Other Matters
Pursuant to our By-L
aws, no matters may be brought before the Special Meeting other than as set forth in the attached Notice of Special Meeting of Shareholders.
QUESTIONS AND ANSWERS ABOUT THE
PROPOSED TRANSACTION
AND THE SPECIAL MEETING
Q:
|
What is the date, time and place of the Special Meeting?
|
A:
|
The Special Meeting will be held on [●], November [●], 2017 at [●], local time, at our corporate offices located at 1245 Q Street, Lincoln Nebraska 68508.
|
Q:
|
What am I being asked to vote upon at the Special Meeting?
|
A:
|
Our shareholders will consider and vote upon the Proposed Transaction, which consists of two proposals to amend the Company’s Articles—first to effect a 1-for-1,764,560 Reverse Split and second to effect a 1,764,560-for-1 Forward Split immediately following the Reverse Split.
|
Q:
|
What is the purpose of the
Proposed
Transaction?
|
A:
|
The purpose of the Proposed Transaction is to eliminate the existing public market trading confusion relating to our two classes of common stock (the class A common stock and the class B common stock) and to provide a timely and cost-effective liquidity event for holders of our class B common stock, other than Michael D. Hays. We also expect that the liquidity of our class A common stock will be positively affected by the Proposed Transaction over time.
|
Q:
|
What will I receive in the
Proposed
Transaction?
|
A:
|
If you are the owner of fewer than 1,764,560
shares of class B common stock before the Effective Date, you will receive $53.44
in cash, without interest, from us for each share of class B common stock you own immediately prior to the Reverse Split. As of the Effective Date, it is expected that Mr. Hays will be the only owner of one or more shares of class B common stock following the Reverse Split. As such, Mr. Hays will not receive any cash payment for his shares in the Reverse Split and will continue to hold the same number of shares of class B common stock as he did immediately before the Effective Date. Mr. Hays will, however, receive approximately $208,000 as a result of the cashing out of his class B common stock options in connection with the Proposed Transaction.
|
Q:
|
When is the
Proposed
Transaction expected to be completed?
|
A:
|
If the Reverse Split and the Forward Split are approved at the Special Meeting, we expect the Proposed Transaction to be completed as soon as practicable thereafter. We must file amendments to our Articles with the State of Wisconsin to effect each of the stock splits in the Proposed Transaction, and we expect to complete such filings on the date of the Special Meeting.
|
Q:
|
Who is entitled to vote at the Special Meeting?
|
A:
|
Only holders of record of the Company’s class A common stock and class B common stock at the close of business on the Record Date (i.e., October [●], 2017) are entitled to vote at the Special Meeting. Each share of class A common stock is entitled to one-one-hundredth (1/100
th
) of one vote and each share of class B common stock is entitled to one vote.
|
Q:
|
Wha
t vote
s are
required
by
our share
holders to approve the
Proposed
Transaction?
|
A:
|
Under Wisconsin law and our Articles, the following three “voting groups” must approve the Proposed Transaction (both the Reverse Split and the Forward Split): (1) the holders of the class A common stock and the class B common stock, voting together as a single class; (2) the holders of the class A common stock, voting separately as an independent voting group; and (3) the holders of the class B common stock, voting separately as an independent voting group. Assuming a quorum of each voting group is present at the Special Meeting, the number of votes cast within the voting group for approval of each of the Reverse Split and the Forward Split must exceed the number of votes cast against it.
|
Q:
|
What
happens if I do not return my
proxy card
?
|
A:
|
Unless you vote in person, a failure to return your proxy card will neither constitute a vote “FOR” or a vote “AGAINST” the Reverse Split and the Forward Split.
|
A:
|
If a broker, bank or other nominee holds your shares, you will receive instructions from them that you must follow in order to have your shares voted. If a bank, broker or other nominee holds your shares and you wish to attend the Special Meeting and vote in person, you must obtain a “legal proxy” from the record holder of the shares giving you the right to vote the shares.
|
If you hold your shares in your own name as a holder of record, you may instruct the proxy holders how to vote your shares by completing, signing and dating the enclosed proxy card where indicated and by mailing or otherwise returning the card to us before the Special Meeting. This proxy statement, including Appendix A and Appendix B hereto, the proxy card and any other proxy solicitations materials will be available on the Internet at https://www.rdgir.com/national-research-corporation. The proxy holders will vote your shares in accordance with your instructions. If you sign and return a proxy card without giving specific voting instructions, your shares will be voted ‘FOR” the Reverse Split and “FOR” the Forward Split. Of course, you may also choose to attend the meeting and vote your shares in person.
Q:
|
Can I change my vote after I h
ave mailed my
proxy card
?
|
A:
|
Yes. You may change your proxy instructions at any time before your proxy is voted at the Special Meeting. If you are a holder of record and you vote by proxy, you may later revoke your proxy instructions by:
|
|
●
|
sending a written statement to that effect
to Kevin R. Karas, Secretary, National Research Corporation, 1245 Q Street, Lincoln, Nebraska 68508;
|
|
●
|
submitting a
proxy card with a later date and signed as your name appears on the shareholder account; or
|
|
●
|
voting in person at the Special Meeting (although attendance at the meeting will not, by itself, revoke a proxy).
|
If a broker, bank or other nominee holds your shares and you vote by proxy, you may later revoke your proxy instructions by informing the broker, bank or other nominee in accordance with that entity
’s procedures.
Q:
|
Will I have appraisal or dissenter
’
s rights in connection with the
Proposed
Transaction?
|
A:
|
No. Under Wisconsin law, no appraisal or dissenters’ rights are available to shareholders in connection with the Proposed Transaction.
|
Q:
|
Should I send in my class B common stock certificates now
?
|
A:
|
No. If the Proposed Transaction is approved, you will receive instructions for exchanging any existing class B common stock certificates you may have for cash payment.
|
PROPOSAL
S — REVERSE SPLIT AND FORWARD SPLIT
Board Recommendation
The Board has authorized and recommends that
you approve the Proposed Transaction, which consists of both (1) an amendment to the Company’s Articles to effect the 1-for-1,764,560 Reverse Split of our class B common stock and waive the application to such Reverse Split of any provision in our Articles to the contrary, including, without limitation, Section B(4) of Article 2
, following which we will repurchase the resulting fractional shares held by each shareholder with less than one share of class B common stock after the Reverse Split, and (2) an amendment
to the Company’s Articles to effect a 1,764,560-for-1 Forward Split of the class B common stock and waive the application to such Forward Split of any provision in our Articles to the contrary, including, without limitation, Section B(4) of Article 2
, immediately following the Reverse Split. As a result of the Proposed Transaction: (a) each shareholder owning fewer than 1,764,560 shares of outstanding class B common stock immediately before the Reverse Split will receive $53.44 in cash, without interest, for each share of class B common stock owned by such shareholder immediately prior to the Reverse Split and will no longer be a holder of class B common stock; and (b) the sole remaining holder of one or more shares of class B common stock after the Reverse Split, Michael D. Hays, our founder, chief executive officer and a director, will continue to hold class B common stock equal to the number of class B common stock he held immediately prior to the effective date of the Reverse Split. The Proposed Transaction is designed to eliminate the current public market trading confusion relating to the Company’s two classes of common stock (the class A common stock and class B common stock) and to provide a liquidity event for the holders of our class B common stock, other than Mr. Hays, without a significant discount to its trading price. Mr. Hays agreed to not have his shares of class B common stock be cashed out in the Reverse Split so the Company could maintain a moderate debt burden as a result of the Proposed Transaction.
The Board has unanimously determined that the Proposed Transaction
(both the Reverse Split and the Forward Split) is in the best interests of the Company and is fair to the Company’s shareholders, including those who would not retain their interest in class B common stock of the Company after the Proposed Transaction.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
“FOR” APPROVAL OF THE REVERSE SPLIT AND “FOR” APPROVAL OF THE FORWARD SPLIT.
The Board
reserves the right to abandon or delay the implementation of the Proposed Transaction even if the shareholders approve the Reverse Split and the Forward Split. Please see the section entitled “Special Factors — How the Board Will Determine Whether to Effect the Proposed Transaction” for a more detailed discussion of the foregoing.
Summary and Structure
The
Proposed Transaction consists of two steps. First, the Company will conduct a 1-for-1,764,560 Reverse Split of the class B common stock. In the Reverse Split: (a) each lot of 1,764,560 shares of class B common stock held by a shareholder of the Company prior to the Reverse Split will be converted into one whole share of class B common stock after the Reverse Split; and (b) any shares of class B common stock held by a shareholder owning fewer than 1,764,560 shares will not be converted into a whole share and, instead, will be cancelled and exchanged for a cash payment equal to the number of shares of class B common stock held immediately prior to the Effective Date multiplied by the Cash-Out Price of $53.44, without interest. After the Reverse Split is completed, it will be followed immediately by a 1,764,560-for-1 Forward Split of the class B common stock, which will convert each whole share of class B common stock outstanding after the Reverse Split back into 1,764,560
shares of class B common stock. The Proposed Transaction is intended to take effect on the Effective Date (i.e., the date the State of Wisconsin accepts for filing Articles of Amendment to our Articles to effect the Reverse Split and the Forward Split, or any later date that we may specify in the Articles of Amendment to our Articles). Forms of the proposed amendments to our Articles to effect the Reverse Split and the Forward Split are attached to this proxy statement as Appendix A and Appendix B, respectively, and are incorporated herein by reference. Although both the Reverse Split and the Forward Split will be voted on separately, the Company will not implement either the Reverse Split or the Forward Split unless both are approved by shareholders and the Board gives final approval to implement them.
Shareholders will receive payment for their shares of class B common stock that are exchanged for cash in lieu of issuing fractional shares in accordance with the procedures described in the section entitled
“Additional Information Regarding the Proposed Transaction — Payment for Fractional Shares.”
