Exchange Act, (ii) approximately $1,500,000 in primarily
non-recurring expenses that otherwise would have been incurred in fiscal 2006 in
connection with compliance with the internal control audit requirements of
Section 404 of Sarbanes-Oxley, (iii) approximately $550,000 per year in expenses
thereafter that would otherwise be expected to be incurred in order to comply
with Section 404 of Sarbanes-Oxley, and (iv) approximately $95,000 per year in
expenses that otherwise would have been incurred in connection with compliance
with additional provisions of Sarbanes-Oxley. The termination of reporting
obligations will also alleviate a significant amount of time and effort
previously required of our executive officers to prepare and review these
ongoing reports and filings. See "Special Factors - Reasons for the
Reverse/Forward Stock Split" for a more detailed discussion of these cost
savings.
(3) Ability to control decision to remain a holder of Common Stock or
liquidate Common Stock.
Another factor considered by the Special Committee in determining the
fairness of the transaction to unaffiliated shareholders, individually, is that
current holders of fewer than 300 shares of Common Stock may elect to remain
shareholders of the Company following the Reverse/Forward Stock Split by
acquiring additional shares so that they own at least 300 shares of the Common
Stock immediately before the Reverse/Forward Stock Split. Conversely,
shareholders that own 300 or more shares of Common Stock who desire to liquidate
their shares in connection with the Reverse/Forward Stock Split at the premium
price offered may reduce their holdings to fewer than 300 shares by selling
shares prior to the Reverse/Forward Stock Split. The Special Committee considers
the structure of the transaction to be fair to unaffiliated shareholders,
individually, because it allows them a measure of control over the decision of
whether to remain shareholders after the Reverse/Forward Stock Split or to
receive the cash consideration offered in connection with the Reverse/Forward
Stock Split.
(4) No material change in percentage ownership of Continuing
Shareholders.
Because only an estimated 80,281 out of 6,633,013 shares of the Common
Stock will be eliminated as a result of the Reverse/Forward Stock Split, the
percentage ownership of Continuing Shareholders will be approximately the same
as it was prior to the Reverse/Forward Stock Split. For example, our officers
and directors currently beneficially own approximately 30.24% of the outstanding
Common Stock and will beneficially own approximately 30.61% of the Common Stock
following completion of the Reverse/Forward Stock Split. We believe that
structuring the transaction in a manner that preserves the approximate
percentage ownership of the Continuing Shareholders, whether affiliated or
unaffiliated, supports the fairness of the transaction to the unaffiliated
shareholders.
(5) Ability to control the dissemination of information to our
competitors, vendors, and customers.
Upon filing the Form 15 with the SEC to deregister our Common Stock under
the Exchange Act and suspend our duty to file periodic reports with the SEC, the
Company will be able to control the dissemination of
16
certain business information, which is currently disclosed in the periodic
reports and, accordingly, made available to our competitors, vendors, customers,
and other interested parties, potentially to our detriment.
Disadvantages of the Reverse/Forward Stock Split:
(1) Substantial reduction of public sale opportunities.
Following the Reverse/Forward Stock Split and the deregistration of the
Common Stock under the Exchange Act, we anticipate that the public market for
shares of Common Stock will be reduced. Shareholders of the Company will
continue to have the option of selling their shares of Common Stock in a public
market. While shares will continue to be listed in the "pink sheets," any
current public market for the Common Shares likely will be highly illiquid after
the suspension of our periodic reporting obligations. In addition, because
market makers (and not the Company) quote our Common Stock in the "pink sheets,"
we cannot guarantee that our Common Stock will always be available for trading
in the "pink sheets."
(2) Reduction of publicly available information.
Upon terminating the registration of the Common Stock under the Exchange
Act, our duty to file periodic reports with the SEC will be suspended. While the
Company intends to provide to shareholders information regarding the Company's
business and results of operation after the Reverse/Forward Stock Split, we can
make no assurances as to the type of information that we will provide, the form
in which the information will be presented, and the frequency with which we will
make such information available. As such, shareholders remaining in the Company
following the Reverse/Forward Stock Split and our vendors and customers may not
have available all of the information regarding the Company's operations and
results that is currently available in the Company's filings with the SEC. As a
result, it will be more difficult for our vendors and customers to determine the
creditworthiness of the Company.
While the Board of Directors and the Special Committee acknowledge the
circumstances in which such reduction of publicly available information may be
disadvantageous to our shareholders, they believe that the overall benefits to
the Company of no longer being a public reporting company substantially outweigh
the disadvantages thereof, and, accordingly, the Company believes that the
reduction of publicly available information does not outweigh the advantages of
no longer being a public reporting company, which is in the best interests of
the Company's shareholders.
(3) Termination of public reporting company obligations.
Once the Common Stock of the Company ceases to be registered under the
Exchange Act, the Company will no longer be subject to public reporting company
obligations, such as the provisions of Sarbanes-Oxley or certain liability
provisions of the Exchange Act. Although we will no longer be required to file
financial statements with the SEC or to provide such information to
shareholders, any financial statements we elect to provide will no longer be
required to be certified by the officers of the Company.
(4) Possible significant decline in the value of the Common Stock.
Because the limited liquidity for the shares of Common Stock (as described
in paragraph (1) above), the termination of the Company's obligation to make
public financial and other information expected following the deregistration of
the Common Stock under the Exchange Act (as described in paragraph (2) above),
and the diminished opportunity for shareholders of the Company to monitor the
management of the Company due to the reduction of publicly available
information, Continuing Shareholders may experience a significant decrease in
the value of their shares of Common Stock.
(5) Inability to participate in any future increases in value of
Common Stock.
Cashed Out Shareholders will have no further financial interest in the
Company with respect to their cashed out shares and thus will not have the
opportunity to participate in the potential appreciation in the value of such
shares. However, those unaffiliated shareholders who wish to remain shareholders
after the Reverse/Forward Stock
17
Split can do so by acquiring additional shares so that they own at least 300
shares of Common Stock immediately before the Effective Date of the
Reverse/Forward Stock Split.
(6) Loss of flexibility in attracting and retaining employees.
The deregistration and subsequent decreased liquidity of the Common Stock
may result in the Company having less flexibility in attracting and retaining
executives and other employees because equity-based incentives (such as stock
options) tend not to be viewed as having the same value in a non-public
reporting company.
(7) Increased difficulty in raising capital.
The deregistration and subsequent decreased liquidity of the Common Stock
will make it more difficult for the Company to access the public equity and
public debt markets (although we have not done this in many years) and the
private debt markets. In addition, the Company will be less likely to be able to
use stock to acquire companies (although we have not done this in many years).
Fairness Determination of the Special Committee
The Special Committee believes that the factors mentioned above, when
viewed together, support a conclusion that the Reverse/Forward Stock Split is
substantively fair to the Company's unaffiliated Cashed Out Shareholders,
individually, and the Company's unaffiliated Continuing Shareholders,
individually, because under the proposed Reverse/Forward Stock Split, Cashed Out
Shareholders will receive an amount per share of Common Stock which represents a
premium over current and historical market prices and net book value of the
Common Stock and represents a fair price within the range of prices determined
by a discounted cash flow analysis, which includes going concern and net book
values. In addition, the Special Committee determined that the Reverse/Forward
Stock Split is substantively fair to unaffiliated shareholders, in part because
it provides them an opportunity to liquidate their holdings at a fair price
without brokerage commissions at a price that does not prejudice the Continuing
Shareholders. It should be noted that, other than the repurchases of Common
Stock described below, during the past two years the Company has not purchased
any Company Common Stock. It should also be noted that during the past two years
there have been no firm offers (i) to merge the Company with another company,
(ii) for the sale of all or substantially all of the assets of the Company, or
(iii) for the purchase of the Company's Common Stock that would enable the
holder to exercise control of the Company.
The Company conducted a modified Dutch auction tender offer, which
commenced on October 10, 2003, expired on November 21, 2003, and was completed
on December 1, 2003. As a result of the Dutch auction tender offer, the Company
purchased and retired 14.4% of its outstanding Common Stock (1,050,879 shares)
at $4.50 per share or $4.7 million. The purchase of the shares was financed by
the Company's revolving credit facility. The effect of this transaction
increased the Company's interest-bearing debt and reduced its stockholders'
equity by $4.7 million.
In addition to the purchase of Common Stock through the Dutch auction
tender offer (described above), during the past two years, the Company has
purchased 531,955 shares of Common Stock. The prices paid for the shares during
this period ranged from $4.75 to $6.70. The average purchase price paid during
each quarter during this period was as follows:
Period Total Number of Shares Purchased Average Price Paid Per Share
11/01/04 to 1/31/05 493,695 (a) $6.70
5/01/04 to 7/31/04 6,224 (a) $5.70
2/01/04 to 4/30/04 32,036 (b) $4.75
(a) Shares purchased to pay Federal and state taxes on the exercise of employee
stock options.
(b) Shares purchased to pay Federal and state taxes on shares of Restricted
Stock vested February 23, 2004.
18
In determining the price to be paid to Cashed Out Shareholders, the Special
Committee acknowledged and noted, but did not consider, the purchase prices paid
for prior stock repurchases by the Company during the past two years. The Dutch
auction tender offer took place over two years ago and the Special Committee
felt that the price paid per share at that time was no longer relevant. In
addition, the purchase of Common Stock to pay for Federal and state taxes on the
exercise of employee stock options and on shares of Restricted Stock vested
during the past two years (as described in the table above) took place at the
then-current market price of the Common Stock, which price information is
captured in the historical market prices analysis described above in more
detail.
Further, the Special Committee did not consider any firm offers (i) to
merge the Company with another company, (ii) for the sale of all or
substantially all of the assets of the Company, or (iii) for the purchase of the
Company's Common Stock that would enable the holder to exercise control of the
Company.
The Special Committee also acknowledges that the unaffiliated shareholders
will have some control over whether they remain shareholders after the
Reverse/Forward Stock Split by acquiring additional shares so that they own at
least 300 shares of Common Stock immediately before the Reverse/Forward Stock
Split. Those unaffiliated shareholders who continue as shareholders following
the Reverse/Forward Stock Split will maintain approximately the same percentage
ownership that they had prior to the Reverse/Forward Stock Split. The potential
loss of liquidity in shares of Common Stock does not appear to be a significant
loss given the relatively low trading volume of the Common Stock. Furthermore,
the Special Committee believes that any disadvantages associated with the
reduction in public information available regarding our operations and financial
results will be offset by the savings in costs and management time expected to
be realized from termination of our public reporting obligations.
We have not made any special provision in connection with the
Reverse/Forward Stock Split to grant shareholders access to our corporate files
or to obtain counsel or appraisal services at our expense, as the Special
Committee did not consider these steps necessary to ensure the fairness of the
Reverse/Forward Stock Split. The Special Committee determined that such steps
would be costly, time consuming, and would not provide any meaningful additional
benefits. With respect to shareholders' access to our corporate files, the
Special Committee determined that this proxy statement, together with our other
filings with the SEC, provide adequate information for shareholders to make an
informed decision with respect to the Reverse/Forward Stock Split. In addition,
Missouri law and our Articles of Incorporation give shareholders the right to
review the Company's relevant books and records of account.
As previously stated, the Special Committee believes that the proposed
Reverse/Forward Stock Split, including the cash out consideration of $7.70 per
share, is fair, both procedurally and substantively, to all the unaffiliated
shareholders, including the unaffiliated Cashed Out Shareholders, individually,
and the unaffiliated Continuing Shareholders, individually. In connection with
the approval of the transaction, the Special Committee relied upon and adopted
the analyses of Stifel and recommended that the Board of Directors (i) approve
the Reverse/Forward Stock Split as currently proposed and (ii) adopt the
recommendation of the Special Committee.
The Special Committee has set the cash consideration to be paid to Cashed
Out Shareholders at $7.70 per share of Common Stock, and the Board of Directors,
upon recommendation and approval of the Special Committee, approved such
determination. The Special Committee retained Stifel as its financial advisor in
connection with the Reverse/Forward Stock Split. Stifel completed its valuation
analysis dated as of October 28, 2005, indicating that the going concern value
of the Common Stock ranged from $6.47 to $8.12. On October 31, 2005, Stifel
delivered its opinion, subsequently confirmed in writing, to the Special
Committee that, as of such date, and based on and subject to the factors and
assumptions set forth in that opinion, the $7.70 per share consideration offered
in the Reverse/Forward Stock Split is fair, from a financial point of view, to
the Cashed Out Shareholders. The Special Committee believes that $7.70 per
share, which is above the median and within the range, is a fair price to all
the affiliated and unaffiliated shareholders of the Company, including the
unaffiliated Cashed Out Shareholders and the unaffiliated Continuing
Shareholders. The Board of Directors relied on the recommendations provided by
the Special Committee and, after discussing the Special Committee's rationale,
the Board of Directors unanimously adopted the Special Committee's
recommendation in its entirety.
19
Fairness Determination of the Board of Directors
The Board of Directors relied on the procedures instituted by the Special
Committee in their efforts to ensure the procedural fairness and substantive
fairness of the proposed Reverse/Forward Stock Split. The Special Committee had
absolute discretion in the retention of its advisors and in reviewing,
evaluating, and recommending a proposal to the entire Board of Directors. The
factors that the Special Committee relied on, which are discussed above, were
discussed with the Board of Directors by the Special Committee and were
contained in the presentations by Stifel and the recommendation from the Special
Committee. In addition to its review of the presentation by Stifel and the
recommendation by the Special Committee, the Board of Directors relied on the
independence and competence of the Special Committee and its advisors when the
Board of Directors voted unanimously to adopt the Special Committee's
recommendation to reduce the number of shareholders of record below 300 in the
form of the currently proposed Reverse/Forward Stock Split. Of particular
importance to the Board of Directors was the presentation and analysis of
Stifel. Based upon (i) the recommendation of the Special Committee and an
analysis of the same factors considered by the Special Committee (as outlined
above), including the presentation by Stifel, and (ii) the independence and
competence of the Special Committee, the Board of Directors unanimously approved
the proposed transaction and reasonably believes that it is procedurally and
substantively fair to each group of the Company's affiliated and unaffiliated
shareholders, including the unaffiliated Cashed Out Shareholders, individually,
and the unaffiliated Continuing Shareholders, individually.
Opinion of Financial Advisor
In September 2005, the Special Committee retained Stifel as its financial
advisor in connection with the Special Committee's exploration of a shareholder
reduction strategy. Stifel was retained as financial advisor to perform a
valuation analysis and to render an opinion as to the fairness from a financial
point of view of the per share consideration to be paid to the Cashed Out
shareholders. In both its valuation and fairness opinion Stifel used fair value
under Missouri law as its standard of value.
The Special Committee retained Stifel as its financial advisor in
connection with the transaction because Stifel is a nationally recognized
investment-banking firm with substantial expertise in transactions similar to
the Reverse/Forward Stock Split. Stifel is an investment banking and securities
firm with membership on all principal United States' securities exchanges. As
part of its investment banking activities, Stifel is regularly engaged in the
independent valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
Stifel's financial analysis was based on three approaches to value which
are generally considered acceptable in the financial community: the Market
Approach, the Income Approach and the Asset-based Approach. Stifel considered
all of these approaches and a variety of methodologies within each approach and
ultimately concluded that the Market Approach and the Income Approach were the
most relevant to the valuation of the Company's stock for the transaction.
Within the Market Approach Stifel used the Guideline Publicly Traded Comparable
Company Method and the Guideline Merger & Acquisition Transactions Method.