T
he following three “voting groups” must approve the Proposed Transaction (both the Reverse Split and the Forward Split): (1) the holders of the class A common stock and the class B common stock, voting together as a single class; (2) the holders of the class A common stock, voting separately as an independent voting group; and (3) the holders of the class B common stock, voting separately as an independent voting group. Assuming a quorum of each voting group is present at the Special Meeting, the number of votes cast within the voting group for approval of each of the Reverse Split and the Forward Split must exceed the number of votes cast against it.
After
the Record Date, but prior to the Effective Date, Michael D. Hays and the Grandchildren’s Trust will effect a Swap pursuant to which the Grandchildren’s Trust will receive 208,645 shares of class B common stock from Mr. Hays in return for the Grandchildren’s Trust transferring to Mr. Hays an equivalent value amount of shares of class A common stock. The Swap is being effected in order to provide the Grandchildren’s Trust with a liquidity event in connection with the Proposed Transaction on the same basis as the other holders of class B common stock (except Mr. Hays). Mr. Hays will not receive any cash payment as a result of the Reverse Split, but his class B common stock options will, along with all other holders of the same and of restricted shares of class B common stock, immediately prior to the Effective Date of the Proposed Transaction, vest in full and be paid out as if they were cashed out in connection with the Proposed Transaction, which will result in a payment of approximately $208,000 to Mr. Hays. Please see the section entitled “Additional Information Regarding the Proposed Transaction — Special Interests of the Affiliated Persons” for additional information.
The executive officers, directors and affiliates of the Company, who
, as of the Record Date, together (a) beneficially own approximately [●]% of the class A common stock entitled to vote at the Special Meeting and approximately [●]% of the class B common stock entitled to vote at the Special Meeting, and (b) have approximately [●]% of the Company’s total voting power entitled to vote at the Special Meeting, have indicated that they intend to vote in favor of each of the Reverse Split and the Forward Split.
In connection with the Proposed Transaction, we have filed, as required by the
Exchange Act, a Rule 13e-3 Transaction Statement on Schedule 13E-3 (the “Schedule 13E-3”) with the Securities and Exchange Commission (“SEC”). Please see the section entitled “Available Information.”
SPECIAL FACTORS
Purpose of the
Proposed Transaction
The
Proposed Transaction is designed to eliminate the current public market trading confusion relating to the Company’s two classes of common stock (the class A common stock and class B common stock) and to provide a timely and cost-effective liquidity event for the holders of our class B common stock, other than Mr. Hays. We also expect that the liquidity of our class A common stock will be positively affected by the Proposed Transaction over time due to the elimination of the confusion in the public market regarding our dual class structure.
T
he Proposed Transaction will delist the class B common stock from trading on Nasdaq and deregister and suspend our reporting obligations with respect to the class B common stock under the Exchange Act. As a result of the Proposed Transaction, our class B common stock will no longer be quoted on Nasdaq. Our class A common stock, however, will continue to be traded on Nasdaq and we will continue to have reporting obligations under the Exchange Act. The Board has concluded that the Proposed Transaction is fair to, and in the best interests of, all of our shareholders, including those being cashed out pursuant to the terms of the Proposed Transaction.
In 2013, the Board approved
, and the shareholders adopted, the 2013 Recapitalization, pursuant to which we (i) established two classes of common stock, each of which is currently publicly traded on Nasdaq, consisting of a new class of common stock with 1/100
th
of a vote per share and with the right to receive 1/6
th
of the dividend, if any, paid on the other class of common stock, designated as class A common stock, and a new class of common stock with one vote per share and with the right to receive six times the dividend, if any, paid on the other class of common stock, designated as class B common stock, (ii) issued a dividend of three shares of class A common stock for each share of our then-existing common stock, and (iii) reclassified each share of our then-existing common stock as one-half of one share of class B common stock. The reasoning and desired effects of the 2013 Recapitalization included increasing liquidity of our traded shares and expanding our institutional ownership base, enhancing shareholder value, and increasing flexibility for us and our shareholders. Since the 2013 Recapitalization was implemented, however, we have received negative commentary from shareholders concerning our dual class common stock structure, especially the disconnect in valuation of the two classes of common stock given the 6-to-1 dividend differential and the “equal status” provision of our Articles whereby both the class A common stock and the class B common stock receive equal consideration in the event of certain extraordinary transactions, such as a sale of the Company. In addition, there has been a lack of comparable research coverage for each of the two classes and minimal trading in the class B common stock. Accordingly, we and our shareholders have not realized certain benefits that were anticipated in implementing the 2013 Recapitalization, such as increased liquidity of our publicly traded shares.
The Board has determined that the 2013 Recapitalization has resulted in shareholder dissatisfaction regarding our
dual class common stock structure and has not had the desired effect of enhancing the trading volumes in our class A common stock and class B common stock to acceptable levels. After considering various alternatives, the Board decided that pursuing the Proposed Transaction would strike the most desirable balance among addressing shareholder concerns, recognizing that the majority shareholder did not support a sale of the Company, and maintaining an appropriate capital structure and level of indebtedness. For this reason, we propose to undertake the Proposed Transaction for the purpose of reducing the number of record shareholders of our class B common stock to one so that we can terminate registration of our class B common stock under the Exchange Act and delist our class B common stock from Nasdaq. As a result, shares of our class B common stock would no longer be quoted on Nasdaq and trades in such shares would only be possible through privately negotiated transactions. Our class A common stock is not and will not be directly affected by the Proposed Transaction. The class A common stock will continue to be traded on Nasdaq and we will continue to have reporting obligations under the Exchange Act.
See the section below entitled
“– Reasons for the Proposed Transaction” for additional information about our reasons for proceeding with the Proposed Transaction at this time.
Background
of the Proposed Transaction
Because certain desired effects of the 2013 Recapitalization were not ultimately realized, in
late 2015, the Board began to discuss methods to address illiquidity in our two classes of publicly traded common stock and confusion in the public market over our dual class common stock structure. With the Board’s support, Mr. Hays led an evaluation of various alternatives that would address these concerns.
In October 2015, at a regularly scheduled Board update call, the Board discussed certain communications from institutional shareholders, whereby such shareholders expressed concern and confusion over our dual class
common stock structure. In response, between October 2015 and January 2017, the Board discussed and explored various alternative transactions to address illiquidity in our two classes of publicly traded common stock and confusion in the public market over our dual class common stock structure. Please see the section below entitled “– Strategic Alternatives Considered By the Board” for a detailed description of the alternatives that the Board considered.
In January 2017, we began discussions with FNB regarding the potential financing of a transaction, with the structure of such transaction remaining under consideration by the Board.
In late February 2017, our class A common stock and class B common stock both began to experience a period of steady increase in quoted price per share.
During March, April and May 2017, the Board continued discussions with FNB regarding the terms and conditions of a po
ssible credit facility to fund a potential transaction. During this time, with the quoted stock price per share of both the class A common stock and the class B common stock continuing on an upward trajectory, the Board began to focus on pursuing a transaction that would affect only one class of our common stock, and potentially less than the entire class of such class of common stock, with the goal of maintaining a moderate debt burden for the Company as a result of any such transaction.
In late April and early May of 2017, Mr. Hays and the Board engaged in further discussions which focused on (i) the
alternative forms such a transaction could take, (ii) the treatment of shares held by affiliated shareholders, including Mr. Hays, the Grandchildren’s Trust and certain other family affiliated entities and (iii) whether such affiliated shareholders would be excluded from the transaction or issued alternative consideration (for example, issuing notes to be repaid at a later date in lieu of cash payment). During this timeframe, Mr. Hays considered, and ultimately indicated, that he would be willing to be excluded from the Reverse Split and hold illiquid shares as long as the Forward Split was implemented.
On May
25, 2017, the independent members of the Board (without Mr. Hays) convened with Foley & Lardner LLP, the Company’s long-standing outside corporate and securities counsel (“Foley”), to discuss the process the Board would be required to undertake in order to pursue a potential transaction, including whether to form a special committee to evaluate such a potential transaction. After extended discussion, the independent members of the Board concluded there were already sufficient procedural safeguards in place, including, but not limited to, the fact that four of the five members of the Board are independent directors. Please see the section below entitled “– Fairness of the Proposed Transaction – Procedural Fairness” for additional information.
On
June 12, 2017, the independent members of the Board convened (without Mr. Hays) and, on June 14, 2017, the full Board convened with Foley to discuss the impact that a potential transaction intended to cash out all unaffiliated holders of our class B common stock would have on the relative voting power and ratable economic interests of our shareholders, as well as various other aspects of a potential transaction.
In early July 2017,
we began to negotiate the terms and conditions of a commitment letter and term sheet pursuant to which FNB would commit to provide a credit facility in connection with a potential transaction. Discussions with FNB regarding the Commitment Letter continued throughout July and early August and focused on the relative amounts of the proposed facilities and maintaining customary flexibility to pursue future transactions.
On July 6, 2017, the Board discussed a proposed reverse/forward stock split of the class B common stock at to-be-determined split ratios with the goals of
reducing or eliminating public market trading confusion surrounding the two publicly traded classes of our common stock, providing a liquidity event for the non-affiliated holders of class B common stock and achieving those objectives without encumbering our operations or growth prospects with an excessive debt burden. The proposal was a reverse stock split of the class B common stock to cash out all holders (other than Mr. Hays), followed by a forward stock split of the remaining shares held by Mr. Hays to return him to his pre-reverse stock split share ownership of the class B common stock. The Board discussed the proposal including, without limitation, (i) the potential benefits and risks, (ii) the pro forma capital structure, cash flows, and earnings per share accretion, (iii) the pro forma covenant compliance, (iv) the potential impact on our current dividend rates, (v) the proposed timeline for the transaction, (vi) the expected costs to the Company of cashing out fractional shares of the class B common stock in a reverse stock split, (vii) hiring an advisor to assist with valuation alternatives, (viii) shareholder approval requirements for the proposed transaction, (ix) the fiduciary duties of the Board in connection with such a transaction, and (x) potential advantages and disadvantages of the proposed transaction compared to the status quo and the alternative transactions previously considered.
On July 7, 2017, the independent members of the Board (without Mr. Hays) convened with Foley to further discuss the proposal and the matters discussed at the July 6, 2017 Board meeting (as set forth in the immediately preceding paragraph).
On July 15, 2017, the
independent members of the Board (with Mr. Hays participating only in the information gathering portion of the meeting) convened with Foley to discuss whether approval by a majority of our unaffiliated shareholders should be used in connection with the Proposed Transaction. After extended discussion, as further discussed under the heading “Special Factors
— Fairness of the Proposed Transaction — Procedural Fairness,”
the independent members of the Board determined not to condition the approval of the Proposed Transaction on approval by a majority of our unaffiliated shareholders, as shareholders representing disproportionately few shares could unduly influence such a vote, and that allowing a minority of investors to make a determination with respect to the Proposed Transaction alone would not be in the best interests of the Company and our shareholders. Please see the section below entitled “– Fairness of the Proposed Transaction – Procedural Fairness” for additional information. In addition, the independent members of the Board discussed potential fair value considerations for the Cash-Out Price and decided to engage the firm of Emory & Co. to assist with exploring possible alternatives to, and establishing a methodology for determining, the fair value of the class B common stock and, therefore, the Cash-Out Price. The independent members of the Board also considered whether we should make any future commitment to cash out or purchase the post-Proposed Transaction remaining shares of class B common stock held by Mr. Hays and decided against making such a commitment in connection with the Proposed Transaction.
On July 2
3, 2017, Emory & Co. made a presentation to the independent members of the Board (without Mr. Hays) regarding the Proposed Transaction, the provisions of our Articles relating to the relative rights of the class A and class B common stock and possible alternatives for determining the fair value of the shares of class B common stock to be cashed out pursuant to the Reverse Split. Emory & Co. identified the following valuation alternatives, among others: (i) the closing price of the class B common stock on the day the transaction is announced; (ii) the average of the high and low class B common stock prices on the day of announcement; (iii) the volume weighted average price of the class B common stock on the day of announcement; (iv) the highest trading price of the class B common stock over the previous 52 weeks; (v) an average (weighted average or otherwise) of the sales or closing prices of the class B common stock for a to-be-determined number of recent trading days, in order to give the holders of the class B common stock the benefit of the recent upward trajectory of the quoted price of the class B common stock while also considering fairness to the holders of class A common stock whose shares will not be directly affected by the proposed transaction; (vi) a hybrid of any of the foregoing methods, such as the greater of one or the other; (vii) a discount to recent trading prices or average price of the class B common stock; and (viii) a premium to recent trading prices or average price of the class B common stock. At this meeting, the independent members of the Board requested additional information from Foley regarding the effect that the Proposed Transaction would have on options to purchase class B common stock and restricted shares of class B common stock under our equity incentive plans. The independent members of the Board also discussed whether, in connection with the Proposed Transaction, we should suspend the payment of cash dividends on the class B common stock and the class A common stock for a period of time in order to focus on paying down the indebtedness we would incur to fund the transaction and/or to restore our cash reserves following the Proposed Transaction.
On July 29, 2017, the
independent members of the Board (without Mr. Hays) discussed the approvals necessary to effect the Proposed Transaction and the process that would be undertaken by the Company, the Board and the shareholders if the Board recommended the Proposed Transaction. At this meeting, the independent members of the Board also discussed the potential split ratios for the Reverse Split and the Forward Split and the effects that setting such split ratios may have on the transaction and future operational flexibility, including the amount of indebtedness we would need to incur under various scenarios. The independent members of the Board further discussed whether we should change or keep in place our current dividend rates in connection with the Proposed Transaction. Finally, the independent members of the Board discussed whether to accelerate the vesting and cash-out the outstanding stock options and restricted shares tied to the class B common stock as if they were cashed out pursuant to the Reverse Split or to replace those equity awards with class A common stock awards, and the effect of both on associate retention.
On August 1, 2017,
we released earnings for the quarter ended June 30, 2017, which reflected increases of 9% and 26% in revenue and net income, respectively, as well as approximately $31.6 million in cash on hand.
Also on August 1, 2017, the Board convened with Foley to further discuss
the potential split ratios for the Reverse Split and the Forward Split, the possible accelerated vesting and cashing out of the class B common stock equity awards and whether to change our dividend rates in connection with the Proposed Transaction.
On August 5, 2017, the Board convened with Foley to continue to discuss
the potential split ratios for the Reverse Split and the Forward Split and the effects that setting such split ratios may have on the Proposed Transaction and future operational flexibility, including the amount of indebtedness we would need to incur under various scenarios. The Board also continued to discuss accelerated vesting and cashing out of the class B common stock equity awards, as well as the availability of class A common stock under our equity incentive plans. In addition, the Board discussed the reimbursement of certain personal expenses Mr. Hays incurred in connection with exploring strategic alternatives for the Company, including the Proposed Transaction. Finally, the Board discussed whether to increase the number of shares of class A common stock we are authorized to repurchase in light of the Proposed Transaction.
On August 11, 2017, the Audit Committee of the Board convened to review certain expenses incurred by Mr. Hays in connection with exploring strategic alternatives for the Company, including the
Proposed Transaction. Based on their review, the Audit Committee approved reimbursing Mr. Hays for approximately $538,000 of such expenses he had personally incurred.
On August 21, 2017, the Board discussed the Proposed Transaction and the potential split ratios for the Reverse Split and the Forward Split and the effects that setting such split ratios may have on the transaction and our future operational flexibility,
including the amount of indebtedness we would need to incur under various scenarios. The Board further discussed whether we should change or keep in place our current dividend rates in connection with the Proposed Transaction and whether to accelerate the vesting and cash-out the outstanding stock options and restricted shares tied to the class B common stock as if they were cashed out pursuant to the Reverse Split.
On September 15
, 2017, the Board and the Compensation Committee of the Board discussed and approved the Proposed Transaction and related matters, including, among other things, the following: (i) setting the ratios for the Reverse Split and the Forward Split and determining the Cash-Out Price for fractional shares of class B common stock following the Reverse Split; (ii) formally presenting the Proposed Transaction to our shareholders for approval at a Special Meeting; (iii) accelerating the vesting of outstanding options to purchase class B common stock and restricted shares of class B common stock and approving the payout of such class B common stock equity awards as if they were cashed out pursuant to the Reverse Split; (iv) approving the Commitment Letter and the borrowing proposed thereunder pursuant to the Credit Facilities; (v) amending the NRC 2006 Equity Incentive Plan and the NRC 2004 Non-Employee Director Stock Plan to remove the class B common stock thereunder; (vi) amending the existing stock repurchase program to remove the class B common stock thereunder; (vii) delisting and deregistering the class B common stock following effectiveness of the Proposed Transaction; and (viii) approving the filing of all required or necessary applications, notices, or other documents with the SEC, Nasdaq, and the State of Wisconsin in connection with the Proposed Transaction. The Board also indicated its current intent to maintain the payment of cash dividends on the Common Stock (with the payment and amount of future dividends, if any, at the discretion of the Board). The Board did not make any commitments with respect to future transactions involving the class B common stock still outstanding following the Proposed Transaction.
Reasons for
the Proposed Transaction
Because certain desired effects of the 2013 Recapitalization were not ultimately realized, the Board, in consultation with Mr. Hays, began to explore possible transactions to increase liquidity for our shareholders and reduce confusion in the public market surrounding our
dual class common stock structure. After discussing various possible alternative transactions, as described below in the section entitled “– Strategic Alternatives Considered By the Board,” the Board has concluded that the Proposed Transaction is fair to, and in the best interests of, all of our shareholders, including those being cashed out pursuant to the terms of the Proposed Transaction. The following discussion of factors considered by the Board is not intended to be exhaustive, but includes the material factors considered by the Board in deciding to proceed with the Proposed Transaction. In light of the variety of factors considered, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching their respective determinations and recommendations.
Respond to Shareholder Concerns Surrounding
Our
Dual Class
Common Stock
Structure
Our
Articles contain an “equal status” provision pursuant to which both the class A common stock and the class B common stock receive equal consideration in the event of certain extraordinary transactions, such as a sale of the Company. Our Articles also provide that the shares of class B common stock receives six times the dividends paid on the class A common stock. These provisions, which are somewhat contradictory from a valuation perspective, have resulted in negative commentary from certain of our large shareholders and a disconnect between the market prices of our two classes of publicly traded common stock. In addition, the class A common stock and the class B common stock are both thinly traded with highly concentrated ownership. The Proposed Transaction is expected to reduce or eliminate any confusion in the public market regarding our dual class common stock structure and the relative trading values of the class A common stock and class B common stock. Potential interested investors will no longer have to evaluate their investment decision based on a comparison between the class A common stock and class B common stock. Accordingly, the Board expects the Proposed Transaction will increase the liquidity and diversify the ownership of the class A common stock over time.
Provide Holders of
C
lass B
C
ommon
S
tock with
a
Liquidity Event While
the
C
lass B
C
ommon
S
tock is Trading At or Near
An
All-Time High
As
a result of the Proposed Transaction, holders of less than one share of our class B common stock after giving effect to the Reverse Split will receive cash in exchange for such fractional shares. We will pay to each of these shareholders $53.44 in cash, without interest, for each share of class B common stock held by such shareholders immediately before giving effect to the Reverse Split. Such Cash-Out Price represents approximately 94% of the all-time high closing price for the class B common stock, a premium of approximately 5.3% to the 90-day volume weighted average price of the class B common stock, and is likely more than any shareholder would be able to obtain by selling their class B common stock holdings into the public market based on the current trading market. We believe this provides holders of less than 1,764,560 shares of class B common stock (before giving effect to the Reverse Split) with a cost-effective way to cash out their investment without experiencing a negative impact of illiquidity on the market price or paying transaction costs such as brokerage fees or service fees. Although such cashed out holders will no longer be holders of our class B common stock, if they desire to maintain an ownership interest in us and to participate in our future earnings or growth, they will have the opportunity to use the cash received pursuant to the Proposed Transaction to invest, subject to availability, in our class A common stock.