Within the Income Approach the Discounted Cash Flow Method and the Present Value
of a Share Method were used. Detailed explanations of all of these methods are
provided below.
In determining the fair value of a going concern, Stifel considered
numerous discounts and premiums. The three most distinct discounts and premiums
are: Control Premium, Minority Interest Discount and Marketability Discount. The
Control Premium is the additional value inherent in the controlling interest of
a company that reflects the power of control, as contrasted to a minority
interest which does not have the power to alter the capital structure, force a
sale of the company or impact other factors which may influence the value of the
company. The Control Premium can be divided into two distinct components: the
control (or "governance") premium which represents the power of control
described above and the synergy premium which represents the additional benefit
a third party buyer of the company may receive due to cost savings or revenue
enhancements recognized when combining operations. Premiums above market trading
prices observed in merger transactions involving public companies are frequently
comprised of both the governance and the synergy components of the Control
Premium. Stifel valued the Company on the basis of fair value as a going concern
which assumes the Company will continue to operate consistent with its intended
business purpose without being liquidated, nor, conversely, sold to a buyer
which may
20
realize synergistic cost savings or revenue enhancements. As further detailed
herein, Stifel adjusted its analysis to exclude the synergy component of the
Control Premium.
The Minority Interest Discount is applied to interests of less than 50% of
the total voting stock of an enterprise. This discount represents a reduction to
the pro rata share of the value of the entire business (which includes the power
of control but not synergies), to reflect the absence of the power of control.
Because Stifel valued the Company under a fair value standard and as a going
concern Stifel did not take a Minority Interest Discount and in some cases,
adjusted upward for the governance component of the Control Premium as described
above. The Marketability Discount is an amount or percentage deducted from an
equity interest to reflect lack of marketability. Marketability refers to the
liquidity of the interest or how quickly and certainly it can be converted to
cash at the owner's discretion. Under the standard utilized for the transaction
a Marketability Discount was inappropriate and Stifel did not take this
discount.
After a series of meetings, the Special Committee and management, as
described in "Background of the Reverse/Forward Stock Split" above, agreed on a
price of $7.70 per share to be paid to the Cashed Out shareholders. On October
31, 2005, Stifel rendered its opinion to the Special Committee that, as of such
date, the consideration of $7.70 per share was fair from a financial point of
view to the Cashed Out Shareholders.
THE FULL TEXT OF STIFEL'S OPINION DATED OCTOBER 31, 2005 SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW UNDERTAKEN,
IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY
REFERENCE, AND SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT. THE SUMMARY OF THE OPINION OF STIFEL SET FORTH IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
No limitations were imposed by the Special Committee on the scope of
Stifel's investigation or the procedures to be followed by Stifel in rendering
its opinion. Its opinion is based on the financial and comparative analyses
described below. Stifel's opinion was directed solely to the Special Committee
for its use in connection with its consideration of the transaction. Stifel's
opinion addressed only the fairness of the consideration to be paid to the
Cashed Out Shareholders from a financial point of view, did not address any
other aspect of the transaction, and was not intended to be and does not
constitute a recommendation to any shareholder of the Company as to how such
shareholder should vote with respect to the transaction. Stifel was not
requested to opine as to, and its opinion does not address, the Company's
underlying business decision to proceed with or effect the transaction or the
relative merits of the transaction compared to any alternative transaction that
might be available to the Company.
In connection with its October 31, 2005 opinion, Stifel, among other
things:
• reviewed a draft of the proxy statement for the proposed transaction,
albeit with regard to structure of the transaction and not as to
price;
• reviewed restated financial statements for the six years ended October
31, 2004 (audited as available);
• reviewed the Company's Form 10-Q filings for 2005;
• reviewed year-to-date Company financials;
• reviewed the Form 10-K filings of the Company for the six years ended
October 31, 2004;
• reviewed preliminary and final projected cash flow statements, income
statements, balance sheets, and limited operating data prepared by
Company management;
• conducted conversations with the Company's senior management regarding
recent developments and management's financial forecasts;
21
• compared certain financial and securities data of the Company with
various other companies whose securities are traded in public markets
and reviewed the historical stock prices and trading volumes of the
Company;
• reviewed the financial terms of certain other business combinations;
and
• conducted such other financial studies, analyses and investigations as
it deemed appropriate for purposes of its opinion.
Stifel also took into account its assessment of general economic, market
and financial conditions and its experience in other transactions, as well as
its experience in securities valuations and its knowledge of the industry
generally. Members of the Board of Directors reviewed the final projected
financial information provided to Stifel for accuracy and completeness and found
their reliance upon the information to be reasonable.
In rendering its opinion, Stifel relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to it or that was otherwise reviewed by
it and did not assume any responsibility for independently verifying any of such
information. With respect to the financial forecasts supplied to Stifel, Stifel
assumed that they were reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the management of the Company as
to the future operating and financial performance of the Company, that they
would be substantially realized in the amounts and time periods estimated and
that they provided a reasonable basis upon which Stifel could form its opinion.
Stifel also assumed that there were no material changes in the assets,
liabilities, financial condition, results of operations, business, or prospects
of the Company since the date of the last financial statements made available to
it. Stifel also assumed, without independent verification and with the Company's
consent, that the aggregate allowances for insurance, workers compensation
claims and the like set forth in the financial statements of Collins are in the
aggregate adequate to cover all such losses. Stifel did not make or obtain any
independent evaluation, appraisal or physical inspection of Collins's assets or
liabilities. Because of the proximity to the end of the fiscal year, 2005
projected earnings were used for both 2005 and latest twelve month ratios.
Stifel relied on advice of the Company's counsel and accountants as to certain
legal and accounting matters with respect to the Company, the proxy statement,
and the transaction and other matters contained or contemplated therein. Stifel
assumed, with the Company's consent, that there are no factors that would delay
or subject to any adverse conditions any necessary regulatory or governmental
approval and that all conditions to the transaction will be satisfied and not
waived.
In rendering its opinion, Stifel assumed that the transaction would be
consummated as provided in the proxy statement. Stifel's opinion was necessarily
based on economic, market, financial and other conditions as they existed on,
and on the information made available to it as of, the date of its opinion, and
does not imply any conclusion as to the price or trading range of the Common
Stock, which may vary depending upon various factors, including changes in
interest rates, dividend rates, market conditions, economic conditions and other
factors that influence the price of securities.
The financial forecasts furnished to Stifel for the Company were prepared
by the management of the Company and constitute forward-looking statements. As a
matter of policy, the Company does not publicly disclose internal management
forecasts, projections, or estimates of the type furnished to Stifel in
connection with its analysis of the financial terms of the transaction, and such
forecasts and estimates were not prepared with a view towards public disclosure.
These forecasts and estimates were based on numerous variables and assumptions
which are inherently uncertain and which may not be within the control of the
management of the Company, including, without limitation, factors related to the
transaction and general economic, regulatory and competitive conditions.
Accordingly, actual results could vary materially from those set forth in such
forecasts and estimates.
In connection with rendering its October 31, 2005 opinion, Stifel performed
a variety of financial analyses that are summarized below. This summary does not
purport to be a complete description of such analyses. Stifel believes that its
analyses and the summary set forth in this document must be considered as a
whole and that selecting portions of such analyses and the factors considered in
such analysis, without considering all factors and analyses, could create an
incomplete view of the analyses and processes underlying its opinions. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. In its analyses, Stifel made numerous assumptions with respect to
industry
22
performance, business and economic conditions, and other matters, many of which
are beyond the control of the Company. Any estimates contained in Stifel's
analyses are not necessarily indicative of actual future values or results,
which may be significantly more or less favorable than suggested by such
estimates. Estimates of values of companies do not purport to be appraisals or
necessarily reflect the actual prices at which companies or their securities
actually may be sold. No company or transaction utilized in Stifel's analyses
was identical to the Company or the transaction. Accordingly, an analysis of the
results described below is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the company and other facts that could affect the public
trading value of the companies to which it is being compared. The analyses
described below do not purport to be indicative of actual future results, or to
reflect the prices at which the Common Stock may trade in the public markets.
The following is a summary of the financial analysis performed by Stifel in
connection with providing its opinion on October 31, 2005.
Guideline Publicly Traded Comparable Company Method. Stifel reviewed and
compared certain multiples and ratios for the Reverse/Forward Stock Split with a
peer group of 10 selected specialty vehicle manufacturers which Stifel deemed to
be relevant. The group of selected specialty vehicle manufacturers consisted of
Coachmen Industries, Featherlite Inc., Monaco Coach Corp., Navistar
International, Oshkosh Truck Corp., Paccar, Spartan Motors Inc., Supreme
Industries Inc., Thor Industries Inc. and Winnebago Industries. Stifel adjusted
the equity portion of the implied values upward by 13.1%, representing its
estimate of the governance portion of the control premium, to reconcile the
difference between an "As-if-freely-tradable" minority value from the use of
observed price to earnings multiples and a "Going concern" enterprise value.
Stifel then compared the resulting adjusted price to each of latest twelve
months revenues, latest twelve months EBITDA, latest twelve months EBIT, latest
twelve months earnings per share, 2005 earnings per share, and 2006 earnings per
share. Stifel then applied the resulting range of multiples and ratios for the
peer group specified above to the appropriate financial results of the Company.
This analysis resulted in a range of imputed values for the Common Stock of
between $6.23 and $17.12 based on the median multiples and ratios for the peer
group. Applying weightings that it deemed appropriate, Stifel calculated an
implied price of $9.53. Below are the ratios derived from this analysis.
Median Implied Per
Multiple with Share Value with
13.1% Premium 13.1% Premium Weighting Weighted Value
Ratios
Enterprise Value / LTM Revenues 46.9% $17.12 5.0% $0.86
Enterprise Value / LTM EBITDA 9.4x 11.06 15.0% 1.66
Enterprise Value / LTM EBIT 10.7x 6.23 30.0% 1.87
Price Per Share / LTM EPS 16.1x 9.72 17.5% 1.70
Price Per Share / Estimated 2005 EPS 14.4x 8.68 17.5% 1.52
Price Per Share / Estimated 2006 EPS 13.0x 12.82 15.0% 1.92
Implied Value $9.53
Guideline Merger & Acquisition Transactions Method. Stifel analyzed certain
information relating to recent transactions in the industry, consisting of two
acquisitions that Stifel considered to be relevant. Stifel included its estimate
of the governance portion of the control premium but reduced the equity portion
of the results by 13.0% representing its estimate of the synergy premium
received in merger transactions. Stifel calculated the following ratios with
respect to the selected transactions:
Selected Transactions
Median Implied Per
Multiple with Share Value with
13.1% Premium 13.1% Premium Weighting Weighted Value
Ratios
Enterprise Value / LTM Sales 71.6% $27.62 10.0% $2.76
23
Enterprise Value / LTM EBITDA 7.3x 7.92 50.0% 3.96
Enterprise Value / LTM EBIT 7.9x 3.91 25.0% 0.98
Enterprise Value / Net Income 17.8x 4.27 15.0% 0.64
Implied Value $8.34
This analysis resulted in implied values for the Common Stock between $3.91
and $27.62 based on the adjusted median multiples, respectively. Stifel arrived
at an implied value of $8.34 per share of Common Stock.
Discounted Cash Flow Method. Using a discounted cash flow analysis, Stifel
estimated the net present value of free cash flow that the Company could produce
to benefit a potential shareholder. In this analysis, Stifel assumed that the
Company would perform in accordance with management's estimates through 2010,
followed by a range of growth rates into perpetuity which were consistent with
management's longer term outlook as well as Stifel's observations for the long
term growth rate of the industry. Based on these assumptions, Stifel calculated
the present value of the free cash flow using discount rates of 16.45%, 21.77%,
and 24.98% which were developed through the use of the Capital Asset Pricing
Model and which included a measure of systemic risk for the industry. This
discounted cash flow analysis indicated an implied range of value of $2.90 to
$6.65 per share of Common Stock. Stifel evenly weighted the results to arrive at
an implied per share price of $4.36. This analysis did not purport to be
indicative of actual future results and did not purport to reflect the prices at
which shares of Collins's common stock may trade in the public markets. A
discounted cash flow analysis was included because it is a widely used valuation
methodology, but the results of such methodology are highly dependent upon the
numerous assumptions that must be made, including estimated cost savings and
operating synergies, earnings growth rates, dividend payout rates and discount
rates.
Present Value of a Share Method. Applying discounted cash flow analysis to
the theoretical future earnings and dividends of the Company, Stifel calculated
the implied future value of one share of the Common Stock. The analysis was
based upon management's projected earnings growth, a range of assumed
price/earnings ratios, and discount rates of 16.45%, 21.77%, and 24.98%. Stifel
selected the range of terminal price/earnings ratios on the basis of current
trading multiples for other publicly traded comparable companies. Stifel
adjusted the implied values upward by 13.1%, representing its estimate of the
governance portion of the control premium, to reconcile the difference between
an "As-if-freely-tradable" minority value from the use of observed price to
earnings multiples and a "Going concern" enterprise value. The stand-alone
present value of the Common Stock calculated on this basis ranged from $3.58 to
$7.55 per share. Evenly weighting the results Stifel arrived at an implied value
of $5.27 per share.
Range of Value. Stifel utilized the four methods detailed above in
estimating the range of going concern value of the Common Stock. Stifel weighted
the results of the four methods to determine the range of fair value. In
performing its analyses and weightings of range of values, Stifel made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters. Such analyses and weightings were prepared based
on Stifel's experience and judgment. Analyses of the weightings and results were
not mathematical, but rather involved complex considerations and judgments
concerning financial and operating characteristics of the Company. The $7.70 per
share consideration offered in the Reverse/Forward Stock Split was within or
above the range of minimum and maximum values calculated in each of the four
methods. The table below details the range of value.
Final Value Final Value
Weighted Value Weighting Range Range
Method
Guideline Publicly Traded $9.53 20.0% - 40.0% $1.91 - $3.81
Comparable Company Method
Guideline Merger & Acquisition 8.34 20.0% - 40.0% $1.67 - $3.34
Transactions Method
Discounted Cash Flow Method 4.36 30.0% - 10.0% $1.31 - $0.44
Present Value of a Share Method 5.27 30.0% - 10.0% $1.58 - $0.53
Range of Value $6.46 - $8.11
24
Stifel's analysis methods described above were consistent with those
utilized in determining its earlier valuation for the Special Committee. The
small difference in the range of values between our initial valuation and
Stifel's opinion can be attributed primarily to the movement in trading prices
of the relevant public companies.
As described above, Stifel's opinion was among the many factors taken into
consideration by the Special Committee in recommending that the Board of
Directors proceed with the Reverse/Forward Stock Split.
Fee Arrangements: Pursuant to the terms of Stifel's engagement, the Company
paid Stifel a nonrefundable financial advisory fee of $25,000 upon the signing
of the engagement letter. In addition, the Company agreed to pay Stifel an
additional fee of $50,000 upon the delivery of a written valuation and $75,000
upon the delivery of the fairness opinion. The Company has also agreed to
reimburse Stifel for certain out-of-pocket expenses and has agreed to indemnify
Stifel, its affiliates and their respective partners, directors, officers,
agents, consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities laws. Other than
pursuant to the fees in connection with the fairness opinion, Stifel has not
received any compensation from the Company or its affiliates in the past two
years.