Maintain a Moderate Debt Burden and the Flexibility to Fund Future Growth Initiatives and Proposed Transactions and Continue Current Dividen
ds
Structuring the Proposed Transaction so that all current holders of the class B common stock (other than Mr. Hays) will be cashed out as a result of the Reverse Split allows us to achieve our objectives of addressing shareholder concerns with our current
dual class common stock structure while maintaining a moderately leveraged capital structure that we expect will allow for future flexibility to fund growth initiatives, continue with our current dividends and fund future business acquisitions and repurchases of class A common stock pursuant to our repurchase program, all as the Board may determine.
C
lass A C
ommon
Stock Earnings P
er Share Accretion
We expect that, following the Proposed Transaction, holders of class A common stock will experience substantial accretion to earnings per share of class A common stock.
We expect the Proposed Transaction will result in pro forma earnings per share accretion of 24.1% for the class A common stock for the six months ending June 30, 2017. Additionally, holders of class A common stock following the Proposed Transaction will experience a greater percentage of participation in any future dividends, as compared with the existing dual class common stock structure. As a result of the Proposed Transaction, class A common stock will represent 66.4% of any potential dividends from 49.6% before the Proposed Transaction. Please see also the section entitled “Financial Information – Pro Forma Consolidated Financial Statements (Unaudited)” for more information on the anticipated pro forma effect of the Proposed Transaction and the Credit Facilities on our historical financial information.
Increased Liquidity Due to Concentration of Trading and Value Accretion in
C
lass A
C
ommon
S
tock
We expect the Proposed Transaction will decrease uncertainty in the public market as to how to invest in the Company.
Shareholders will no longer need to decide between holding class A common stock and class B common stock or attempt to maintain proportionate holdings of each. As a result, the Board expects the Proposed Transaction will increase the liquidity, diversify the ownership and grow the value of the class A common stock over time.
Michael D. Hays
Has
Agreed to Hold Delisted and Der
egistered
C
lass B
C
ommon
S
tock
As the Board discussed and explored various alternative transactions to address negative commentary from shareholders concerning our
dual class common stock structure, Mr. Hays indicated that he would be willing to not have his shares of class B common stock be cashed out in the Reverse Split and hold illiquid shares so long as the Forward Split was implemented. This allowed us to address these shareholder concerns while maintaining a moderate debt burden as a result of the Proposed Transaction. The Board viewed the exclusion of Mr. Hays’ shares of class B common stock from the Proposed Transaction as having offsetting benefits and detriments for Mr. Hays. While as result of such exclusion, Mr. Hays will continue to participate in any growth in value through class B common stock, such class B common stock held following the Proposed Transaction will continue to be subject to the “equal status” provision of our Articles, essentially capping the value per share of the class B common stock in any distribution of property, merger, consolidation, purchase or acquisition of property or stock, asset transfer, division, share exchange, recapitalization, reorganization, or similar corporate transaction at the value per share received by holders of class A common stock. Similarly, while Mr. Hays will experience a relative increase in voting power of combined class A common stock and class B common stock due to his continued holdings of class B common stock, Mr. Hays already was able to exercise a controlling influence over our business and the power to elect our directors due to his existing holdings of class A common stock and class B common stock.
Effects of the
Proposed Transaction
Rights, Preferences, and Limitations
Our out
standing stock is divided into two classes of common stock: class A common stock and class B common stock, both of which are currently publicly traded. The class B common stock has one vote per share on all matters and the class A common stock has one one-hundredth (1/100
th
) of one vote per share. As of the Record Date, the class B common stock constituted approximately
[●]% of our total voting power. As a result, holders of class B common stock are able to, and following the effectiveness of the Proposed Transaction, will continue to be able to, exercise a controlling influence over our business, have the power to elect our directors and indirectly control business decisions, such as whether to issue additional shares, declare and pay dividends or enter into significant corporate transactions. A majority of the class B common stock is owned by, and following the effectiveness of the Proposed Transaction, will continue to be owned by Mr. Hays. The liquidation rights and rights upon the consummation of certain extraordinary transactions are the same for the holders of class A common stock and class B common stock. Other than share distributions and liquidation rights, the amount of any dividend or other distribution payable on each share of class A common stock is equal to one-sixth (1/6
th
) of the amount of any such dividend or other distribution payable on each share of class B common stock. The Proposed Transaction does not change the rights associated with our class A common stock or class B common stock
.
The rights of the holders of class A common stock to be treated equally in the Reverse Split and the Forward Split under our Articles, including, without limitation, Section B(4) of Article 2 of our Articles, will be waived pursuant to the amendments to our Articles giving effect to the Reverse Split and the Forward Split.
If the Proposed Transaction is approved, the interests of the
sole remaining holder of our class B common stock, after giving effect to the Proposed Transaction, and the holders of our class A common stock will not change. The repurchased fractional shares would be retired.
If the Proposed Transaction is effected, holders of fewer than 1,764,560
shares of class B common stock before giving effect to the Reverse Split would receive payment of the Cash-Out Price of $53.44 for each share of class B common stock held prior to the Reverse Split and will no longer be holders of class B common stock. If such holders do not hold our class A common stock, they will no longer have any equity interest in the Company in will not participate in our future earnings or growth.
Appraisal or Dissenters
’
Rights
Under Wisconsin
law, no appraisal or dissenters’ rights exist with respect to the Proposed Transaction
.
Benefits
The
Proposed Transaction is expected to result in certain benefits to us, our shareholders cashed out as a result of the Proposed Transaction, and our continued shareholders following the Proposed Transaction (including holders of our class A common stock and the remaining holder of our class B common stock after effecting the Reverse Split), including without limitation the following. Such expectations are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated.
|
●
|
The reduction in number of shares of class B common stock outstanding will reduce
the amount of overall dividends paid to holders of class B common stock (an expected savings of approximately $4.26 million per year based on current dividends paid).
|
|
●
|
There is a relatively illiquid and limited trading market in our class A common stock and class B common stock.
Holders of less than 1,764,560 shares of class B common stock prior to the Reverse Split will have the opportunity to obtain cash for their shares at approximately 94% of the all-time high closing price for the class B common stock, without incurring brokerage commissions or service fees.
|
|
●
|
We expect that the liquidity of the class A common stock will be positively affected by the Proposed Transaction
over time due to the elimination of confusion in the public market regarding our current dual class common stock structure.
|
|
●
|
The reduction in the number of holders of class B common stock to
one could result in cost savings to us, as we will reduce the costs of administering the current number of accounts with respect to shares of class B common stock, which cost savings may be offset if the number of holders of our class A common stock increases after the Proposed Transaction.
|
|
●
|
Our business and operations are expected to continue substantially as presently conducted.
|
|
●
|
It is currently envisioned that the
Board will maintain our current cash dividends. As always, the payment and amount of future dividends, if any, is at the discretion of the Board and will depend on our future earnings, financial condition, general business conditions, alternative uses of our earnings, and other factors.
|
|
●
|
The percentage of our future earnings, cash flows and s
hareholders’ equity attributable to our class A common stock, as opposed to our class B common stock, will increase compared to the current percentage.
|
|
●
|
Please see the section
entitled “ – Reasons for the Proposed Transaction” for a more detailed discussion of the reasons for and expected benefits of the Proposed Transaction.
|
Detriments
The Proposed Transaction is expected to result in certain detriments
to us, our shareholders cashed out as a result of the Proposed Transaction and our continued shareholders following the Proposed Transaction (including holders of our class A common stock and the remaining holder of our class B common stock after effecting the Reverse Split), including without limitation the following. Such expectations are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated.
|
●
|
If the Proposed Transaction is approved, it is estimated that
holders of class B common stock owning in the aggregate approximately 1,775,684 shares of class B common stock will no longer be holders of class B common stock. If such holders do not hold our class A common stock, they will cease to be shareholders of the Company, will no longer hold an equity interest in the Company, and, therefore, will not share in any future increases in the Company’s stock price or participate in the Company’s future earnings or growth, if any, and will no longer have the right to vote on any corporate matter. However, such cashed out holders will have the opportunity to use the cash received pursuant to the Proposed Transaction to invest, subject to availability, in our class A common stock.
|
|
●
|
If the Proposed Transaction is approved, holders of less than 1,764,560
shares of class B common stock prior to the Reverse Split will be required to involuntarily surrender their shares in exchange for cash, rather than at a time and for a price of their choosing.
|
|
●
|
Mr. Hays, as the sole remaining holder
of 1,764,560 or more shares of class B common stock prior to the Reverse Split, will not be entitled to receive any cash payment for his shares in the Reverse Split and will continue as a class B common stock shareholder of the Company. Mr. Hays will, however, receive approximately $208,000 as a result of the cashing out of his class B common stock options in connection with the Proposed Transaction.
|
|
●
|
The Proposed Transaction may be taxable for cashed out holders of our class B common stock.
|
|
●
|
The Proposed Transaction will result in an increase
in the relative voting power of Mr. Hays, compared to the remaining holders of class A common stock, following the Proposed Transaction, as shown in the table below under the section entitled “– Effects of the Proposed Transaction – Effect on Affiliated Holders of 1,764,560 or More Shares of Class B Common Stock and Remaining Holders of Class A Common Stock and Class B Common Stock Generally.”
|
|
●
|
We will incur costs associated with the Proposed Transaction.
|
|
●
|
Mr.