During the past year, Stifel has traded equity securities of the Company
for its own account and for the accounts of its customers and, accordingly, may
at any time hold a long or short position in such securities.
The Special Committee and its counsel discussed various candidates to
advise the Special Committee regarding the shareholder reduction transaction.
After interviewing three investment banks, the Special Committee unanimously
agreed that based upon the general presentation made by Stifel and Stifel's
knowledge of the Company's industry, Stifel was the best choice to act as
financial advisor to the Special Committee. As noted above, as part of its
investment banking activities, Stifel is regularly engaged in the independent
valuation of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
Stifel has not been retained by the Company within the last two years and
has not had a material relationship with the Company or its affiliates within
the last two years.
Stifel's fairness opinion is attached as Annex B to this proxy statement.
In addition, the fairness opinion will be made available for inspection and
copying at the Company's principal executive offices, located at 15 Compound
Drive, Hutchinson, Kansas 67502, during its regular business hours by any
interested shareholder or representative who had been designated in writing. A
copy of these materials will be sent to any interested shareholder or
representative who has been designated in writing, upon written request and at
the expense of the requesting shareholder.
PROPOSAL NO. 1
AMENDMENTS TO THE COMPANY'S
ARTICLES OF INCORPORATION
TO EFFECT
THE REVERSE/FORWARD STOCK SPLIT
Structure of the Reverse/Forward Stock Split
The Board of Directors, upon the recommendation and Special Committee, has
authorized the Reverse/Forward Stock Split and recommends the transaction for
your approval. The Reverse/Forward Stock Split consists of a 1-for-300 reverse
stock split, such that shareholders owning fewer than 300 shares of Common Stock
will have such shares cancelled and converted into the right to receive the cash
consideration set forth herein, followed immediately by a 300-for-1 forward
stock split. The Reverse/Forward Stock Split is intended to take effect on the
date we file Certificates of Amendment to our Articles of Incorporation with the
Secretary of State of the State of Missouri, or on any later date that we may
specify in such Certificates of Amendment (referred to herein as the "Effective
Date"). At 6:00 p.m. Central Standard Time on the Effective Date, the Company
will effect a 1-for-300 reverse stock split of the Common Stock, pursuant to
which each Continuing Shareholder will immediately after
25
the reverse stock split hold one share of the Common Stock for each 300 shares
of Common Stock held immediately prior to the reverse stock split. Each Cashed
Out Shareholder will receive the right to receive cash in exchange for the
resulting fractional share thereof and will no longer be a shareholder of the
Company. At 6:01 p.m. Central Standard Time on the Effective Date (and after the
completion of the reverse stock split), the Company will effect a 300-for-1
forward stock split of Common Stock, pursuant to which a holder of one or more
shares of Common Stock immediately after the reverse stock split and immediately
prior to the forward stock split will immediately after the forward stock split
hold 300 shares of Common Stock for each share held immediately prior to the
forward stock split. In other words, a shareholder holding 300 or more shares of
Common Stock immediately before the Reverse/Forward Stock Split will continue to
hold the same number of shares after the completion of the Reverse/Forward Stock
Split and will not receive any cash payment.
As of December 6, 2005, the most recent practicable date prior to the date
of this proxy statement, there were 6,633,013 shares of Common Stock outstanding
and 466 holders of record. As of such date, approximately 283 holders of record
held fewer than 300 shares of Common Stock. While we have limited direct
knowledge of the number of shares of Common Stock owned beneficially (but not of
record) by persons who hold such shares in street name, based upon the
information obtained from our Transfer Agent and from the securities depositary
which holds most of such shares, we believe there are, in addition to the 27,916
shares held by shareholders of record, approximately 52,365 shares of Common
Stock held by beneficial owners who would be cashed out in the transaction. As a
result, we believe that the Reverse/Forward Stock Split will reduce the number
of holders of record of the Company to approximately 172.
Consequently, we expect that the number of record holders of Common Stock
would be reduced to fewer than 300, and we would be able to deregister the
Common Stock under the Exchange Act and no longer be subject to the SEC filing
and reporting requirements imposed on SEC reporting companies. We also expect
that the total number of shares of Common Stock that would be cashed out in the
transaction at $7.70 per share would be approximately 80,281 shares, for a total
cash payment of approximately $618,164. It should be noted, however, that
changes in share ownership prior to the effective time of the Reverse/Forward
Stock Split, as well as the actual distribution of shares held in street name
and the extent to which beneficial owners of those shares participate in the
transaction, would affect those estimates, perhaps materially.
The Special Committee has set the cash consideration to be paid to Cashed
Out Shareholders at $7.70 per share of Common Stock, and the Board of Directors,
upon recommendation and approval of the Special Committee, approved such
determination. The Special Committee retained Stifel as its financial advisor in
connection with the Reverse/Forward Stock Split. Stifel completed its valuation
analysis dated as of October 28, 2005, indicating that the going concern value
of the Common Stock ranged from $6.47 to $8.12. On October 31, 2005, Stifel
delivered its opinion, subsequently confirmed in writing, to the Special
Committee that, as of such date, and based on and subject to the factors and
assumptions set forth in that opinion, the $7.70 per share consideration offered
in the Reverse/Forward Stock Split is fair, from a financial point of view, to
the Cashed Out Shareholders. The Special Committee believes that $7.70 per share
is a fair price to all the affiliated and unaffiliated shareholders of the
Company, including the unaffiliated Cashed Out Shareholders and the unaffiliated
Continuing Shareholders. The Company currently estimates that Cashed Out
Shareholders will receive cash consideration for their cancelled shares within
approximately three weeks after the Effective Date. For a more detailed
discussion, please see "Special Factors - Fairness of the Reverse/Forward Stock
Split" and "The Reverse/Forward Stock Split - Exchange of Certificates; Payment
of Cash Consideration."
In order to complete the Reverse/Forward Stock Split, a majority of the
shares of the Common Stock outstanding and entitled to vote at the Special
Meeting must approve the Certificates of Amendment to our Articles of
Incorporation to effect the Reverse/Forward Stock Split. The Affiliated
Shareholders, who together own 30.24% of the voting power of the Common Stock
outstanding and entitled to vote at the Special Meeting, have indicated that
they will vote in favor of the Reverse/Forward Stock Split proposal at the
Special Meeting. This means we will only need an additional 19.86% of the shares
of the Common Stock outstanding and entitled to vote at the Special Meeting to
approve the Reverse/Forward Stock Split. The Board of Directors has retained for
itself the absolute authority to reject (and not implement) the Reverse/Forward
Stock Split (even after approved by the shareholders) if it subsequently
determines that the Reverse/Forward Stock Split, for any reason, is not then in
the best interests of the Company. Such reasons include any change in the nature
of the shareholdings of the Company prior to the
26
Effective Date which results in the failure of the Reverse/Forward Stock Split
to effect a reduction in the number of shareholders of record of the Company to
below 300.
The Reverse/Forward Stock Split is considered a "Rule 13e-3 transaction",
as defined in Rule 13e-3 promulgated under the Exchange Act, because it is
intended to and, if completed, will likely terminate the registration of the
Common Stock under Section 12(g) of the Exchange Act and suspend the Company's
duty to file periodic reports with the SEC. In connection with the
Reverse/Forward Stock Split, we have filed a Rule 13e-3 Transaction Statement on
Schedule 13E-3 with the SEC.
Background of the Reverse/Forward Stock Split
We incur direct and indirect costs associated with compliance with the
Exchange Act's filing and reporting requirements imposed on public companies.
The cost of this compliance has increased significantly with the implementation
of the provisions of Sarbanes-Oxley. In addition, we have incurred direct and
indirect expenses associated with previous listing of our Common Stock on the
Nasdaq National Market, which listing was terminated on May 16, 2005. We are
seeking to undertake the Reverse/Forward Stock Split at this time because of the
significant additional costs and burdens associated with compliance with the
forthcoming internal control audit requirements of Section 404 of
Sarbanes-Oxley, as well as to avoid ongoing direct and indirect expenses of
Exchange Act compliance. The cost of implementing Section 404's internal control
procedures is unduly burdensome and costly considering the benefits to the
Company of Exchange Act compliance and the Company's size. The Company has too
few personnel to implement the new requirements of Section 404 and would incur
substantial costs to enact such procedures.
We also incur substantial indirect costs as a result of, among other
things, the executive time expended to prepare and review our public filings. As
we have relatively few executive personnel, these indirect costs can be
substantial.
In recent years, our Common Stock has attracted limited institutional
investors or market research attention which could have created a more active
and liquid market for the Common Stock. Relatively low trading volume and low
market capitalization have reduced the liquidity benefits to the shareholders of
the Company and mitigated the ability to use Common Stock as a significant part
of our employee compensation and incentive strategy. In addition, because we
have not used Common Stock as consideration, nor been active in the corporate
merger and acquisition market, the benefit of a publicly traded stock to use in
conjunction with acquisitions or other stock transactions has not been realized.
We have not derived significant benefits from maintaining a public trading
market. The Board of Directors does not presently intend to raise capital
through sales of securities in a public offering or to acquire other business
entities using stock as consideration. Accordingly, we are not likely to make
use of many advantages (for raising capital, effecting acquisitions or other
purposes) that our status as a reporting company may offer. For a more detailed
discussion of the ways in which the Company has not enjoyed the benefits
typically afforded public reporting company status, please see the information
under "Special Factors - Reasons for the Reverse/Forward Stock Split" in this
proxy statement.
In light of these circumstances, the Special Committee and, upon the
recommendation of the Special Committee, the Board of Directors, believe that it
is in our best interests to undertake the Reverse/Forward Stock Split at this
time to enable us to deregister the Common Stock under the Exchange Act, which
will relieve us of the administrative burden, cost, and competitive
disadvantages associated with filing reports and otherwise complying with the
requirements imposed under the Exchange Act.
Prior to the adoption of Sarbanes-Oxley, members of our Board of Directors
and our executive officers took note of published articles describing shifts in
public capital markets to the disadvantage of companies such as ours that have
relatively small amounts of outstanding capital. These articles suggested that
being publicly held might not be advantageous for a company of our size. At
least in part this is because the markets for small cap stocks lack sufficient
liquidity to accommodate the sizeable investments now required to be made by
institutional investors. Accordingly, stock research analysts have stopped
writing reports on small cap stocks, which also makes it more difficult for
retail investors to follow and invest in small cap stocks. As a result, these
stocks are
27
undervalued, and their trading volume diminishes further. The market price of
these stocks often does not increase in response to improved earnings, and the
stock is not desired as either an employee equity incentive or as consideration
for acquisitions. Public offerings of undervalued small cap stocks may not be
prudent as an offering would result in unacceptable levels of dilution to
existing shareholders. The efforts of small cap management teams to increase
awareness of their companies as an attractive investment candidate are often
unsuccessful because the market for their stock is too thinly traded to allow
investment by institutions. These observations were reinforced in passing
discussions with executives from other companies, investment bankers, legal
counsel, and independent auditors, and through service by our directors on the
boards of other public companies.
Since the proposal of the Sarbanes-Oxley, our Board of Directors and
executive officers have attended various seminars and presentations, and have
had numerous discussions with our auditors and legal counsel to follow the
progression of Sarbanes-Oxley and the Nasdaq National Market requirements
applicable to the Company. In this process, they have noted the costs and time
commitments required to comply with increasing levels of associated regulation.
Over this period of time, our directors and executive officers had informal
discussions about the historical and prospective time commitments and costs
associated with Sarbanes-Oxley compliance.
On October 10, 2003, we conducted a modified Dutch auction tender offer
because we believed that our Common Stock was undervalued in the public market.
In this transaction, we purchased 1,050,899 shares at $4.50 per share. In
proposing, analyzing, and discussing that transaction, the Board of Directors
intended that the Company continue to be registered under the Exchange Act
following completion of the transaction and in the future. The Board of
Directors believed that being widely held and having securities registered under
the Exchange Act was in the best interests of the Company at that time. Since
that time, the actual and anticipated costs of compliance with Sarbanes-Oxley
have increased, especially the projected cost of complying with Section 404. The
negative market conditions for small cap stocks are not expected to change.
Several possible acquisitions of competitors or complimentary businesses have
not developed and do not appear likely in the future. Access to private debt
capital appears to be adequate to fund the foreseeable needs of the Company. In
addition, the extensive and protracted process of correcting and restating the
Company's financial statements following the discovery of an accounting error,
as discussed below, and the high direct and indirect costs associated with that
process, also caused the Board of Directors and the Special Committee to examine
the relative costs and benefits of having securities registered under the
Exchange Act. As discussed at the February 22, 2005 Board of Directors meeting,
undertaking a shareholder reduction transaction and deregistration under the
Exchange Act was not possible until the Company completed the restatement of its
2004 financial statements and became current in its Exchange Act filings.
On January 31, 2005, we announced that our annual report on Form 10-K for
the period ended October 31, 2004 would not be filed with the SEC on a timely
basis. Company management and the Audit Committee of the Board of Directors were
investigating and analyzing the Company's manner of establishing reserves in
various specific workers' compensation cases. The Company contemplated that the
investigation may result in changes to workers' compensation reserves and, if
material, such amounts would likely result in a restatement of previously issued
financial statements. The decision to delay filing of our Form 10-K for the
period ended October 31, 2004 was made to permit the Company's management and
Audit Committee to complete this investigation and analysis, and to allow its
outside auditors sufficient time to complete the audit of the Company's October
31, 2004 financial statements.
On February 21, 2005, the Company received a notice of determination that
it had failed to comply with Nasdaq continued listing requirements due to the
delay in filing its Form 10-K for the fiscal year ended October 31, 2005. The
Company requested a written hearing before the Nasdaq Listing Qualifications
Panel (the "Panel"), which stayed the delisting of our Common Stock from the
Nasdaq National Market until the Panel had rendered its decision.
On February 22, 2005, prior to commencement of a Board of Directors
meeting, one of our directors, William R. Patterson, suggested that the Board of
Directors at an appropriate time consider the advisability of deregistering our
Common Stock under the Exchange Act in light of increasing costs of
Sarbanes-Oxley compliance, especially the anticipated costs of Section 404
compliance. As a member of the board of directors of another company that had
securities registered under the Exchange Act, Mr. Patterson had observed that
company deregister its stock and suspend its obligations to file periodic
reports and comply with Sarbanes-Oxley. That company was readily able to
deregister its stock because at that time it had fewer than 300 shareholders of
record.
28
He suggested that deregistration of the Company's Common Stock might prove to be
a prudent alternative to bearing the increasing expenses of periodic reporting
and Sarbanes-Oxley compliance. When questioned about the possibility of
deregistration, counsel indicated that because the Company had more than 300
shareholders of record, one of several types of shareholder reduction
transactions would need to be carefully considered and completed before it would
be possible to deregister the Common Stock under the Exchange Act. It was also
observed that prior to such a transaction, the Company would have to file all
required periodic Exchange Act reports, which it had not done due to the pending
investigation of workers' compensation reserves. Following discussion, it was
determined to defer consideration of deregistration until a later date and to
focus Company efforts on the pending investigation and completing the filing of
all required periodic Exchange Act reports.
On March 2, 2005, the Company announced that it would restate its
previously issued financial statements for the 2002 and 2003 fiscal years to
correct the manner in which the Company had established and recorded workers'
compensation reserves. In addition, the Company announced that previously
released financial information for fiscal 2004 would also be restated.