Hays, as the sole remaining holder of our class B common stock following the Proposed Transaction, will face an illiquid market for his class B common stock, which will likely negatively affect the price of the class B common stock after the Proposed Transaction.
|
|
●
|
Our increased level of indebtedness could adversely affect our financial condition and results of
operations. We will be required to dedicate a portion of our cash flows from operations to repayment of debt, limiting the availability of cash for other purposes, and our flexibility in planning for, or reacting to, changes in our business and industry will be more limited. Furthermore, our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, or other purposes may be limited.
|
|
●
|
The Proposed Transaction will result in us having, on a pro forma basis, a negative amount of shareholders
’ equity.
|
|
●
|
As
of the Record Date, approximately [●]% of the issued and outstanding shares of our class A common stock and [●]% of the issued and outstanding shares of our class B common stock, collectively representing [●]% of the total voting power of shareholders entitled to vote on the Proposed Transaction, was held collectively by our directors, executive officers and affiliates, including Mr. Hays and the Grandchildren’s Trust. Our directors, executive officers and affiliates, including Mr. Hays and the Grandchildren’s Trust, have indicated that they intend to vote all of their shares of class A common stock and class B common stock (approximately [●]% of the issued and outstanding shares eligible to vote at the Special Meeting) “FOR” the Proposed Transaction. Accordingly, approval of the Proposed Transaction is expected, regardless of whether or not the minority, unaffiliated shareholders vote in favor of the Proposed Transaction.
|
|
●
|
As part of the Reverse Split and the Forward Split, the rights of the holders of class A common stock to participate in the Proposed Transaction pursuant to Section B(4) of Article 2 of our Articles will be waived.
|
Reduction in the Number of Holders of
C
lass B
C
ommon
S
tock
We expect that, as a result of the Proposed Transaction, the number of holders of record of the class B common stock, as defined by Exchange Act rules, will be reduced
to one (Mr. Hays).
Termination of
C
lass B
C
ommon
S
tock Exchange Act Registration
Shares of class B common stock are currently registered under the Exchange Act.
Applicable rules permit such registration to be terminated upon application to the SEC if there are fewer than 300 holders of record of the class B common stock. We intend to terminate the registration of the class B common stock under the Exchange Act as soon as practicable after the Proposed Transaction, if approved, is effected.
Delisting from Nasdaq and Effect on Market for
C
lass B
C
ommon
S
tock
We intend to delist the class B common stock from Nasdaq immediately upon effecting the Proposed Transaction.
Following such delisting, the class B common stock will no longer be quoted on Nasdaq and trades in such shares would only be possible through privately negotiated transactions. There can be no assurance that any trading will occur in the class B common stock after we terminate the listing of the class B common stock on Nasdaq.
Effect on the Company
We estimate that the Proposed Transaction would reduce the number of outstanding shares of class B common stock by approximately 1,775,684
shares (approximately 50.2% of the current outstanding class B shares) with a cash requirement to us (including expenses) of approximately $102.175 million. Please see the section entitled “Additional Information Regarding the Proposed Transaction – Source and Amount of Funds and Expenses” for a detailed discussion of the expected costs of the Proposed Transaction. The repurchased fractional shares would be retired. The Proposed Transaction would also reduce the number of holders of the class B common stock to one (Mr. Hays).
In connection with the Proposed Transaction, we intend to enter into the Credit Facilities.
Please see the section entitled “Additional Information Regarding the Proposed Transaction – Source and Amount of Funds and Expenses” for a description of material terms of the proposed Credit Facilities. Our entry into the Credit Facilities is conditioned on this Proposed Transaction being approved and effected. Please see also the section entitled “Financial Information – Pro Forma Consolidated Financial Statements (Unaudited)” for more information on the anticipated pro forma effect of the Proposed Transaction and the Credit Facilities on our historical financial information.
The directors and officers of the Company immediately prior to the Proposed Transaction will remain the directors and officers of the Company immediately following the effectiveness of the Proposed Transaction.
In connection with the Proposed Transaction, we will accelerate the vesting of the outstanding options to purchase class B common stock and restricted shares of class B common stock and such class B common stock equity awards will be paid out as if they were cashed out pursuant to the Reverse Split. This will account for approximately $7.5 million of the expected costs of the Proposed Transaction. Please see the section entitled “Additional Information Regarding the Proposed Transaction – Source and Amount of Funds and Expenses” for more information on the expected costs of the Proposed Transaction. The following table sets forth amounts that will be paid to the directors and executive officers of the Company for outstanding options to purchase class B common stock and restricted shares of class B common stock under the Proposed Transaction pursuant to the accelerated vesting of such equity awards described above:
Directors and Executive Officers
|
|
Cash to be paid
|
|
|
|
Michael D. Hays
|
|
$
208,331
|
Steven D. Jackson
|
|
1,229,710
|
Kevin R. Karas
|
|
398,123
|
Donald M. Berwick
|
|
275,880
|
JoAnn M. Martin
|
|
619,020
|
Barbara J. Mowry
|
|
375,780
|
John N. Nunnelly
|
|
1,039,680
|
Effects on Affiliated and Unaffiliated Holders of Fewer than 1,764,560
Shares of
Class B C
ommon
S
tock
Following the Proposed Transaction, holders of fewer than 1,764,560
shares of class B common stock before giving effect to the Reverse Split would receive payment of the Cash-Out Price of $53.44 for each share of class B common stock held prior to the Reverse Split. If such persons are not holders of our class A common stock, they would cease to be shareholders of the Company and will no longer participate in any of our future earnings or growth. They would have no further interest in the Company with respect to any cashed out shares and would only have a right to receive cash for such shares. We believe this provides such holders with a cost-effective way to cash out their investment without experiencing a negative impact of illiquidity on the market price or paying transaction costs such as brokerage fees or service fees. However, the Proposed Transaction will require holders of fewer than 1,764,560 shares of class B common stock before giving effect to the Reverse Split to involuntarily surrender their shares of class B common stock in exchange for cash, rather than selecting the timing of and price received for disposing of their shares of our class B common stock. Holders of our class B common stock in certificated form who are cashed out in the Proposed Transaction will receive a letter of transmittal as soon as practicable after the Proposed Transaction is consummated with instructions on how to surrender existing certificates in exchange for cash payment. Holders of our class B common stock in electronic, book-entry form who are cashed out in the Proposed Transaction will receive their cash payment directly from our transfer agent, without having to take any action.
We intend to permit those who hold our class B common stock in street name through a nominee (such as a bank or broker) to be treated in the Proposed Transaction in the same manner as holders of class B common stock whose shares are registered in their names and will instruct nominees to effect the Proposed Transaction for their beneficial holders.
However, nominees may have different procedures and those who hold class B common stock in street name should contact their nominees to instruct the nominee as to how the beneficial shareholder wishes to proceed. The Proposed Transaction structure will focus on the number of shares held by record holders. We and our transfer agent will not have the necessary information to compare the record holdings of any shareholder with “street name” holdings in a brokerage account. In addition, we will lack the information to compare holdings across multiple brokerage firms. If you are in this situation, we recommend that you consolidate your holdings into one brokerage account or record holder position prior to the Effective Date.
The Proposed Transaction may be taxable for cashed out holders of our class B common stock. Please see the section
entitled “Additional Information Regarding the Proposed Transaction – Material U.S. Federal Income Tax Consequences” for further information.
Effect on Unaffiliated Holders of 1,764,560
or More Shares of
Class B C
ommon
S
tock
Currently, there are no unaffiliated holders of 1,764,560
or more shares of class B common stock. Accordingly, we do not expect any unaffiliated holders of class B common stock to remain after giving effect to the Proposed Transaction.
Effect on Holders of
C
lass A
C
ommon
S
tock
Our class A commo
n stock is not and will not be directly affected by the Proposed Transaction. The class A common stock will continue to be traded on Nasdaq and we will continue to have reporting obligations under the Exchange Act with respect to our class A common stock. The Proposed Transaction will have no impact on the number of shares of class A common stock outstanding. Holders of class A common stock prior to the Proposed Transaction will continue to have an equity interest in the Company and, therefore, will continue to participate in our future earnings. The percentage of our future earnings, cash flows and shareholders’ equity attributable to our class A common stock, as opposed to our class B common stock, will increase compared to the current percentage. This increase is expected to positively impact holders of our class A common stock. The rights of the holders of class A common stock to be treated equally in the Reverse Split and the Forward Split under our Articles, including, without limitation, Section B(4) of Article 2 of our Articles, will be waived pursuant to the amendments to our Articles giving effect to the Reverse Split and the Forward Split.
Please see the sections entitled
“– Effects of the Proposed Transaction – Effect on Affiliated Holders of 1,764,560 or More Shares of Class B Common Stock and Remaining Holders of Class A Common Stock and Class B Common Stock Generally” below, and “– Effects of the Proposed Transaction – Rights, Preferences, and Limitations”
above, for further information on how the Proposed Transaction is expected to impact holders of class A common stock.
Effect on Affiliated Holders of 1,764,560
or More Shares of
C
lass B
C
ommon
S
tock and Remaining Holders of
C
lass A
C
ommon
S
tock and
C
lass B
C
ommon
S
tock Generally
We expect that
only Mr. Hays will continue to hold shares of class B common stock immediately after the Proposed Transaction and the percentage of ownership of the class B common stock Mr. Hays holds would increase from approximately 56% of the outstanding shares of class B common stock to 100% of the outstanding shares of class B common stock.
The Proposed Transaction will result in an increase in the interest of Mr. Hays in our net book value and net earnings (losses), relative to the remaining holders of class A common stock following the Proposed Transaction, as shown in the following table (shown using the two-class earnings per share method):
|
|
At December 31, 2016
|
|
|
|
At June 30, 2017
|
|
|
|
Net Earnings/(Loss)
|
|
Percentage Interest
|
|
|
Net Book Value
|
|
Percentage Interest
|
|
|
Net Earnings/(Loss)
|
|
Percentage Interest
|
|
Total
|
|
$
|
20,518,000
|
|
|
100.0
|
%
|
|
$
|
3.59
|
|
|
100.0
|
%
|
|
$
|
12,272,000
|
|
|
100.0
|
%
|
Mr.