On March 17, 2005, the Nasdaq Listing Qualifications Panel conducted a
written hearing, but delayed its decision in order to consider additional
information submitted by the Company that was deemed relevant to the Panel's
determination. The Company was notified by the Panel that it would continue its
review of the Company's listing status on or about March 31, 2005.
On March 21, 2005, the Company announced the retirement of its chief
financial officer and the commencement of a search to identify candidates to
fill that position.
On March 30, 2005, the Company announced that it had received notice of a
determination by Nasdaq that the Company failed to comply with Nasdaq continued
listing requirements due to the delayed filing with the SEC of its Form 10-Q for
the fiscal quarter ended January 31, 2005, and that its securities were
therefore subject to delisting from the Nasdaq National Market.
On May 12, 2005, the Company announced that the Audit Committee had
completed its investigation of the Company's reserves for future workers'
compensation costs, and had recommended revised procedures for establishing
workers' compensation reserves. The Company also announced that it was
continuing to work closely with its outside auditor, KPMG LLP ("KPMG"), to
complete the audit of its restated financial statements. The audit for the Form
10-K for the fiscal year ended October 31, 2004, could not be completed,
however, until the Company had filled its chief financial officer vacancy, and
the chief financial officer of the Company was able to provide typical
management representations to KPMG. Separately, the Company announced the hiring
of a new chief financial officer who would assume this position on May 23, 2005.
On May 17, 2005, the Company announced that our Common Stock had been
delisted from the Nasdaq National Market as of the opening of business May 16,
2005, because the Company had failed to timely file its Form 10-K for the fiscal
year ended October 31, 2004 and Form 10-Q for the fiscal quarter ended January
31, 2005. The Common Stock then began trading on the "pink sheets."
In early June, 2005, Donald Lynn Collins discussed with counsel the steps
necessary to deregister our Common Stock under the Exchange Act and the
advantages and disadvantages of related to such action.
At the June 23, 2005 meeting of the Board of Directors, a discussion took
place regarding deregistration of our Common Stock after filing our delinquent
Form 10-K and Forms 10-Q. It was decided to have Donald Lynn Collins meet with
Company counsel and an investment banker to more clearly identify the Company's
alternatives for deregistration for review at a future Board of Directors
meeting.
On July 20, 2005, Donald Lynn Collins met with counsel and a representative
of Stifel to review, generally, shareholder reduction transaction structures and
the deregistration process. Shortly thereafter, Mr. Collins had similar
conversations with counsel and a representative of another investment banking
firm.
At the July 25, 2005 meeting of the Board of Directors, Donald Lynn Collins
reported on his discussions with counsel and representatives of two investment
banking firms regarding the advantages and disadvantages of
29
deregistering the Common Stock as opposed to relisting the Common Stock on the
Nasdaq National Market. He shared responses to questions previously posed to
counsel. The Board of Directors discussed the increasing costs of maintaining
registered stock and evaluated the merits of a shareholder reduction transaction
that would allow deregistration of the Common Stock. The Board of Directors also
discussed alternatives to effectuate a shareholder reduction transaction. Please
see section "Special Factors - Alternatives to the Reverse/Forward Stock Split"
for a full discussion of the alternatives considered by the Board of Directors.
After a full discussion, the Board of Directors concluded that the objective of
deregistration warranted further study. The Board of Directors concluded that no
decision could be reached at this meeting as to whether to deregister the Common
Stock or, alternatively, attempt to relist the Common Stock on the Nasdaq
National Market. The Board of Directors decided to continue the discussion after
the Company had completed restating its financial statements and filed its
delinquent Exchange Act filings.
On August 3, 2005, the Company filed its Form 10-K for the fiscal year
ended October 31, 2004, and Forms 10-Q for the fiscal quarters ended January 31,
2005, and April 30, 2005. On that date, we announced that the Company would not
immediately take steps to relist its Common Stock on the Nasdaq National Market
based on a review of the benefits and burdens of the Company's status as a
reporting company under the Exchange Act, including the alternatives for the
trading of its Common Stock.
On August 9, 2005, we announced that on August 3, 2005, KPMG had resigned
as the independent registered public accounting firm of the Company.
At the August 22, 2005 meeting of the Audit Committee, the Audit Committee
discussed a shareholder reduction transaction. After lengthy discussion of the
various issues related to such a transaction, the members voted to recommend to
the Board of Directors that an investment banking firm be hired and assist the
Company in exploring such a transaction and to instruct the investment banking
firm selected to conduct a return on investment calculation on such a
transaction.
At the August 23, 2005 meeting of the Board of Directors, the Board of
Directors discussed further a shareholder reduction transaction. The various
benefits and detriments of a shareholder reduction transaction were discussed,
including the avoidance of costs associated with Sarbanes-Oxley compliance. The
Board of Directors agreed unanimously that a change of control or a sale of the
Company was not being contemplated and was not in the best interest of the
Company's shareholders. Following this discussion, although the Board of
Directors did not believe that the interests of any of the directors, including
management directors, were in conflict with the interests of any other
shareholders in connection with such a transaction, other than the fact that all
directors held sufficient shares so that they would not be cashed out as a
result of the transaction, the Board of Directors appointed the Special
Committee, comprised of three independent members of the Board of Directors, who
are not, and have never been, employees of the Company, for the purpose of
reviewing, considering, evaluating, and determining the terms, merits and,
procedures of a shareholder reduction transaction and to determine, among other
matters, whether a shareholder reduction transaction would be fair and in the
best interests of the Company and its shareholders. Arch Gothard was appointed
as Chairman of the Special Committee. The Board of Directors authorized the
Special Committee to engage such legal or financial advisors as it deemed
appropriate. Shortly thereafter, the Special Committee considered the necessity
of obtaining independent legal counsel and identified potential financial
advisors to assist the Special Committee in evaluating a shareholder reduction
transaction. The Special Committee determined that it would not engage special
counsel.
On August 31, 2005, we announced that on August 29, 2005, upon the
recommendation and approval of the Audit Committee, the Company had engaged
McGladrey & Pullen, LLP ("McGladrey") to serve as the Company's independent
auditors.
During the last week in August and first two weeks of September, 2005,
counsel assisted the Special Committee Chairman in arranging interviews with
investment bankers. The Special Committee and counsel identified potential
candidates based on prior experience and professional reputations. Three
candidates emerged and were scheduled to be interviewed by the Special
Committee.
At a September 7, 2005 meeting, the Special Committee and counsel discussed
the duties and obligations of a special committee, and ensured that the Special
Committee was independent and could function properly as a
30
committee of independent directors. A discussion of the process for considering
and recommending a shareholder reduction transaction and deregistration of the
Common Stock then took place, including a discussion of the fiduciary duties of
Special Committee members in that context. The Special Committee then
interviewed representatives of three investment banking firms regarding their
ability to assist with the analysis and implementation of a shareholder
reduction transaction. Each firm made a general presentation about its
experience and proposed services. Following these presentations, the Special
Committee evaluated the comparative strengths of the investment banking firms
interviewed.
On September 8, 2005, the Special Committee held a telephonic meeting to
complete their analysis of the investment bank presentations and to finalize a
choice of financial advisor to the Special Committee. After a full discussion,
the Special Committee selected Stifel as financial advisor to the Special
Committee. Mr. Gothard reported the selection of Stifel to Mr. Collins after the
conclusion of the telephonic meeting. Thereafter, Stifel presented a formal
engagement letter, which was negotiated and executed on September 28, 2005.
On September 23, 2005, Stifel requested certain preliminary information
from the Company in preparation for the performance of its due diligence.
On September 25, 2005, the Special Committee discussed the status of
Stifel's due diligence work and received a report from counsel regarding various
issues associated with shareholder reduction transactions. Based on the report,
the Special Committee identified certain items that it wanted to investigate and
consider further at its next meeting.
At its September 26, 2005 meeting, the Special Committee approved the draft
of the Stifel engagement letter for financial consulting services to the Special
Committee. The Special Committee then discussed the various forms that a
shareholder reduction transaction could take. The Special Committee considered a
transaction in the form of a cash merger, but expressed concern that this
structure would be too complex and costly given the likely size of the
transaction. The Special Committee preliminarily decided to examine a
shareholder reduction transaction using a reverse stock split followed by a
forward stock split. Lastly, the Special Committee, along with Donald Lynn
Collins, discussed the potential impact of a shareholder reduction transaction
and deregistration of the Common Stock on the Company's Restated Tax Deferred
Savings Plan. Much of this discussion, which was continued on September 27,
2005, focused on the changes that may need to be made to the plan if the Company
proceeded with a shareholder reduction transaction and deregistration of the
Common Stock.
At the September 27, 2005 meeting of the Board of Directors, the Board of
Directors considered the engagement letter of Stifel, which was presented by Mr.
Gothard. Following a discussion of the advantages and disadvantages of a
shareholder reduction transaction that would permit the Company to deregister
its Common Stock and suspend its obligations to file special and periodic
reports with the SEC, the engagement letter for the transaction was approved.
The Board of Directors also confirmed it would respond to all inquiries from
parties expressing an interest in purchasing the Company by informing those
parties that the Company is not for sale. It was noted that the Board of
Directors would review any offers to purchase the Company and reply accordingly.
It was further noted that, while the Company had received preliminary inquiries
from persons outside the industry to make certain capital investments in the
Company, no offers to purchase the Company had been received.
On or about October 5, 2005, Stifel began conducting management telephonic
interviews and securing projections for its financial modeling and ongoing
valuation work. On October 13, 2005, Stifel conducted interviews of Company
management at the Company's offices in Southlake, Texas.
At the October 24, 2005 meeting of the Special Committee, the Special
Committee met with counsel and representatives of Stifel to discuss various
issues related to the Reverse/Forward Stock Split and Right of First Refusal.
Among other things, the Special Committee discussed at length the fiduciary
duties associated with the proposed Reverse/Forward Stock Split and Right of
First Refusal, the structure of the proposed Reverse/Forward Stock Split and
Right of First Refusal, and the disclosure alternatives available to the Company
upon deregistration of the Common Stock. At this meeting, the Special Committee
determined to further explore a reverse stock split followed by a forward stock
split, as opposed to other possible transaction structures. Also at this
meeting, Stifel provided an update as to the status of its valuation process for
the proposed Reverse/Forward Stock Split. The Special Committee was informed
that Stifel anticipated completing the valuation process by October 28, 2005. To
31
give the Special Committee an indication of the Company's current shareholder
stratification, Stifel presented to the Special Committee a report entitled
Stratification Analysis & Cost Estimates. The discussion then focused on the
number of shares held by registered shareholders and beneficial holders, the
procedure for making the transaction available to beneficial holders, and cost
estimates of repurchasing fractional shares at various hypothetical premiums to
the current market price of the Common Stock. It was explained that these
materials were presented for discussion purposes only and were not the basis of
Stifel's valuation or fairness opinion. At this time, no decision was made
regarding a ratio for the Reverse/Forward Stock Split. Don L. Collins and Donald
Lynn Collins were present to observe the meeting by invitation of the Special
Committee.
On October 28, 2005, the Special Committee met with counsel and
representatives of Stifel to receive a revised shareholder Stratification
Analysis & Cost Estimate and Stifel's Common Stock Valuation Analysis. No
decision was made at this meeting regarding a ratio for the Reverse/Forward
Stock Split. Please see "Special Factors - Opinion of Financial Advisor" for a
detailed summary of the presentation made by Stifel. Please also see the
complete Fairness Opinion prepared by Stifel, which is attached hereto as Annex
B.
On October 31, 2005, the Special Committee discussed the anticipated costs
of the shareholder reduction transaction and the expected cost savings to the
Company of no longer having the obligations to file special and periodic reports
with the SEC and the valuation report received from Stifel. After full
discussion, and for the reasons discussed below under "Special Factors -
Fairness of the Reverse/Forward Stock Split," the Special Committee unanimously
recommended the proposed Reverse/Forward Stock Split and Right of First Refusal
to the full Board of Directors, including recommendations that (i) the
consideration for fractional share interests that would be cashed out be set at
$7.70 per pre-split share, (ii) the Reverse/Forward Stock Split ratio of
1-to-300 be used, and (iii) that the Right of First Refusal be recommended to
the shareholders for adoption.
At the October 31, 2005 Special Committee meeting, after determining the
proposed per share consideration for fractional share interests, the Special
Committee decided to propose a Reverse/Forward Stock Split ratio of 300-to-1. In
doing so, the Special Committee considered among other factors: (i) the number
by which the record shareholders of the Company would need to be reduced to
allow deregistration; (ii) the number of record and beneficial shareholders
holding shares within ranges of 100 shares up to 1000 shares; (iii) the number
of shares that would become fractional shares, cancelled and converted into the
right to receive cash; (iv) the amount of capital invested in the Company by
shareholders at each range; (v) the anticipated expense of implementing the
Reverse/Forward Stock Split; (vi) without quantification, the direct and
indirect costs of communicating with, administering shareholder accounts for,
and responding to shareholders; and (vii) the likelihood and burden of engaging
in another shareholder reduction transaction to avoid the need to re-register
under the Exchange Act at some point in the future.
The Special Committee recommended the Reverse/Forward Stock Split ratio of
300-to-1, which is expected to reduce the number of record shareholders by more
than the minimum amount necessary to allow deregistration. The Special Committee
did so because the time and expense of effecting the Reverse/Forward Stock Split
will be significant, and it represents an opportunity to eliminate the costs
associated with, and reduce any potential liability to, a relatively large
number of record shareholders who hold minimal investments in the Company.
The Special Committee also considered a stock split ratio of 400-to-1, but
determined that because fewer shareholders existed at that level and above, and
because those shareholders held relatively large amounts of shares, the
additional cost of implementing a 400-to-1 stock split would outweigh the small
benefit of eliminating relatively few additional shareholders.
With this ratio, for a significant period of time, the Company should not
need to either incur the time and expense of exercising the Right of First
Refusal or engaging in another transaction to reduce the number of its
shareholders of record.
It was also considered that a large number of the Cashed Out Shareholders
might appreciate the opportunity to liquidate their relatively small holdings at
a premium and without brokerage fees, yet with the opportunity if they desired
to remain shareholders by purchasing additional shares such that they held 300
or more shares of Common Stock immediately before the Reverse/Forward Stock
Split.
32
At the October 31, 2005 meeting, the Special Committee, after considering
Stifel's valuation analysis, historical intra-day trading prices, historical
closing trading prices, ranges of possible premiums, and the small percentage of
outstanding shares to be converted to fractional shares at the proposed
Reverse/Forward Stock Split ratio, determined that the consideration per
pre-split share of $7.70 was fair to the unaffiliated shareholders, including
the unaffiliated Cashed Out Shareholders, individually, and the unaffiliated
Continuing Shareholders, individually. During the meeting, members of the
Special Committee shared their views regarding the ranges of values of the stock
and the range of possible premiums.
On October 31, 2005, the Board of Directors met to discuss the conclusions
reached by the Special Committee regarding the shareholder reduction
transaction. Following this discussion, the Board of Directors concluded that
the transaction was justified economically. The Special Committee recommended
that the Board of Directors adopt its proposal for the Reverse/Forward Stock
Split and the Right of First Refusal. The Board of Directors adopted the Special
Committee's recommendation unanimously and determined that the consideration per
pre-split share of $7.70 was fair to the unaffiliated shareholders, including
the unaffiliated Cashed Out Shareholders, individually, and the unaffiliated
Continuing Shareholders, individually.
Other than Stifel, no other outside party prepared or presented any
reports, presentations, analyses or opinions in connection with the
Reverse/Forward Stock Split and no other investment firm was formally retained
by the Company.