Hays interest in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-
Proposed Transaction
|
|
$
|
8,380,000
|
|
40.8
|
%
|
|
$
|
1.08
|
|
30.1
|
%
|
|
$
|
5,012,000
|
|
40.8
|
%
|
Post-
Proposed Transaction
|
|
$
|
10,639,000
|
|
51.9
|
%
|
|
$
|
1.19
|
|
33.1
|
%
|
|
$
|
6,363,000
|
|
51.9
|
%
|
The Proposed Transaction will also result in an increase in the relative voting power of Mr. Hays
compared to the remaining holders of class A common stock following the Proposed Transaction, as shown in the following table:
|
Pre-Proposed Transaction Voting Power
|
|
Post-Proposed Transaction Voting Power
|
|
|
|
|
|
Mr. Hays
|
53,890 A votes
1,973,205 B votes
54.1
%
|
|
57,607 A votes
1,764,560 B votes
92.3%
|
Other shareholders
|
155,538 A votes
1,567,039 B votes
45.9%
|
|
151,821 A votes
- B votes
7.7
%
|
Please see the section entitled
“Additional Information Regarding the Proposed Transaction – Special Interests of the Affiliated Persons” for further discussion of interests in the Proposed Transaction that certain affiliated persons have that are in addition to, or different from, our shareholders generally.
Additionally,
following the Proposed Transaction Mr. Hays will be deprived of the ability to dispose of shares of class B common stock pursuant to Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). Because the class B common stock will no longer be quoted on Nasdaq after giving effect to the Proposed Transaction, trades in such shares would only be possible through privately negotiated transactions. Accordingly, following the Proposed Transaction Mr. Hays is expected to face an illiquid market for his class B common stock.
Strategic Alternatives Considered By the Board
In making the determination to proceed with the Proposed Transaction, the Board evaluated other strategic alternatives.
As discussed below, the Board ultimately rejected the alternatives to the Proposed Transaction because the Board believed that the Proposed Transaction would be the fairest, simplest and most cost-efficient approach to address shareholder concerns surrounding our dual class common stock structure. The Board considered the following alternative strategies:
Convert One Class of
Common
Stock into the Other Class
The Board originally considered converting one class of the Company
’s common stock into the other class of common stock. This alternative was quickly dismissed, however, since Nasdaq, when approving the 2013 Recapitalization under its “voting rights rule,” expressly provided that one class of the Company’s common stock could not be converted into the other class of common stock.
Sale of the Company
The Board briefly considered a sale of the Company.
This alternative was dismissed after Mr. Hays stated that he, as well as the Grandchildren’s Trust and other family affiliates, would not participate in, or vote in favor of, a sale transaction. Moreover, the disparate trading prices of the class A common stock and class B common stock, along with the “equal status” provision under our Articles, created hurdles to any sale transaction.
Complete
“
Going Private
”
Transaction of Both Class A Common Stock and Class B Common Stock
The Board considered both a negotiated transaction and a tender offer as part of a complete
“going private” transaction subject to Rule 13e-3 of the Exchange Act. In addition to potential issues with transaction structure, such as uncertain and unpredictable results of either undertaking, both potential transactions would be considerably more expensive than the Proposed Transaction and, if attempted, would burden the Company with a highly leveraged capital structure that could negatively impact future performance and impair our operational flexibility. In addition, Mr. Hays informed the Board that he, as well as the Grandchildren’s Trust and other family affiliates, would not support a sale of control, a private equity investment or a highly leveraged capital structure.
Tender Offer for all Shares of Class B Common Stock (with Mr. Hays Agreeing to Sit-out)
The Board considered an issuer tender offer (either
a fixed price or a “dutch auction”) to repurchase shares of our outstanding class B common stock, other than those shares held by Mr. Hays. The results of an issuer tender offer would be unpredictable, however, due to its voluntary nature. The Board was uncertain as to whether this alternative would result in shares being tendered by a sufficient number of record shareholders so as to permit the Company to delist and deregister the class B common stock. In addition, even if the class B common stock could be delisted and deregistered, the Board determined it was not in the Company’s best interests to leave unaffiliated holders of class B common stock who chose not to tender pursuant to the tender offer with no market for the class B common stock following the completion of any such tender offer.
Cash-Out of All Class A Common Stock or Class B Common Stock
The Board considered a cash-out of all class A common stock outstanding or, alternatively, all class B common stock outstanding, in a transaction with a similar structure to the Proposed Transaction.
As with other potential alternatives, the Board was concerned that either alternative would be considerably more expensive than the Proposed Transaction and, if attempted, would burden the Company with a highly leveraged capital structure that could negatively impact future performance and impair operational flexibility.
Continuing As-Is
The Board considered taking no action to address the shareholder concerns over the
dual class common stock structure. However, given the recent trading price behavior of the class A common stock and class B common stock and the access to favorable financing terms (see the section entitled “Additional Information Regarding the Proposed Transaction – Source and Amount of Funds and Expenses for more information on the proposed Credit Facilities with which we expect to fund the costs of the Proposed Transaction), the Board believed that the current conditions presented an opportunity to address shareholder concerns and provide the holders of class B common stock with a favorable liquidity event.
How the Board Will
Determine Whether to Effect the Proposed Transaction
The share
holders will consider and vote on the Reverse Split and the Forward Split. If the shareholders approve each of the stock splits, then the Board, at its discretion, may elect to either effect or abandon the Proposed Transaction. If the Board elects to abandon the Proposed Transaction, then no funds will be paid to cash out fractional shares of the class B common stock and the total transaction costs will consist solely of the expenses incurred to that date in connection with the Proposed Transaction. These expenses are estimated at approximately $1.175 million. A number of factors or situations could cause the Board to decide to abandon the Proposed Transaction, even if approved by the shareholders. These factors or situations include:
|
●
|
T
he Board may decide to abandon or delay the Proposed Transaction if the economic conditions or the financial condition of the Company, or their outlook, at the time the Proposed Transaction is to be effected are such that in the judgment of the Board it is no longer advisable to use the Company’s cash resources or incur debt to effect the Proposed Transaction.
|
|
●
|
In the event the Company has insufficient cash
and/or is unable to close on the Credit Facilities or otherwise secure debt on terms satisfactory to the Company necessary to complete the Proposed Transaction, the Board would abandon or postpone the Proposed Transaction.
|
|
●
|
In the event the Board determines that it is in the Company
’s best interest to enter into a strategic transaction that may arise in the future, such as an asset or stock sale or a business combination transaction, the Board may elect to abandon the Proposed Transaction as a result of such strategic transaction.
|
Please see the information under the sections entitled “Proposals
– Reverse Split and Forward Split” and “Special Factors —Effects of the Proposed Transaction” for a discussion of what will occur if the Board decides to proceed with the Proposed Transaction.
Immediately following the Special Meeting, the Board intends to decide
whether to effect the Proposed Transaction or to abandon or delay it. If the Board decides to effect the Proposed Transaction, we expect that management, at the discretion of the Board, will effect the Proposed Transaction on the date of the Special Meeting or soon as reasonably practicable thereafter by filing Articles of Amendment to our Articles (one amendment effecting the Reverse Split and a second amendment effecting the Forward Split) with the State of Wisconsin.
Fairness of the Proposed Transaction
The Board (including Mr. Hays) has fully reviewed and considered the terms, purpose, alternatives and effects of the
Proposed Transaction and has determined that the Proposed Transaction is in the best interests of the Company and all of our shareholders, including those being cashed out pursuant to the terms of the Proposed Transaction, and is substantively and procedurally fair to the affiliated and unaffiliated shareholders of the Company, including the holders of our class A common stock, the holders of class B common stock who will receive cash in lieu of fractional shares and Mr. Hays, who will remain as the sole class B common stock shareholder of the Company following the Proposed Transaction. After studying the Proposed Transaction and its anticipated effects on our shareholders, the Board
(including Mr. Hays)
unanimously approved the Proposed Transaction and deemed it procedurally and substantively fair to all of the Company’s affiliated and unaffiliated shareholders and to the Company.
Fairness of the Substance of the Proposed Transaction
In
determining the fairness of the Proposed Transaction, the Board considered the factors discussed below, in addition to the strategic alternatives discussed above in the section entitled “— Strategic Alternatives Considered By the Board.” The Board (including Mr. Hays) believes that the Proposed Transaction is substantively fair to the Company’s unaffiliated shareholders in light of these factors. The Board did not assign specific weight to the factors set forth below in a formulaic fashion, and except as described below, the factors below are not subject to quantification. Moreover, in its consideration, individual directors may have given differing weights to different factors. However, the Board did place special emphasis on eliminating confusion in the public market surrounding our dual class common stock structure, responding to shareholder concerns regarding the dual class common stock structure and providing and/or increasing liquidity for our shareholders, as described in the section entitled “—Reasons for the Proposed Transaction.” The discussion below is not meant to be exhaustive, but the Company believes it includes the material factors considered by the Board in reaching their determinations.
Material Factors Considered by the Board
Address Shareholder Concerns and Reduce or Eliminate Confusion Regarding Dual
Class Common Stock
Structure
. If the Proposed Transaction is completed, we expect shareholder concerns and market confusion regarding the dual class common stock structure of the Company will be reduced or eliminated. Please see the sections above entitled “— Purpose of the Proposed Transaction” and “— Reasons for the Proposed Transaction.”
Opportunity to
Provide a
Liquid
ity Event for Class B
Common Stock
. The Board considered the opportunity for the holders of the Company’s class B common stock to have a liquidity event while the class B common stock is at or near an all-time high, without paying any brokerage or service fees, commissions or other fees. In turn, holders of our class B common stock who receive a cash payment for their class B common stock pursuant to the Reverse Split will have the opportunity to use the cash received to invest, subject to availability, in our class A common stock, which will remain listed with Nasdaq. The Board did not quantify the consideration of brokerage and service fees, commissions and other fees paid for a share purchase or saved by the Proposed Transaction since such fees vary significantly depending upon the method used to acquire or dispose of shares. Please see the section entitled “— Reasons for the Proposed Transaction” for more information.