All of the members of the Special Committee attended each meeting of the
Special Committee outlined in this section and participated in each discussion
regarding the proposed transaction, and each matter approved by the Special
Committee was unanimously approved by the Special Committee.
All of the members of the Board of Directors attended each meeting of the
Board of Directors outlined in this section and participated in each discussion
regarding the proposed transaction, and each matter approved by the Board of
Directors was unanimously approved by the full Board of Directors.
Costs of Proxy Solicitation and the Reverse/Forward Stock Split
We will pay the cost of preparing, assembling and mailing this proxy
soliciting material and Notice of Special Meeting of Shareholders. Solicitation
by mail, telephone, facsimile, or personal solicitation may also be undertaken
by our directors, executive officers, or regular employees, for which they will
receive no additional compensation. Brokerage houses and other nominees,
fiduciaries, and custodians nominally holding shares of Common Stock as of the
Record Date will be requested to forward proxy soliciting material to the
beneficial owners of such shares and will be reimbursed by us for their
reasonable expenses.
The repurchase of the Cashed Out Shareholders' fractional shares resulting
from the Reverse/Forward Stock Split is estimated to cost approximately
$943,164. The following is an estimate of the costs incurred or expected to be
incurred by us in connection with the Reverse/Forward Stock Split. Final costs
of the transaction may be greater or less than the estimates shown below.
Cash for purchase of Cashed Out Shareholders'
fractional shares $618,164
Legal fees and expenses 100,000
Financial consulting fees 150,000
Special Committee fees and expenses 5,000
Transfer Agent 50,000
Printing, mailing, and other costs 20,000
Total fees $325,000
---------------------
Total $943,164
33
We intend to fund these costs from borrowings under our revolving credit
facility with Fleet Capital Corporation ("Fleet"), as amended. For a more
detailed discussion, please see "Additional Information Regarding the
Reverse/Forward Stock Split - Source of Funds and Expenses" in this proxy
statement.
ADDITIONAL INFORMATION REGARDING
THE REVERSE/FORWARD STOCK SPLIT
Special Interests of the Affiliated Shareholders in the Reverse/Forward Stock
Split
In considering the recommendation of the Board of Directors and Special
Committee with respect to the proposed Reverse/Forward Stock Split, shareholders
should be aware that the Company's executive officers and directors have
interests in the Reverse/Forward Stock Split that are in addition to, or
different from, the shareholders generally. These interests may create potential
conflicts of interest and include the following:
• Each executive officer and each member of the Board of Directors holds
shares, options, and/or or restricted stock that, individually in the
aggregate, exceed 300 shares and will, therefore, retain shares of
Common Stock, options to purchase Common Stock, and/or restricted
stock after the Reverse/Forward Stock Split;
• After the Reverse/Forward Stock Split, the directors and executive
officers of the Company will continue to hold the offices and
positions they held immediately prior to the Reverse/Forward Stock
Split;
• As a result of the Reverse/Forward Stock Split, the shareholders who
own more than 300 shares of Common Stock on the Effective Date of the
Reverse/Forward Stock Split, including the Company's executive
officers and directors, will slightly increase their percentage
ownership interest in the Company because only an estimated 80,281
shares of Common Stock will be eliminated as a result of the
Reverse/Forward Stock Split. For example, assuming the Reverse/Forward
Stock Split is implemented and based on information and estimates of
record ownership and shares outstanding and other ownership
information and assumptions as of December 6, 2005, the beneficial
ownership percentage of the Company's executive officers and directors
will increase slightly from 30.24% to 30.61% (including exercisable
options) as a result of the reduction of an estimated 80,281 shares in
the number of shares of Common Stock outstanding;
• As members of the Special Committee, Messrs. Gothard, Peters, and
Patterson, will receive, in the aggregate, compensation and
reimbursement for expenses of approximately $5,000 for serving on the
Special Committee; and
• The legal exposure for board members of public companies has increased
significantly, especially in the aftermath of recent legislation and
related regulations. While there are still significant controls,
regulations and liabilities for directors and executive officers of
non-public reporting companies, the legal exposure for the Company's
directors and executive officers will be reduced after the
Reverse/Forward Stock Split.
Each of the Affiliated Shareholders has indicated to the Company that it
will vote its Common Stock in favor of the Reverse/Forward Stock Split.
Source of Funds and Expenses
Based on estimates of record ownership of shares of Common Stock, the
number of shares outstanding and other information as of December 6, 2005, the
Record Date, and assuming that 80,281 fractional shares are cashed out, we
estimate that the total funds required to consummate the transaction will be
approximately $943,164, of which $618,164 will be used to pay the consideration
to shareholders entitled to receive cash for their shares, and $325,000 will be
used to pay the costs of the Reverse/Forward Stock Split, as follows:
34
Legal fees and expenses $ 100,000
Financial consulting fees 150,000
Special Committee fees and expenses 5,000
Transfer Agent 50,000
Printing, mailing, and other costs 20,000
-----------------------------------------------------------------------
Total $ 325,000
========================
We intend to fund these costs from borrowings under our revolving credit
facility with Fleet. Our credit facility with Fleet permits us to borrow the
necessary funds to finance the Reverse/Forward Stock Split without creating a
default under the terms of the credit facility. Therefore, the Company has not
pursued any alternative financing arrangements to finance the transaction.
The terms of our revolving credit facility with Fleet are set forth in
documents filed with the SEC and available as described in the section entitled
"General - Where You Can Find More Information." This credit facility, which is
secured by substantially all of our assets, currently bears interest based on
either, at our election, a Eurodollar rate (LIBOR plus 1.75%) or Fleet's prime
lending rate. Any borrowings under the revolving credit facility must be repaid
by the Company by May 17, 2008, or upon such other terms as set forth in the
credit agreement.
Dissenters' and Appraisal Rights
Under Missouri law, our Company's Articles of Incorporation and our Bylaws,
no appraisal or dissenters' rights are available to dissenting shareholders of
the Company who dissent from the Reverse/Forward Stock Split.
There may exist other rights or actions under Missouri law or federal and
state securities laws for shareholders who can demonstrate that they have been
damaged by the Reverse/Forward Stock Split. The nature and extent of such rights
or actions are uncertain and may vary depending on facts or circumstances.
Generally, shareholder challenges to corporate actions are related to fiduciary
responsibilities of corporate directors and officers.
Recommendation of the Board of Directors
Upon the recommendation and approval of the Special Committee, the Board of
Directors reasonably believes and unanimously determined that the
Reverse/Forward Stock Split is fair to, and in the best interests of, the
Company and its shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL AND ADOPTION OF THE CERTIFICATES OF AMENDMENT TO THE COMPANY'S ARTICLES
OF INCORPORATION TO EFFECT THE REVERSE/FORWARD STOCK SPLIT.
In considering the recommendation of the Board of Directors with respect to
the Reverse/Forward Stock Split, shareholders should be aware that the Company's
executive officers and directors have interests in the Reverse/Forward Stock
Split that are in addition to, or different from, our shareholders generally and
that these interests may create potential conflicts of interest. For a more
detailed discussion, please see "Additional Information Regarding the
Reverse/Forward Stock Split - Special Interests of the Affiliated Shareholders
in the Reverse/Forward Stock Split" in this proxy statement.
The Board of Directors has retained the absolute authority to reject (and
not implement) the Reverse/Forward Stock Split (even after shareholder approval
of the amendment). If for any reason the Reverse/Forward Stock Split is not
approved, or, if approved, not implemented, the Common Stock will not be
deregistered under the Exchange Act unless and until such time as the Company
otherwise is eligible and our Board of Directors decides to do so.
35
Material Federal Income Tax Consequences
We summarize below the material federal income tax consequences to the
Company and to shareholders resulting from the Reverse/Forward Stock Split. This
summary is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Regulations (the "Regulations") issued
pursuant thereto, and published rulings and court decisions in effect as of the
date hereof, all of which are subject to change. This summary does not take into
account possible changes in such laws or interpretations, including amendments
to the Code, applicable statutes, Regulations and proposed Regulations or
changes in judicial or administrative rulings, some of which may have
retroactive effect. No assurance can be given that any such changes will not
adversely affect the federal income tax consequences of the Reverse/Forward
Stock Split.
This summary does not address all aspects of the possible federal income
tax consequences of the Reverse/Forward Stock Split and is not intended as tax
advice to any person or entity. In particular, and without limiting the
foregoing, this summary does not consider the federal income tax consequences to
shareholders of the Company in light of their individual investment
circumstances nor to shareholders subject to special treatment under the federal
income tax laws (for example, tax exempt entities, life insurance companies,
regulated investment companies and foreign taxpayers), or who hold, have held,
or will hold stock as part of a straddle, hedging, or conversion transaction for
federal income tax purposes. In addition, this summary does not address any
consequences of the Reverse/Forward Stock Split under any state, local, or
foreign tax laws.
We will not obtain a ruling from the Internal Revenue Service or an opinion
of counsel regarding the federal income tax consequences to the shareholders of
the Company as a result of the Reverse/Forward Stock Split. Accordingly, you are
encouraged to consult your own tax advisor regarding the specific tax
consequences of the proposed transaction, including the application and effect
of state, local, and foreign income and other tax laws.
This summary assumes that you are one of the following: (i) a citizen or
resident of the United States, (ii) a domestic corporation, (iii) an estate the
income of which is subject to United States federal income tax regardless of its
source, or (iv) a trust if a United States court can exercise primary
supervision over the trust's administration and one or more United States
persons are authorized to control all substantial decisions of the trust. This
summary also assumes that you have held and will continue to hold your shares as
capital assets for federal income tax purposes.
You should consult your tax advisor as to the particular federal, state,
local, foreign, and other tax consequences applicable to your specific
circumstances.
We believe that the Reverse/Forward Stock Split will be treated as a
tax-free "recapitalization" for federal income tax purposes. This should result
in no material federal income tax consequences to the Company or to the
shareholders who do not receive cash in the transaction. However, if you are
receiving cash in the transaction, you may not qualify for tax free
"recapitalization" treatment for federal income tax purposes.
Federal Income Tax Consequences to Shareholders Who Do Not Receive Cash in
Connection with the Reverse/Forward Stock Split
If you (i) continue to hold stock directly immediately after the
Reverse/Forward Stock Split, and (ii) you receive no cash as a result of the
Reverse/Forward Stock Split, you should not recognize any gain or loss in the
Reverse/Forward Stock Split for federal income tax purposes. Your aggregate
adjusted tax basis in your shares of stock held immediately after the
Reverse/Forward Stock Split will be equal to your aggregate adjusted tax basis
in your shares of stock held immediately prior to the Reverse/Forward Stock
Split and you will have the same holding period in your stock as you had in such
stock immediately prior to the Reverse/Forward Stock Split.
Federal Income Tax Consequences to Shareholders Who Receive Cash in Connection
with the Reverse/Forward Stock Split
If you (i) receive cash in exchange for fractional shares as a result of
the Reverse/Forward Stock Split, (ii) you do not continue to hold any stock
directly immediately after the Reverse/Forward Stock Split, and (iii) you are
not related to any person or entity that holds stock immediately after the
Reverse/Forward Stock Split, you will
36
recognize capital gain or loss on the Reverse/Forward Stock Split for federal
income tax purposes, with such gain or loss measured by the difference between
the cash you receive for your cashed out stock and your aggregate adjusted tax
basis in such stock.
If you receive cash in exchange for fractional shares as a result of the
Reverse/Forward Stock Split, but either continue to directly own stock
immediately after the Reverse/Forward Stock Split, or are related to a person or
entity who continues to hold stock immediately after the Reverse/Forward Stock
Split, you will recognize capital gain or loss in the same manner as set forth
in the previous paragraph, provided that your receipt of cash either (i) is "not
essentially equivalent to a dividend," (ii) constitutes a "substantially
disproportionate redemption of stock," or (iii) constitutes a "complete
termination of interest," as described below.
(i) "Not Essentially Equivalent to a Dividend." You will satisfy the
"not essentially equivalent to a dividend" test if the reduction in your
proportionate interest in the Company resulting from the Reverse/Forward
Stock Split (taking into account for this purpose the stock owned by
persons related to you) is considered a "meaningful reduction" given your
particular facts and circumstances. The Internal Revenue Service has ruled
that a small reduction by a minority shareholder whose relative stock
interest is minimal and who exercises no control over the affairs of the
corporation will satisfy this test.
(ii) "Substantially Disproportionate Redemption of Stock." The receipt
of cash in the Reverse/Forward Stock Split will be a "substantially
disproportionate redemption of stock" for you if the percentage of the
outstanding shares of stock of the Company owned by you (and by persons
related to you) immediately after the Reverse/Forward Stock Split is (a)
less than 50% of all outstanding shares and (b) less than 80% of the
percentage of shares of stock owned by you (and by persons related to you)
immediately before the Reverse/Forward Stock Split.
(iii) "Complete Termination of Interest." To satisfy the "complete
termination of interest" test, you cannot continue to hold any stock
directly immediately after the Reverse/Forward Stock Split. If you are
treated as owning shares of stock actually or constructively owned by
certain individuals and entities related to you, you may still satisfy the
requirements of this test if you (i) retain no interest in the corporation
immediately after the Reverse/Forward Stock Split (including any interest
as an officer, director, or employee), other than an interest as a
creditor, (ii) do not acquire an interest in the corporation within ten
years after the date of the Reverse/Forward Stock Split, and (iii) agree to
notify the Internal Revenue Service of the acquisition of any interest in
the corporation within that ten-year period. You should consult your tax
advisor for details if you find that these facts describe your situation
and you wish to recognize capital gain or loss on the receipt of cash for
your cashed out stock.
In applying these tests, you will be treated as owning shares of stock
actually or constructively owned by certain individuals and entities related to
you. If your receipt of cash in exchange for stock is not treated as capital
gain or loss under any of the tests, it will be treated first as ordinary
dividend income to the extent of your ratable share of the Company's current and
accumulated earnings and profits, then as a tax-free return of capital to the
extent of your aggregate adjusted tax basis in your shares, and any remaining
amount will be treated as capital gain. For a more detailed discussion, please
see "Capital Gain and Loss" and "Special Rate for Certain Dividends" in this
section below. If your receipt of cash in exchange for stock is treated as
ordinary dividend income, you may not receive any tax benefit from your basis in
such shares.
Capital Gain and Loss
For individuals, net capital gain (defined generally as your total capital
gains in excess of capital losses for the year) recognized upon the sale of
capital assets that have been held for more than 12 months generally will be
subject to tax at a rate not to exceed 15%. Net capital gain recognized from the
sale of capital assets that have been held for 12 months or less will continue
to be subject to tax at ordinary income tax rates. Capital gain recognized by a
corporate taxpayer will continue to be subject to tax at the ordinary income tax
rates applicable to corporations. There are limitations on the deductibility of
capital losses.
37
Special Rate for Certain Dividends
In general, dividends are taxed at ordinary income rates. However, you may
qualify for a 15% rate of tax on any cash received in the Reverse/Forward Stock
Split that is treated as a dividend as described above, if (i) you are an
individual or other non-corporate shareholder, (ii) you have held the share of
stock with respect to which the dividend was received for more than 60 days
during the 121-day period beginning 60 days before the ex-dividend date, as
determined under the Code, and (iii) you were not obligated during such period
(pursuant to a short sale or otherwise) to make related payments with respect to
positions in substantially similar or related property. You are urged to consult
with your tax advisor regarding your applicability for, and the appropriate
federal, state, local, foreign or other tax treatment of, any such dividend
income.
Backup Withholding
Shareholders will be required to provide their social security or other
taxpayer identification numbers (or, in some instances, additional information)
to the Transfer Agent in connection with the Reverse/Forward Stock Split to
avoid backup withholding requirements that might otherwise apply. The letter of
transmittal will require each shareholder to deliver such information when the
Common Stock certificates are surrendered following the Effective Date of the
Reverse/Forward Stock Split. Failure to provide such information may result in
backup withholding at a rate of 28%.
As explained above, the amounts paid to you as a result of the
Reverse/Forward Stock Split may result in dividend income, capital gain income,
or some combination of dividend and capital gain income to you depending on your
individual circumstances. You should consult your tax advisor as to the
particular federal, state, local, foreign, and other tax consequences of the
transaction, in light of your specific circumstances.
THE PRECEDING DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF
THE REVERSE/FORWARD STOCK SPLIT IS GENERAL AND DOES NOT INCLUDE ALL CONSEQUENCES
TO EVERY SHAREHOLDER UNDER FEDERAL, STATE, LOCAL, OR FOREIGN TAX LAWS.
ACCORDINGLY, EACH SHAREHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO IT OF THE REVERSE/FORWARD STOCK SPLIT, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS, AND OF
ANY PROPOSED CHANGES IN APPLICABLE LAW.
Market for Common Stock
Through May 13, 2005, our Common Stock traded on the Nasdaq National Market
under the symbol "COLL." On May 16, 2005, we received a letter from Nasdaq dated
May 12, 2005, advising that our Common Stock would be delisted effective at the
opening of the market on May 16, 2005 because the Company failed to timely file
its Form 10-K for the year ended October 31, 2004 and Form 10-Q for the quarter
ended January 31, 2005, as required by Nasdaq Marketplace Rule 4310(c)(14). The
Company failed to file timely such periodic reports due to the Company Audit
Committee's investigation of workers' compensation reserves and the restatement
of certain financial statements of the Company. On May 13, 2005, the last date
on which our shares were traded on Nasdaq, the closing price for our Common
Stock was $4.83 per share, and there were approximately 454 shareholders of
record. Our Common Stock is eligible to be traded over the counter and is
currently quoted through the "pink sheets" under the symbol "COLL." The
following table lists the high and low sales prices of our Common Stock for the
periods indicated below.
Period High Low
------ ----- -----
Fiscal Year Ended October 31, 2004
1st Quarter $5.69 $4.05
2nd Quarter 6.02 4.51
3rd Quarter 6.30 4.75
4th Quarter 5.75 4.61
38
Fiscal Year Ended October 31, 2005
1st Quarter $6.71 $4.75
2nd Quarter 6.04 4.45
3rd Quarter* 6.33 4.25
4th Quarter 7.50 5.50
Fiscal Year Ending October 31, 2006
1st Quarter (through December 6, 2005) $7.05 $5.65
*Through May 13, 2005, our Common Stock listed on the Nasdaq National Market.
Currently, our Common Stock is quoted only through the "pink sheets."
Dividend Policy
During each of the fiscal years ended October 31, 2005 and 2004, the
Company's annual cash dividend was $0.16 and $0.135, respectively, and was paid
on a quarterly basis.
Financial Information
Summary Financial Information
The following summary of historical financial information was derived from
the Company's audited financial statements as of and for each of the fiscal
years ended October 31, 2004, October 31, 2003, and October 31, 2002, and from
the Company's unaudited interim consolidated financial statements as of and for
each quarter ended July 31, 2005, and July 31, 2004. This financial information
is only a summary and should be read in conjunction with the financial
statements of the Company's Annual Report on Form 10-K for the year ended
October 31, 2004 and Quarterly Report on Form 10-Q for the quarter ended July
31, 2005, which information is incorporated by reference in this proxy
statement. A copy of the Annual Report and Quarterly Report, along with a copy
of our Current Reports on Form 8-K announcing the changes in our certifying
accountant, filed on August 9, 2005 and August 31, 2005, are being mailed to our
shareholders with this proxy statement. In addition, copies of the Annual
Report, the Quarterly Report, and the Current Reports may be copied (at
prescribed rates) at the Public Reference Room of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain additional information on the
operation of the SEC's Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an internet web site that contains reports, proxy
statements and other information about issuers, like us, who file electronically
with the SEC. The address of the site is http://www.sec.gov. Except as
specifically incorporated by reference into this proxy statement, information on
the SEC's web site is not part of this proxy statement.
Collins Industries, Inc. and Subsidiaries
Consolidated Statements of Income
Fiscal Years Nine Months
Ended October 31, Ended July 31,
--------------- ------------- --------------- ------------- -------------
2004 2003 2002 2005 2004
--------------- ------------- --------------- ------------- -------------
Total revenues $ 208.2 $ 204.6 $ 200.8 $ 193.4 $ 150.2
Total costs $ 205.9 $ 203.0 $ 198.8 $ 192.5 $ 148.7
Net income $ 2.3 $ 1.6 $ 2.0 $ 0.9 $ 1.5
Basic net income per share $ 0.40 $ 0.25 $ 0.30 $ 0.15 $ 0.26
Diluted net income per share $ 0.38 $ 0.24 $ 0.29 $ 0.14 $ 0.25
39
Collins Industries, Inc. and Subsidiaries
Consolidated Balance Sheet
October 31, July 31,
--------------- ------------- --------------- ------------- -------------
2004 2003 2002 2005 2004
--------------- ------------- --------------- ------------- -------------
Total assets $ 80.7 $ 74.7 $ 77.5 $ 94.3 $ 79.5
Total liabilities $ 56.0 $ 46.9 $ 51.2 $ 69.6 $ 55.5
Total shareholders' equity $ 24.7 $ 27.8 $ 26.3 $ 24.7 $ 24.0
Book value per share $ 3.89 $ 3.83 $ 3.70 $ 3.93 $ 3.87
$ in Millions, with the exception of net income per share and book value per
share.
THE REVERSE/FORWARD STOCK SPLIT
The following is a description of the material terms and effects of the
transaction. Copies of the proposed amendments to our Articles of Incorporation,
effecting the reverse stock split and the forward stock split following
immediately thereafter, are attached as Annex A-1 and Annex A-2 to this proxy
statement. This discussion does not include all of the information that may be
important to you. You should read the proposed amendments and this proxy
statement and related annexes before deciding how to vote at the Special
Meeting.
Mechanics of the Reverse/Forward Stock Split
The transaction includes both a reverse stock split and a forward stock
split of the Common Stock. If the transaction is approved by shareholders and
implemented by the Board of Directors, the transaction is expected to occur as
soon as practicable after the Special Meeting.
When approved by the shareholders at the Special Meeting, the
Reverse/Forward Stock Split will be effectuated in the following manner.
• The Reverse/Forward Stock Split will take effect on the date we file
Certificates of Amendment to our Articles of Incorporation (one
Certificate effecting a reverse stock split, the other effecting a
forward stock split) with the Secretary of State of the State of
Missouri, or on any later date that we may specify in such
Certificates of Amendment, which we refer to as the Effective Date.
• At 6:00 p.m., Central Standard Time on the Effective Date, we will
effect a 1-for-300 reverse stock split of our Common Stock, pursuant
to which a holder of 300 or more shares of Common Stock immediately
before the reverse stock split will, immediately after the reverse
stock split, hold one share of Common Stock for each 300 shares held
prior to the reverse stock split, and a fractional share representing
former shares in excess of the nearest lower multiple of 300 former
shares.
• Any shareholder owning fewer than 300 shares of our Common Stock
immediately before the reverse stock split will receive the right to
be paid cash in exchange for the resulting fractional share of Common
Stock and will no longer be a shareholder of the Company. We will pay
these Cashed Out Shareholders an amount in cash equal to $7.70 per
share of Common Stock held by them immediately before the reverse
stock split.
• Any shareholder owning 300 or more shares of our Common Stock
immediately before the reverse stock split will not be entitled to
receive any cash for their fractional share interests resulting from
the reverse stock split. The forward stock split that will immediately
follow the reverse stock split will reconvert their whole shares and
fractional share interests back into the
40
same number of shares of Common Stock they held immediately before the
effective time of the transaction. As a result, the total number of
shares held by such a shareholder will not change after completion of
the transaction.
• At 6:01 p.m. Central Standard Time on the Effective Date (and after
completion of the reverse stock split), we will effect a 300-for-1
forward stock split of our Common Stock, pursuant to which a holder of
one or more shares of Common Stock immediately after the reverse stock
split and immediately before the forward stock split will, immediately
after the forward stock split, hold 300 shares of Common Stock for
each share held prior to the forward stock split. In other words, a
shareholder holding 300 or more shares of Common Stock immediately
before the Reverse/Forward Stock Split will continue to hold the same
number of shares after the completion of the Reverse/Forward Stock
Split and will not receive any cash payment.
Under Missouri law, the proposed Reverse/Forward Stock Split would operate
only at the record holder level. Neither brokers and other nominees nor
beneficial owners are record holders. As a result, beneficial owners who hold
fewer than 300 shares of Common Stock in street name immediately before the
reverse stock split would not have their shares cashed out in the transaction.
However, we plan to work with brokers and nominees to offer to treat
shareholders holding shares in street name in substantially the same manner as
shareholders whose shares are registered in their names. Accordingly, we intend
to establish a process by which brokers and nominees will be able to submit to
us to be cashed out in the transaction shares held in street name in accounts
that would qualify to be cashed out in the transaction (accounts holding fewer
than 300 shares of Common Stock) but for the fact that they are not held of
record by the beneficial owner. However, your nominee would have discretion in
determining whether to accept our offer and would not be legally obligated to
work with us to effect the transaction with respect to shares held by you in
street name. To determine the transaction's effect on any shares you hold in
street name, you should contact your broker, bank, or other nominee. Please see
the following sections herein for further discussion on the treatment of shares
held in street name: "Summary Term Sheet"; "Questions and Answers About the
Meeting and Transactions"; "Introduction - Who Can Vote at the Special Meeting";
and "The Reverse/Forward Stock Split - Exchange of Certificates; Payment of Cash
Consideration."
Please see the sections of this proxy statement entitled "Special Factors -
Effect of the Reverse/Forward Stock Split"; "Structure of the Reverse/Forward
Stock Split"; and "Additional Information Regarding the Reverse/Forward Stock
Split - Dissenters' and Appraisal Rights" for a more detailed discussion of the
foregoing.
Conversion of Shares in the Reverse/Forward Stock Split
At the effective time of the Reverse/Forward Stock Split:
• Shareholders owning fewer than 300 shares of Common Stock immediately
before the effective time will have their shares converted into the
right to receive cash consideration of $7.70 for each share of Common
Stock; and
• All outstanding shares of Common Stock other than those described
above will remain outstanding with all rights, privileges, and powers
existing immediately prior to the Reverse/Forward Stock Split.
We (along with any other person or entity to which we may delegate or
assign any responsibility or task with respect thereto) shall have full
discretion and exclusive authority (subject to its right and power to so
delegate or assign such authority) to:
• make such inquiries, whether of any shareholder(s) or otherwise, as we
may deem appropriate for purposes of effecting the Reverse/forward
Stock Split; and
• resolve and determine, in our sole discretion, all ambiguities,
questions of fact, and interpretive matters relating to such
inquiries, including, without limitation, any questions as to the
number of shares held by any holder immediately before the effective
time. All such determinations by us
41
shall be final and binding on all parties, and no person or entity
shall have any recourse against us or any other person or entity with
respect thereto.
For purposes of effecting the Reverse/Forward Stock Split, we may, in our
sole discretion, but without any obligation to do so:
• presume that any shares of Common Stock held in a discrete account
(whether record or beneficial) are held by a person distinct from any
other person, notwithstanding that the registered or beneficial holder
of a separate discrete account has the same or a similar name as the
holder of a separate discrete account; and
• aggregate the shares held (whether of record or beneficially) by any
person or persons that we determine to constitute a single holder for
purposes of determining the number of shares held by such holder.
Rule 12g5-1 under the Exchange Act provides that, for the purpose of
determining whether an issuer is subject to the registration provisions of the
Exchange Act, securities shall be deemed to be "held of record" by each person
who is identified as the owner of such securities on the records of security
holders maintained by or on behalf of the issuer, subject to the following:
• in any case where the records of security holders have not been
maintained in accordance with accepted practice, any additional person
who would be identified as such an owner on such records if they had
been maintained in accordance with accepted practice shall be included
as a holder of record;
• securities identified as held of record by a corporation, a
partnership, a trust (whether or not the trustees are named), or other
organization shall be included as so held by one person;
• securities identified as held of record by one or more persons as
trustees, executors, guardians, custodians or in other fiduciary
capacities with respect to a single trust, estate, or account shall be
included as held of record by one person;
• securities held by two or more persons as co-owners shall be included
as held by one person; and
• securities registered in substantially similar names where the issuer
has reason to believe, because of the address or other indications
that such names represent the same person, may be included as held of
record by one person.
Exchange of Certificates; Payment of Cash Consideration
On the Effective Date of the Reverse/Forward Stock Split, all stock
certificates evidencing ownership of Common Stock held by Cashed Out
Shareholders shall be deemed canceled without further action by the
shareholders. Those certificates will no longer represent an ownership interest
in the Company, but will represent only the right to receive cash equal to $7.70
per share in exchange for those shares. Certificates representing the shares
owned by Cashed Out Shareholders subsequently presented for transfer will not be
transferred on our books or records. Cashed Out Shareholder will not receive any
interest on cash payments owed as a result of the Reverse/Forward Stock Split.
We have appointed the Transfer Agent to act as paying agent to carry out
the payment of cash to Cashed Out Shareholders who surrender their stock
certificates. The Transfer Agent will furnish shareholders with the necessary
materials and instructions to effect the surrender promptly following the
Effective Date of the Reverse/Forward Stock Split. The letter of transmittal
will direct how certificates are to be surrendered for cash. Shareholders must
complete and sign the letter of transmittal and return it with their stock
certificate(s) to the Transfer Agent in accordance with the instructions set
forth in the transmittal letter before they can receive cash payment for those
shares. The letter of transmittal will also contain instructions in the event
that your certificate(s)
42
has been lost, destroyed, or mutilated. Do not send your stock certificates to
us, and do not send them to the Transfer Agent, until you have received a
transmittal letter and followed the instructions in the letter of transmittal.
We anticipate that the Transfer Agent will disburse the amount payable to
Cashed Out Shareholders within three weeks of the Effective Date of the
Reverse/Forward Stock Split, subject to its receipt of a letter of transmittal
in proper form and corresponding stock certificate(s). No service charges will
be payable by Cashed Out Shareholders in connection with the surrender of their
stock certificates. All expenses of the Reverse/Forward Stock Split will be
borne by us, subject to any shareholder's agreement with its broker, bank, or
other nominee, if any.
If you are a Continuing Shareholder with a stock certificate representing
your shares, your stock certificate(s) must be exchanged for a new stock
certificate(s) that will bear a new CUSIP number and the following legend:
THIS CERTIFICATE, AND THE SHARES OF STOCK REPRESENTED HEREBY, ARE SUBJECT
TO RESTRICTIONS ON TRANSFER AS SET FORTH IN THE ARTICLES OF INCORPORATION
OF THE CORPORATION, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, COPIES OF
WHICH MAY BE OBTAINED FROM THE CORPORATION BY THE RIGHTFUL HOLDER HEREOF.