Current and Historical Market Prices
. The Board considered recent and historical trading prices of the Company’s class B common stock. The class B common stock has traded on Nasdaq since May 24, 2013 and this market has represented the principal outlet for shareholders who wished to dispose of shares of class B common stock. The Board viewed Nasdaq as a good indicator of what a willing buyer would pay to a willing seller, neither one of whom is under any compulsion to buy or sell, after considering such factors as their estimate of the Company’s value as a whole, its earnings and performance history, its prospects, the prospects of the industry as a whole, an assessment of the control parties and management of the Company, and other factors that typically bear on a common stock purchase or sale decision. Accordingly, the Board determined that a Cash-Out Price based on the historical trading prices of the Company’s class B common stock would be the most accurate method of determining the fair value of shares of class B common stock being cashed out in the Proposed Transaction. In determining the Cash-Out Price based on historical trading prices in the class B common stock, the Board evaluated the possible alternatives for determining the fair value of the shares of class B common stock to be cashed out in the Proposed Transaction identified by Emory &
Co. at the July 23, 2017 meeting of the independent members of the Board (without Mr. Hays), which, as more fully described in the section entitled “— Background of the Proposed Transaction,” included, among other alternatives, the volume weighted average price of the class B common stock on the day of announcement, an average (weighted average or otherwise) of the sales or closing prices of the class B common stock for a to-be-determined number of recent trading days, a hybrid of the foregoing methods (such as the greater of one or the other), a discount to recent trading prices or average price of the class B common stock and a premium to recent trading prices or average price of the class B common stock. Based on this evaluation, the Board decided that a control premium to cash out the minority shareholders was not justified in light of the fact that Mr. Hays controls over a majority of the class B common stock and the total voting power of the Company; decided that a discount to reflect the discounts associated with trading large blocks of class B common stock in light of the limited trading market of the class B common stock (as described in the section entitled “— Reasons for the Proposed Transaction”) was not appropriate; and
determined that either the volume weighted average price of the class B common stock on a specified date or a volume weighted average trading price of the class B common stock over a recent period of time, in order to give the holders of the class B common stock the benefit of the recent upward trajectory of the market price of the class B common stock while also considering fairness to the holders of class A common stock whose shares will not be directly
affected by the Proposed Transaction,
would most accurately represent the fair value of the class B common stock. Accordingly, the Board determined to calculate the Cash-Out Price as a price equal to the greater of (i) the volume weighted average price of the class B common stock on the trading day immediately preceding the announcement of the Proposed Transaction and (ii) the volume weighted average price of the class B common stock during the 20 trading days immediately preceding the announcement of the Proposed Transaction. Based on this determination, the Cash-Out Price was set at $53.44 per share, which price is equal to the intra-day volume weighted average price of the class B common stock on September 15, 2017 (the trading day prior to the announcement of the Proposed Transaction) and is greater than the $53.00 volume weighted average price of the class B common stock during the 20 trading days ending on September 15, 2017 (as well as the $52.72 and $50.73 volume weighted average prices during the 30 and 90 trading days, respectively, ending on September 15, 2017).
The Board determined that this $53.44 Cash-Out Price was a fair price for the class B common stock being cashed out in the Proposed Transaction in light of the factors considered by the Board as described herein.
Liquidity of
Class B
Common Stock
and Class A Common Stock
.
The Board discussed the lack of an active trading market for the class B common stock and, to a lesser extent, the class A common stock. Since our shareholders are not currently able to trade their class B common stock in a liquid market, the Board considered the ability to offer holders of our class B common stock, other than Mr. Hays, with a cost-effective liquidity event (without experiencing any negative impact of illiquidity on the market price) to be an additional indication of fairness to the holders of class B common stock to be cashed out. In turn, the Board believes class A common stock shareholders will, over time, experience increased liquidity and diversification of ownership as a result of the Proposed Transaction (and class B common stock shareholders who are cashed out will have the opportunity to invest, subject to availability, in class A common stock if they desire). Please see the section above entitled “— Reasons for the Proposed Transaction” for more information.
Class A Common Stock Earnings Per Share Accretion
. By cashing out holders of fewer than 1,764,560 shares of class B common stock, we expect that holders of class A common stock, which will remain publicly traded, will experience substantial accretion to earnings per share in their holdings of our class A common stock. Furthermore, holders of the class A common stock will experience a greater percentage of participation in any future dividends, as compared to the Company’s current dual class common stock structure. Please see the section above entitled “— Reasons for the Proposed Transaction” for more information.
Moderate Debt Burden While Maintaining Flexibility For Future Growth
. Given that every holder of our class B common stock, other than Mr. Hays, will be cashed out as a result of the Reverse Split, the Company can address shareholder concerns with the dual class common stock structure while maintaining a moderately leveraged capital structure on favorable financing terms that allows the Company current and future flexibility to fund growth initiatives, continue with our current dividends and fund future business acquisitions and repurchases of class A common stock, all as the Board may determine. Please see the section above entitled “— Reasons for the Proposed Transaction” for more information.
Dividend
Savings
. The Board also considered that the Company would save approximately $4.26 million in dividend costs per year (assuming the current dividend rates remain constant) as a result of the reduction in the number of shares of class B common stock outstanding after consummation of the Proposed Transaction. Please see the sections above entitled “— Purpose of the Proposed Transaction” and “— Reasons for the Proposed Transaction.
”
Equal Treatment of Affiliated and Unaffiliated Holders of
Less Than 1,764,560
Shares of
Class B
Com
mon
S
tock
.
The Proposed Transaction will not affect holders of class B common stock differently on the basis of affiliate status. The sole determining factor in whether a shareholder will be cashed out or will continue as a holder of class B common stock as a result of the Proposed Transaction is the number of shares of class B common stock held by the shareholder immediately prior to the Proposed Transaction. As a result of the Proposed Transaction, we expect Mr. Hays to be the sole remaining holder of our class B common stock. Structuring the Proposed Transaction in this manner allowed us to address shareholder concerns with our dual class common structure while maintaining a moderate debt burden as a result of the Proposed Transaction. The Board viewed the exclusion of Mr. Hays’ shares of class B common stock from the Proposed Transaction as having offsetting benefits and detriments for Mr. Hays. While as result of such exclusion, Mr. Hays will continue to participate in any growth in value through class B common stock, such class B common stock held following the Proposed Transaction will continue to be subject to the “equal status” provision of our Articles, essentially capping the value per share of the class B common stock in any distribution of property, merger, consolidation, purchase or acquisition of property or stock, asset transfer, division, share exchange, recapitalization, reorganization, or similar corporate transaction at the value per share received by holders of class A common stock. Similarly, while Mr. Hays will experience a relative increase in voting power of combined class A common stock and class B common stock due to his continued holdings of class B common stock, Mr. Hays already was able to exercise a controlling influence over our business and the power to elect our directors due to his existing holdings of class A common stock and class B common stock.
Possible Disadvantages of Effecting the Proposed Transaction
The Board also considered the following possible disadvantages of effecting the
Proposed Transaction:
Cashed Out Holders of
Class B
Common Stock will not Participate in Future Increases in the Value of the Company Stock or Payments of Dividends.
Following the Proposed Transaction, cashed out holders of class B common stock will have no further financial interest in the Company and will not have the opportunity to participate in the potential appreciation in the value of, or the payment of dividends on, the class B common stock. Further, such holders of our class B common stock will be required to involuntarily surrender their shares in exchange for cash, rather than at a time and for a price of their choosing. The Board also considered the fact that the Proposed Transaction may be taxable for cashed out holders of our class B common stock. However, holders of our class B common stock who will be cashed out in the Proposed Transaction will have the opportunity to invest, subject to availability, in our class A common stock, which will remain publicly traded following the Proposed Transaction and participate in the potential appreciation in the value of, or the payment of dividends on, the class A common stock. Please see the section above entitled “— Reasons for the Proposed Transaction” for more information.
Reduced Cash on Hand and Increased Level of Indebtedness
.
The Company estimates that the cost of payment to holders of class B common stock who are cashed out in the Reverse Split, the cost of payment to the holders of options to purchase class B common stock and restricted shares of class B common stock who are being cashed out in connection with the Proposed Transaction, professional fees, transfer agent costs and other expenses of the Proposed Transaction will total approximately $102.175 million. As a result, immediately after the Proposed Transaction, the Company’s cash balances on hand will be reduced by approximately $31 million. Further, our increased level of indebtedness as a result of entering into the Credit Facilities could adversely affect our financial condition and results of operations.
Mr. Hays Treated Unequally Under the Proposed Transaction.
Mr. Hays, as the sole remaining holder of 1,764,560 or more shares of class B common stock prior to the Reverse Split will receive unequal treatment under the Proposed Transaction. Mr. Hays will not be entitled to receive any payment for his shares of class B common stock (other than the cash out of his class B common stock options) and will continue as a class B common stock shareholder of the Company. As a result, Mr. Hays will face an illiquid market for his class B common stock which will likely negatively affect the price of the class B common stock after the Proposed Transaction. However, the Proposed Transaction will also result in an increase in the relative voting power of Mr. Hays compared to the remaining holders of class A common stock, following the Proposed Transaction.
No Appraisal or Dissenters
’ Rights
.
Under Wisconsin law, no appraisal or dissenters’ rights are available to shareholders in connection with the Proposed Transaction.
Valuation Methods Not Applicable to the Company
Although potentially relevant to a determination of fairness of the
Proposed Transaction, the factors listed below, for the reasons given, were determined by the Board to not be applicable to the Company and were not considered or were not given any weight by the Board.
Net Book Value.
The Board did not view net book value to be a reliable measure of fair value. Net book value is based on the historical cost of a company’s assets and does not take into account the value of a company if the company does not have the necessary access to capital and/or liquidity to continue to operate. In addition, the Board determined that net book value does not take into account the other considerations that might be part of the “willing buyer/willing seller” evaluation discussed above under the subsection “— Current and Historical Market Prices.”