NEITHER THIS CERTIFICATE NOR ANY INTEREST REPRESENTED BY THIS CERTIFICATE
MAY BE SOLD OR OTHERWISE TRANSFERRED, EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF SUCH ARTICLES OF INCORPORATION.
The Transfer Agent will furnish shareholders with the necessary materials
and instructions to effect the surrender promptly following the Effective Date
of the Reverse/Forward Stock Split. The letter of transmittal will direct how
old certificates are to be surrendered for new certificates. Shareholders must
complete and sign the letter of transmittal and return it with their stock
certificate(s) to the Transfer Agent in accordance with the instructions set
forth in the transmittal letter before they can receive their new stock
certificate(s) for those shares. The letter of transmittal will also contain
instructions in the event that your certificate(s) has been lost, destroyed, or
mutilated. Do not send your stock certificates to us, and do not send them to
the Transfer Agent, until you have received a transmittal letter and followed
the instructions in the letter of transmittal.
If your shares are held in street name, under Missouri law the proposed
Reverse/Forward Stock Split would not impact your shares. However, we plan to
work with brokers and nominees to offer to treat shareholders holding shares in
street name in substantially the same manner as shareholders whose shares are
registered in their names. To determine the transaction's effect on any shares
you hold in street name, you should contact your broker, bank or other nominee.
YOU SHOULD NOT SEND YOUR STOCK CERTIFICATES NOW. YOU SHOULD SEND THEM ONLY AFTER
YOU RECEIVE A LETTER OF TRANSMITTAL FROM THE TRANSFER AGENT. IF THE
REVERSE/FORWARD STOCK SPLIT IS APPROVED AT THE SPECIAL MEETING, LETTERS OF
TRANSMITTAL WILL BE MAILED SOON AFTER THE REVERSE/FORWARD STOCK SPLIT IS
COMPLETED.
Effective Time of the Reverse/Forward Stock Split
If the Reverse/Forward Stock Split is approved by our shareholders and
implemented by the Board of Directors, it is anticipated that the transaction
will occur as soon as practicable after the Special Meeting. For a more detailed
discussion, pleas see "Special Factors" in this proxy statement.
43
PROPOSAL NO. 2
AMENDMENT TO THE COMPANY'S
ARTICLES OF INCORPORATION
TO GRANT
THE RIGHT OF FIRST REFUSAL
In connection with the Reverse/Forward Stock Split described above, we are
seeking approval of an amendment to our Articles of Incorporation granting to us
the Right of First Refusal. For purposes of the Right of First Refusal, a
"transfer" would include any conveyance of Common Stock, whether voluntary or
involuntary, including but not limited to any sale, gift, assignment, bequest,
or devise. Immediately prior to the time the amendment to our Articles of
Incorporation including the Right of First Refusal is filed with the Secretary
of State of the State of Missouri, our Board of Directors will adopt a
resolution to create and issue one share of capital stock that has the identical
privileges, powers, rights, qualifications, and limitations of the Common Stock,
except that the newly-issued share of capital stock will not be subject to the
Right of First Refusal. Missouri law permits the stock of any class or series to
be made subject to redemption by the company at its option, or at the option of
the holders of such stock, or upon the happening of a specified event; provided,
that at the time of such redemption the company has outstanding shares of at
least one class or series of stock with full voting powers which are not subject
to the redemption. Thus, in order for the Company to implement the Right of
First Refusal, it is required to issue at least one new share of capital stock
that has the identical privileges, powers, rights, qualifications, and
limitations of the Common Stock, but that is not subject to the Right of First
Refusal.
The threshold of 250 holders of record was chosen to allow the Company
adequate time to receive notice of a transfer that is subject to the Right of
First Refusal and to contact the new shareholder of record and exercise the
Right of First Refusal. It was also chosen to avoid the direct and indirect
costs of communicating with, administering shareholder accounts for, and
responding to increasing numbers of record shareholders.
The purpose of the Right of First Refusal is to ensure that the Company
does not, inadvertently, become subject to federal securities law reporting
requirements and Section 404 of Sarbanes-Oxley in the future. If approved by our
shareholders, and upon subsequent action by our Board of Directors, we will file
an amendment to our Articles of Incorporation to grant the Right of First
Refusal to the Company.
The price to be paid for the shares pursuant to the Right of First Refusal
would be equal to (i) the mean between the bid and asked prices (as published in
the "pink sheets") averaged over the 20 trading days on which the shares of
Common were actually quoted immediately preceding the date of exercise of the
option or (ii) if the Common Stock is not then quoted in the "pink sheets," or
if such determination cannot otherwise be made, the fair market value of such
shares as determined in good faith by our Board of Directors.
We will have 30 days to exercise our option upon becoming aware of a
proposed transfer that would cause the number of holders of record of our Common
Stock to equal or exceed 250.
Special Interests of the Affiliated Shareholders in the Right of First Refusal
In considering the recommendation of our Board of Directors with respect to
the Right of First Refusal, our shareholders should be aware that our executive
officers and directors have interests in the transaction, which are in addition
to, or may be different from, our shareholders' generally. These interests may
create potential conflicts of interest including, but not limited to, the
significant increase in legal exposure for members of boards of directors of
public reporting companies, especially in the aftermath of recent legislation
and related regulations. While there are still significant controls,
regulations, and liabilities for directors and executive officers of
unregistered companies, the legal exposure for the members of our Board of
Directors and our executive officers will be reduced after the deregistration of
the Common Stock.
Each of the Affiliated Shareholders has indicated to the Company that he
will vote his Common Stock in favor of the Reverse/Forward Stock Split.
44
Dissenters' and Appraisal Rights
Under the General and Business Corporation Law of Missouri, our Articles of
Incorporation, and our Bylaws, our shareholders are not entitled to dissenters'
rights in connection with the Right of First Refusal.
There may exist other rights or actions under Missouri law or federal and
state securities laws for shareholders who can demonstrate that they have been
damaged by the Reverse/Forward Stock Split. The nature and extent of such rights
or actions are uncertain and may vary depending on facts or circumstances.
Generally, shareholder challenges to corporate actions are related to fiduciary
responsibilities of corporate directors and officers.
Recommendation of the Board of Directors
Upon the recommendation and approval of the Special Committee, the Board of
Directors reasonably believes and has unanimously determined that the Right of
First Refusal is procedurally and substantively fair to, and in the best
interests of, the Company and its shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL AND ADOPTION OF THE CERTIFICATE OF AMENDMENT TO THE COMPANY'S ARTICLES
OF INCORPORATION TO GRANT THE RIGHT OF FIRST REFUSAL.
Please note that voting "FOR" the proposal does not mean that we will
exercise our option to repurchase shares. By voting "FOR" the proposal, you are
giving our Board of Directors the option to repurchase shares at its discretion
if a proposed transfer would cause the number of holders of record of the Common
Stock to equal or exceed 250.
In considering the recommendation of the Board of Directors with respect to
the Right of First Refusal, shareholders should be aware that the Company's
executive officers and directors have interests in the Right of First Refusal
that are in addition to, or different from, our shareholders generally and that
these interests may create potential conflicts of interest. See "Special
Interests of the Affiliated Shareholders in the Right of First Refusal."
The Board of Directors has retained the absolute authority to reject (and
not implement) the Right of First Refusal (even after shareholder approval of
the amendment).
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of the Record Date,
obtained from information furnished by the persons named below, concerning the
beneficial stock ownership of each director of the Company and each executive
officer of the Company, and all directors and executive officers of the Company
as a group. So far as is known to the Company, the persons named below have sole
voting and investment power with respect to the number of shares set forth
opposite their respective names unless otherwise indicated. In accordance with
applicable SEC rules, shares issuable within 60 days of the Record Date are
deemed to be outstanding for the purpose of computing the percentage ownership
of persons beneficially owning such securities. As of December 6, 2005, there
were 6,633,013 shares of the Common Stock issued and outstanding.
Number of Shares of
Name and Address of Director/ Common Stock Percent
Executive Officer Beneficially Owned(1) of Class
------------------------------ --------------------- --------
Don L. Collins
15 Compound Drive 715,148 (2) 10.78%
Hutchinson, KS 67502
Donald Lynn Collins 627,552 9.46%
45
15 Compound Drive
Hutchinson, KS 67502
Arch G. Gothard, III
15 Compound Drive 207,985 (3) 3.14%
Hutchinson, KS 67502
Don S. Peters
15 Compound Drive 132,339 (4) 2.00%
Hutchinson, KS 67502
William R. Patterson
15 Compound Drive 79,000 (5) 1.19%
Hutchinson, KS 67502
Rodney T. Nash
15 Compound Drive 69,853 1.05%
Hutchinson, KS 67502
Randall A. Swift
15 Compound Drive 66,205 (6) 1.00%
Hutchinson, KS 67502
Cletus C. Glasener
15 Compound Drive 25,000 0.38%
Hutchinson, KS 67502
Ron Sorensen
15 Compound Drive 5,000 0.08%
Hutchinson, KS 67502
John L. Dreasher
15 Compound Drive 7,500 0.11%
Hutchinson, KS 67502
Kent E. Tyler
15 Compound Drive 70,000 (7) 1.06%
Hutchinson, KS 67502
All directors, directors and executive
officers as a group (ll persons) 2,005,582 30.24%
------------------------
(1) Except as noted, beneficial ownership consists of sole voting and
investment power. The inclusion of shares that may be deemed beneficially
owned herein, however, does not constitute an admission that the named
shareholders are direct or indirect beneficial owners of such shares.
(2) Does not include 7,559 shares owned by Sharon Collins, the wife of Mr.
Collins, as to which Mr. Collins disclaims beneficial ownership.
(3) Includes 45,000 shares deemed beneficially owned pursuant to options
exercisable within 60 days. Mr. Gothard also has shared investment power
with respect to 44,160 shares.
(4) Mr. Peters also has shared investment power with respect to 132,961 shares.
(5) Includes 10,000 shares deemed beneficially owned pursuant to options
exercisable within 60 days.
(6) Includes 2,500 shares deemed beneficially owned pursuant to options
exercisable within 60 days.
(7) Includes 30,000 shares deemed beneficially owned pursuant to options
exercisable within 60 days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than (i) the open-market sale of 10,704 shares of Common Stock by
Kent E. Tyler for $6.882 per share on September 20, 2005, (ii) the open-market
sale of 2,658 shares of Common Stock by Randall A. Swift for $7.00 per share on
September 26, 2005, and (iii) the open-market purchase of 1,489 shares of Common
Stock by Rodney T. Nash for $6.85 per share on October 6, 2005, neither we, nor
any of our associates or subsidiaries, nor, to the best of our knowledge, any of
our directors or executive officers or any associate or subsidiaries thereof,
have effected any transactions in our shares during the 60 days before November
2, 2005 (the date of the initial filing of the preliminary proxy statement),
except for the routine purchases on the accounts of our executive officers under
the Stock Incentive Plans. Neither we, nor any of our associates or
subsidiaries, nor, to the best of our knowledge, any of our directors or
executive officers or any associate or subsidiaries thereof, have effected any
transactions in
46
our shares subsequent to November 2, 2005, except for the routine purchases on
the accounts of our executive officers under the Stock Incentive Plans.
Except for customary margin accounts maintained at a broker by some of our
directors and executive officers, neither we nor, to the best of our knowledge,
any of our affiliates, directors, or executive officers, is a party to any
agreement, arrangement, or understanding with any other person relating,
directly or indirectly the Reverse/Forward Stock Split or with respect to any of
our securities, including, but not limited to, any agreement, arrangement, or
understanding concerning the transfer or the voting of our securities, joint
ventures, loan or option arrangements, puts or calls, guarantees against loss or
the giving or withholding of proxies, consents, or authorizations.
PROPOSAL FOR NEXT ANNUAL MEETING
If our Exchange Act registration is not terminated in connection with the
Forward/Reverse Stock Split, any proposal of holders of Common Stock intended to
be presented at the Annual Meeting of Shareholders of the Company to be held in
2006 pursuant to Rule 14a-8 of the Exchange Act must be received by the Company
within a reasonable time before the Company begins to print and mail its proxy
materials in order to be included in the proxy statement relating to that
meeting. Pursuant to Rule 14a-4(c)(1) under the Exchange Act, if any shareholder
proposal intended to be presented at the 2006 annual meeting without inclusion
in the Company's proxy statement for such meeting is not received at the
Company's principal executive offices Company within a reasonable time before
the Company begins to print and mail its proxy materials, then any proxy that
management solicits for such meeting will confer discretionary authority to vote
on such proposal so long as such proposal is properly presented at the meeting.
GENERAL
Cost of Proxy Materials
The cost of preparing and mailing the enclosed material is to be borne by
the Company. In addition to the solicitation of proxies by mail, certain
officers, directors, and regular employees of the Company may, without
additional compensation, solicit proxies on behalf of management by telephone,
telegraph, or personal interview. The cost of any solicitation will be borne by
the Company. Upon request, persons, including brokers, holding shares for others
will be reimbursed for their expenses in transmitting proxy materials to their
principals and in seeking instructions by mail, telephone, or telegraph for
their principals.
Other Matters
Management does not intend to bring any matters before the meeting other
than those mentioned above and is not aware of any other matters to be presented
before the meeting. However, if any other matters which are unknown a reasonable
time prior to this solicitation should be presented properly at the meeting, it
is intended that the persons named in the enclosed proxy will vote such proxy in
accordance with their best judgment.
Where You Can Find More Information
We file reports, proxy statements, and other information with the SEC under
the Exchange Act. You may read and copy this information at the Public Reference
Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain additional information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an internet web site that contains reports, proxy
statements, and other information about issuers, like us, who file
electronically with the SEC. The address of the site is http://www.sec.gov.
Except as specifically incorporated by reference into this proxy statement,
information on the SEC's web site is not part of this proxy statement.
We have filed with the SEC a Rule 13E-3 Transaction Statement on Schedule
13E-3 with respect to the Reverse/Forward Stock Split. As permitted by the SEC,
this proxy statement omits certain information contained in
47
the Schedule 13E-3. The Schedule 13E-3, including any amendments and exhibits
filed or incorporated by reference as a part thereof, is available for
inspection or copying as set forth above or is available electronically at the
SEC's web site.
Documents Incorporated By Reference
The SEC allows us to "incorporate by reference" information into this
document. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this document, except
for any information that is superseded by information that is included directly
in this document or in any other subsequently filed document that also is
incorporated by reference herein.
This document incorporates by reference the documents listed below that we
have filed previously with the SEC and copies of which are being mailed to
shareholders with this proxy statement. They contain important information about
us and our financial condition.
• our Annual Report on Form 10-K for the fiscal year ended October 31,
2004;
• our Quarterly Report on Form 10-Q for the fiscal quarter ended July
31, 2005; and
• our Current Reports on Form 8-K announcing the changes in our
certifying accountant, filed on August 9, 2005 and August 31, 2005.
We will amend this proxy statement and our Schedule 13E-3 to include or
incorporate by reference any additional documents that we may file with the SEC
under Section 13(a), 13(e), 14, or 15(d) of the Exchange Act after the date of
this document to the extent required to fulfill our disclosure obligations under
the Exchange Act.
We will provide, without charge, to each person to whom this proxy
statement is delivered, upon written or oral request of such person and by first
class mail or other equally prompt means within one business day of receipt of
such request, a copy of any and all information that has been incorporated by
reference in this proxy statement. You may obtain a copy of these documents and
any amendments thereto by writing to the Company at the following address:
Collins Industries, Inc., 15 Compound Drive, Hutchinson, Kansas 67502. These
documents are also included in our SEC filings, which you can access
electronically at the SEC's web site at http://www.sec.gov.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included in this proxy statement, annexes and associated documents are
"forward-looking" statements, as well as historical information. Although we
believe that the expectations reflected in these forward-looking statements are
reasonable, we can give no assurance that the expectations reflected in these
forward-looking statements will prove to be correct. Our actual results could
differ materially from those anticipated in forward-looking statements as a
result of certain factors. Forward-looking statements include those that use
forward-looking terminology, such as the words "anticipate," "believe,"
"estimate," "expect," "intend," "may," "project," "plan," "will," "shall,"
"should," and similar expressions, including when used in the negative. Although
we believe that the expectations reflected in these forward-looking statements
are reasonable and achievable, these statements involve risks and uncertainties
and no assurance can be given that actual results will be consistent with these
forward-looking statements. All forward-looking statements attributable to us
are expressly qualified in their entirety by these and other factors.
48
By Order of the Board of Directors,
/s/ Don L. Collins
-----------------------------------------
Don L. Collins,
Chairman of the Board
Dated: December 8, 2005
49
ANNEX A-1
PROPOSED FORM OF AMENDMENT TO
ARTICLES OF INCORPORATION
TO EFFECT REVERSE STOCK SPLIT
Article Number III of the Articles of Incorporation is hereby amended by adding
the following paragraph immediately after the first paragraph:
Without regard to any other provision of these Articles of Incorporation, each
one (1) share of Common Stock, either issued and outstanding or held by the
Corporation as treasury stock, immediately prior to the time this amendment
becomes effective shall be and is hereby automatically reclassified and changed
(without any further act) into one-three hundredth (1/300th) of a fully-paid and
nonassessable share of Common Stock, without increasing or decreasing the amount
of stated capital or paid-in surplus of the Corporation, provided that no
fractional shares shall be issued to any registered holder of fewer than 300
shares of Common Stock immediately prior to the time this amendment becomes
effective, and that instead of issuing such fractional shares to such holders,
such fractional shares shall be canceled and converted into the right to receive
the cash payment of $7.70 per share on a pre-split basis to each shareholder
owning fewer than 300 shares of Common Stock immediately prior to the effective
time of this amendment.
ANNEX A-2
PROPOSED FORM OF AMENDMENT TO
ARTICLES OF INCORPORATION
TO EFFECT FORWARD STOCK SPLIT
Paragraph two of Article Number III of the Articles of Incorporation is hereby
amended to read in its entirety as follows:
Without regard to any other provision of these Articles of Incorporation, each
one (1) share of Common Stock, either issued and outstanding or held by the
Corporation as treasury stock, and any fractional share held by any shareholder
who holds in excess of one (1) share immediately prior to the time this
amendment becomes effective shall be and is hereby automatically reclassified
and changed (without any further act) into three hundred (300) fully-paid and
nonassessable shares of Common Stock (or, with respect to fractional shares,
such lesser number of shares and fractional shares as may be applicable based
upon such 300-for-1 ratio), without increasing or decreasing the amount of
stated capital or paid-in surplus of the Corporation, provided that no
fractional shares of Common Stock shall be issued.
ANNEX A-3
PROPOSED FORM OF AMENDMENT TO
ARTICLES OF INCORPORATION
TO GRANT RIGHT OF FIRST REFUSAL
The first paragraph of Article Number III of the Articles of Incorporation is
hereby amended to read in its entirety as follows:
The aggregate number of shares of capital stock of all classes which
the Corporation shall have the authority to issue is 20,000,000 shares
of stock, of which 17,000,000 shares shall be Common Stock, with a par
value of ten cents ($.10) per share, 1 share shall be Non-Redeemable
Common Stock, with a par value of ten cents ($.10) per share, and
2,999,999 shares shall be capital stock other than the aforesaid Common
Stock and Non-Redeemable Common Stock, with a par value of ten cents
($.10) per share. No shareholder shall have any preemptive rights to
purchase future issues of stock except as may be granted by the Board
of Directors.
Article Number III of the Articles of Incorporation is hereby amended by adding
the following paragraph immediately after the second paragraph:
After the effective time of the filing of this amendment to the
Corporation's Articles of Incorporation, the Corporation shall have the
right to buy shares of Common Stock proposed to be transferred by any
shareholder if such transfer would cause the number of holders of
record of the Corporation's Common Stock to equal or exceed 250 (the
"Right of First Refusal"). For purposes of the Right of First Refusal,
a "transfer" would include any conveyance of Common Stock, whether
voluntary or involuntary, including but not limited to any sale, gift,
assignment, bequest, or devise. The price to be paid for the shares
pursuant to this Right of First Refusal shall be equal to (i) the mean
between the bid and asked prices (as published in the "pink sheets")
averaged over the 20 trading days on which the shares of Common were
actually quoted immediately preceding the date of exercise of the
option or (ii) if the Common Stock is not then quoted in the "pink
sheets," or if such determination cannot otherwise be made, the fair
market value of such shares as determined in good faith by our Board of
Directors. Any shareholder proposing to transfer shares of Common Stock
must notify the Company prior to such proposed transfer. At such time
as the Corporation becomes aware of a proposed transfer that would
cause, or has caused, the number of holders of record of the
Corporation's Common Stock to equal or exceed 250, the Corporation
shall have 30 days to exercise its right to buy back such shares of our
Common Stock.
Following the Reverse/Forward Stock Split, shares of Common Stock will
be represented by stock certificates that bear the following legend
regarding the Right of First Refusal:
THIS CERTIFICATE, AND THE SHARES OF STOCK REPRESENTED HEREBY, ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN THE ARTICLES OF
INCORPORATION OF THE CORPORATION, AS THE SAME MAY BE AMENDED FROM TIME
TO TIME, COPIES OF WHICH MAY BE OBTAINED FROM THE CORPORATION BY THE
RIGHTFUL HOLDER HEREOF. NEITHER THIS CERTIFICATE NOR ANY INTEREST
REPRESENTED BY THIS CERTIFICATE MAY BE SOLD OR OTHERWISE TRANSFERRED,
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH ARTICLES OF
INCORPORATION.
ANNEX B
THE FINANCIAL ADVISOR'S FAIRNESS OPINION
One Financial Plaza
501 North Broadway
St. Louis, Missouri 63102
314-342-2000
Stifel, Nicolaus
& Company, Incorporated
October 31, 2005
Members of the Special Committee of the Board of Directors
Collins Industries, Inc.
15 Compound Drive
Hutchinson, KS 67502
Members of the Special Committee:
We understand that Collins Industries Inc. (the "Company") will be engaging
in a reverse/forward stock split (the "Transaction"). Pursuant to the terms of
the Transaction, each share of the Company's common stock held by a shareholder
who owns, as of the effective time of the reverse/forward stock split, fewer
than 300 shares of common stock will be converted into the right to receive
$7.70 per share in cash (the "Cash Amount"). The terms and conditions of the
Transaction are set forth in more detail in the draft of the proxy statement
(the "Proxy Statement") prepared by the Company, copies of which have been
provided to us.
You have asked for our opinion as investment bankers as to whether the per
share Cash Amount to be received by the Company's shareholders who hold fewer
than 300 shares of the Company's common stock in the Transaction is fair to such
shareholders from a financial point of view, as of the date hereof.
Stifel, Nicolaus & Company, Incorporated ("Stifel"), as part of its
investment banking services, is regularly engaged in the independent valuation
of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
We are acting as financial adviser to the Special Committee of the Board of
Directors of the Company in connection with the Transaction and will receive a
fee for our services. The opinion fee is not contingent upon the consummation of
the Transaction. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. In the ordinary course of business,
Stifel may, for its own account and the accounts of its customers, trade the
securities of the Company and, accordingly, may hold a long or short position in
such securities.
Investment Services Since 1890
--------------------------------------------------------------------------------
MEMBER SIPC AND MEMBERS, NEW YORK STOCK EXCHANGE, INC., CHICAGO, AND AMERICAN
STOCK EXCHANGES
Special Committee of the Board of Directors - Collins Industries, Inc.
Page 2
In rendering our opinion, we have reviewed financial and other information
that was furnished to us by the Company, including the draft form of the Proxy
Statement, the Company's restated financial statements for the six years ended
October 31, 2004 (audited as available) together with amendments thereto, if
any, Form 10-Qs for 2005 together with amendments thereto, if any, the Company's
1999 through 2004 Form10-K filings together with amendments thereto, if any,
year-to-date financial statements for 2005, and other financial information. We
have conducted conversations with the Company's senior management regarding the
Company's financial condition and performance, recent developments and
management's financial projections for the Company. In addition, we have
compared certain financial and securities data with selected public companies as
we deemed appropriate, reviewed financial terms of merger and acquisition
transactions as we deemed appropriate, made inquiries regarding and discussed
the Transaction and other matters related thereto with the Company's counsel and
conducted such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion. We also took into account our
assessment of general economic, market and financial conditions and our
experience in other transactions, as well as our experience in securities
valuations and our knowledge of the industry generally.
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to us or that was otherwise reviewed by
us and have not assumed any responsibility for independently verifying any of
such information. With respect to the financial forecasts supplied to us, we
have assumed with your consent that they were reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future operating and financial performance
of the Company, that they would be substantially realized in the amounts and
time periods estimated and that they provided a reasonable basis upon which we
could form our opinion. We also assumed that there were no material changes in
the assets, liabilities, financial condition, results of operations, business or
prospects of the Company since the date of the last interim financial statements
made available to us. We have also assumed, without independent verification and
with your consent, that the aggregate allowances for insurance, workers'
compensation claims and the like set forth in the financial statements of the
Company are in the aggregate adequate to cover all such losses. We did not make
or obtain any independent evaluation, appraisal or physical inspection of the
Company's assets or liabilities. Because of the proximity to the end of the
Company's fiscal year, 2005 projected earnings were used for both 2005 and the
latest twelve month ratios. We relied on advice of the Company's counsel as to
certain legal matters with respect to the Company, the Transaction and other
matters contained or contemplated therein. We assumed that the Transaction will
be consummated as described in the Proxy Statement in a manner that complies in
all respects with all applicable statutes, laws, rules and regulations. We have
also assumed, with your consent, that there are no factors that would delay the
Transaction or subject it to any adverse conditions and that all conditions to
the Transaction will be satisfied and not waived.
Special Committee of the Board of Directors - Collins Industries, Inc.
Page 3
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. Our opinion is directed to the Special Committee of the
Board of Directors of the Company for its information and assistance in
connection with its consideration of the financial terms of the Transaction and
does not constitute a recommendation to any shareholder as to how such
shareholder should vote on the Transaction. This opinion does not address the
relative merits of the Transaction and any other transactions or business
strategies discussed by the Board of Directors or Special Committee as
alternatives to the Transaction or the decision of the Board of Directors or
Special Committee with respect to the Transaction. Our opinion may not be
published or otherwise used or referred to, nor shall any public reference to
Stifel be made, without our prior written consent, provided, however, it is
understood that the Company may include this opinion in its entirety as an
exhibit or appendix to any report, statement or schedule filed by the Company
with the Securities and Exchange Commission under the Securities Exchange Act of
1934 in connection with the Transaction.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion, as of the date hereof, that the per share Cash Amount to be
received in the Transaction by the Company's shareholders who hold fewer than
300 shares of the Company's common stock is fair to such shareholders from a
financial point of view.
Very truly yours,
/s/ Stifel, Nicolaus & Company, Incorporated
STIFEL, NICOLAUS & COMPANY, INCORPORATED
COLLINS INDUSTRIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION Please
IS INDICATED, WILL BE VOTED "FOR" THE PROPOSAL. THIS Mark Here
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. for Address |_|
Change or
Comments
SEE REVERSE SIDE
1. Amendment of the Company's Articles of Incorporation to effect a 1-for-300
reverse stock split followed by a 300-for-1 forward stock split, whereby
shareholders holding fewer than 300 shares of Common Stock, par value $0.10
per share, will receive $7.70 for each share of Common Stock held prior to
the reverse stock split.
|_| FOR |_| AGAINST |_| ABSTAIN
2. Amendment of the Company's Articles of Incorporation to grant the Company
an option to acquire shares proposed to be sold by shareholders subsequent
to the reverse stock split and forward stock split if, after such sale,
there would be 250 or more holders of record of the Common Stock.
|_| FOR |_| AGAINST |_| ABSTAIN
3. In their discretion, the Proxies are further authorized to vote upon any
other matters which are known a reasonable time before this solicitation
and are properly presented at the meeting or any adjournment(s) thereof.
Choose MLinkSM for Fast, easy and secure 24/7 online access to your future proxy
materials, investment plan statements, tax documents and more. Simply log on to
Investor ServiceDirect(R) at www.melloninvestor.com/isd where step-by-step
instructions will prompt you through enrollment.
Please sign your name below and print your name exactly as you signed it on the
signature line on the following line. When shares are held by joint tenants each
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 partnership, please
sign in partnership name by authorized person.
Signature _________________ Signature ___________________ Date _________________
--------------------------------------------------------------------------------
^FOLD AND DETACH HERE ^
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to special meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
----------------- ----------------- -----------------
Internet Telephone Mail
http://www.proxyvoting.com/coll 1-866-540-5760 Mark, sign and
Use the Internet to vote your OR Use any touch-tone OR date your proxy
proxy. Have your proxy card in telephone to vote your card and return
hand when you access the web proxy. Have your proxy it in the
site. card in hand when you enclosed
call. postage-paid
envelope.
----------------- ----------------- -----------------
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
If you choose to divide your votes for Directors unequally, you MAY NOT use
Internet or telephone voting, you must vote by returning this proxy card in the
envelope provided.
COLLINS INDUSTRIES, INC.
15 Compound Drive, Hutchinson, Kansas 67502-4349
The undersigned hereby appoints Arch G. Gothard, III, and William R. Patterson,
and each of them, as proxies (the "Proxies"), with full power of substitution,
and hereby authorizes them to represent and to vote in the order named, as
designated on the reverse side all the shares of common stock of Collins
Industries, Inc. (the "Company"), held of record by the undersigned as of
November 11, 2005, at the Special Meeting of Shareholders to be held on January
19, 2006, and any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 and 3. AS TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING, THIS PROXY SHALL CONFER DISCRETIONARY AUTHORITY UPON THE PROXIES TO
VOTE ON SUCH MATTERS IN THEIR BEST JUDGMENT.
The ballots cast by shareholders will be voted as marked at the Special Meeting
on January 19, 2006, if received by the date of the meeting.
Upon attendance at the Special Meeting by the Shareholder voting hereby, this
Proxy will be returned if requested, so the Shareholder may vote in person.
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS WHICH
ENCOURAGES EACH STOCKHOLDER OF RECORD TO VOTE.
(Continued and to be voted, signed and dated on reverse side.)
--------------------------------------------------------------------------------
Address Change/Comments (Mark the corresponding box on the reverse side)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
YOUR VOTE IS IMPORTANT!
You can vote in one of three ways:
1. Vote by Internet at our Internet Address: http://www.proxyvoting.com/coll
2. Call toll-free 1-866-540-5760 on a Touch-Tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
3. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
PLEASE VOTE