Going Concern Valuation.
An indicator of going concern value is the discounted future cash receipts approach, which uses future cash receipt projections and discounts them at a rate which incorporates both the time value of money and the uncertainty of future cash receipts to arrive at a present valuation estimate. Given the other considerations discussed herein, the Board did not pursue this approach due to the significance of the subjective assumptions that would be involved in such an approach, as well as the significant advisor, investment bank and financial modeling expenses associated with the approach.
Liquidation Value.
The Board viewed the liquidation value of the Company to be an inappropriate measure for the purpose of evaluating the cash price to be paid for fractional shares. There is no present intention of liquidating the Company or selling a substantial portion of its assets in the near term. Further, the Proposed Transaction will only result in the termination of an equity interest by the class B common stock shareholders reduced to fractional shares as a result of the Proposed Transaction. A liquidation process would also involve additional legal fees, costs of sale and other expenses that would reduce any amounts that shareholders might receive upon liquidation. Given these and the other factors considered by the Board as described in this proxy statement, the Board did not pursue a liquidation value approach.
Conclusion
The Board believes that all of the factors mentioned above, both favorable and unfavorable, when viewed together support a conclusion that the
Proposed Transaction is substantively fair to all the Company shareholders, including the unaffiliated holders of our class B common stock cashed out as a result of the Reverse Split and continuing holders of our class A common stock and class B common stock following the Proposed Transaction. Based on the factors described above, the Board set the Cash-Out Price at $53.44
.
Procedural Fairness
In addition to the fairness of the substance of the
Proposed Transaction, the Board (including Mr. Hays) believes that the process by which decisions were made regarding the Proposed Transaction is fair to unaffiliated holders of our class B common stock, who will be cashed out pursuant to the Proposed Transaction, and to the continuing holders of our Common Stock following the effectiveness of the Proposed Transaction.
Th
e Board noted that shareholders who are cashed out can invest, subject to availability, in shares of the Company’s class A common stock, which will remain listed on Nasdaq after the Effective Date of the Proposed Transaction.
No special committee composed of the independent members of the Board was forme
d to appraise or negotiate the Proposed Transaction. The independent members of the Board considered whether to form such a committee and concluded that there were already sufficient procedural safeguards so as to make such a committee unnecessary, including that the Board is comprised of well over a majority of independent directors (constituting four of the five directors). The independent directors who were involved in the deliberations and decisions regarding the Proposed Transaction include Donald M. Berwick, JoAnn M. Martin, Barbara J. Mowry and John N. Nunnelly. None of the independent directors are employees of the Company nor are they otherwise controlled by, or under common control with, the Company. Each is an experienced and knowledgeable business person and is deemed to be independent under the listing standards of Nasdaq, including the heightened standards for members of audit committees and compensation committees. With regard to shares of class B common stock beneficially owned by the independent directors, none of such directors have any agreement with the Company or Mr. Hays, as controlling shareholder, regarding such shares. In addition, each of the independent directors will be treated identically in the Proposed Transaction with (i) the unaffiliated shareholders of the Company in the Reverse Split, with respect to class B common stock currently held by such independent directors, and (ii) all Company associates who have options to purchase class B common stock or restricted shares of class B common stock which will, immediately prior to the Effective Date, vest in full and be paid out as if they were cashed out pursuant to the Reverse Split.
The independent directors
did, however, meet six times without Mr. Hays being present to discuss the Proposed Transaction amongst themselves and with representatives of Foley, the Company’s outside corporate and securities counsel. They also discussed the Proposed Transaction with Mr. Hays (as the full Board) on numerous occasions since they comprised a majority of the Board, viewed Mr. Hays’ participation in, and contributions to, Board meetings to be valuable to their decision-making process and did not consider their collective or individual independence to be jeopardized in any respect. Based on the factors described above, the independent members of the Board concluded that they had the independence and experience to fairly represent the interests of the unaffiliated shareholders and had a sufficient opportunity to discuss and form their own conclusions as to the fairness of the Proposed Transaction without the necessity of forming a special committee. The independent members of the Board unanimously voted in favor of the Proposed Transaction on the terms and conditions described in this proxy statement.
The
Company did not receive a report, opinion or appraisal from an outside party as to the fairness of the Proposed Transaction to holders of our class A common stock, holders of our class B common stock who will be cashed out as a result of the Proposed Transaction or Mr. Hays, who will remain as the sole holder of class B common stock following the Proposed Transaction, or as to the value of the class B common stock. The independent members of the Board concluded that there were already sufficient procedural safeguards without the expense of retaining an independent fairness advisor. As discussed in “—Background of the Proposed Transaction” above, the independent members of the Board did, however, retain Emory & Co. to assist them with exploring the possible alternatives for determining the fair value of the class B common stock to be cashed out in the Reverse Split.
No representative or advisor was retained by the independent members of the Board on
behalf of the unaffiliated shareholders to prepare a fairness evaluation or otherwise appraise or negotiate the Proposed Transaction. The independent members of the Board concluded that there were already sufficient procedural safeguards without the expense of retaining an external representative or advisor to negotiate the Proposed Transaction, particularly since unaffiliated and affiliated shareholders would be treated the same in the Proposed Transaction.
The Board determined not to condition the approval of the Proposed Transaction on approval by a majority of our unaffiliated shareholders.
The Board considered that a unanimous decision of a Board comprised of four of five independent members provided significant procedural fairness. In addition, based on information available to us, as of the Record Date, approximately [●]% of our outstanding class B common stock is held by non-affiliates. Accordingly, the Board was concerned that if the Proposed Transaction were structured to require the approval of a majority of the unaffiliated shareholders, that shareholders representing disproportionately few shares could unduly influence the vote, especially if minority shareholder participation in the voting was minimal.
Finally, the Board did not believe it was in our best interest or the best interest of our shareholders to incur the increased costs associated with allowing a minority of investors, voting alone, to make a determination with respect to the Proposed Transaction, and noted that the vote of a majority of unaffiliated shareholders was not required under Wisconsin law. Weighing these factors, the Board determined that any benefits associated with a vote of unaffiliated shareholders were outweighed by the negatives, especially the potential for undue influence by a small portion of the outstanding shares.
The Board has not granted unaffiliated s
hareholders access to our corporate files, except as required by Wisconsin law, nor has it extended the right to retain counsel or appraisal services at our expense. With respect to unaffiliated shareholders’ access to our corporate files, the Board believes that this proxy statement, together with our other filings with the SEC, provide adequate information for unaffiliated shareholders. The Board also considered the fact that under Wisconsin law, and subject to specified conditions set forth under Wisconsin law, shareholders have the right to review our relevant books and records of account.
ADDITIONAL INFORMATION REGARDING THE
PROPOSED TRANSACTION
Special Interest
s of the Affiliated Persons
In considering the recommendation of the Board with respect to the
Proposed Transaction, shareholders should be aware that the Company’s executive officers and directors, including Michael D. Hays, its founder, controlling shareholder, chief executive officer and a director, have interests in the Proposed Transaction that are in addition to, or different from, the shareholders generally. These interests may create potential conflicts of interest and include the following:
|
●
|
Mr. Hays
holds 1,973,205 shares of the Company’s class B common stock as of the Record Date and will, after the Swap with the Grandchildren’s Trust and immediately before consummation of the Reverse Split, hold 1,764,560 shares of class B common stock. Mr. Hays will be the only shareholder to retain shares of class B common stock after giving effect to the Proposed Transaction.
|
|
●
|
Mr. Hays
will increase his percentage ownership interest in the Company and his total voting power because an estimated
1,775,684
shares of the outstanding class B common stock will be retired as a result of the Proposed Transaction. For example, assuming the Proposed Transaction is implemented and based on information and estimates of record ownership, shares outstanding and other ownership information and assumptions as of the Record Date, Mr. Hays’ beneficial ownership percentage will increase from approximately 30% to approximately 33
% and Mr. Hays’ voting power will increase from approximately 54% to approximately 92
%.
|
|
●
|
Mr. Hays has had a role in electing to pursue the Proposed Transaction and structuring its terms.
|
|
●
|
Our directors and executive officers, as well as other Company associates (i.e., employees), will have their unvested stock options and/or restricted stock tied to the class B common stock vested immediately prior to the Effective Date of the Proposed Transaction and then will have all of their outstanding options to purchase class B common stock and restricted shares of class B common stock paid out as if they were cashed out pursuant to the Reverse Split. This is estimated to account for approximately $7.5
million of the total estimated costs of the Proposed Transaction.
|
|
●
|
The
Grandchildren’s Trust, which was originally established by and received all of its shares of Common Stock from Mr. Hays, held approximately 28% of our class A common stock and 125,355 shares, or approximately 3.5%, of our class B common stock as of the Record Date.
Prior to the Effective Date of the Proposed Transaction, Mr. Hays and the Grandchildren’s Trust will effect the Swap, which will result in the Grandchildren’s Trust receiving a larger payment from the Company in the Reverse Split since it will own 208,645
more shares of class B common stock after the Swap that will be cashed out pursuant to the Reverse Split.
|
Mr. Hays, our other executive officers and directors and the Grandchildren
’s Trust have indicated to the Company that they will vote all of their shares of Common Stock in favor of the Proposed Transaction. Accordingly, the Proposed Transaction is expected to be approved.
Shareholder Approval
Under Wisconsin law and the Company
’s Articles, the following three “voting groups” must approve both the Reverse Split and the Forward Split: (1) the holders of the class A common stock and the class B common stock, voting together as a single class; (2) the holders of the class A common stock, voting separately as an independent voting group; and (3) the holders of the class B common stock, voting separately as an independent voting group.
Assuming a quorum of each voting group is present at the Special Meeting, the number of votes cast within
each voting group for approval of each of the Reverse Split and the Forward Split must exceed the number of votes cast against it. The Reverse Split is conditioned upon the approval by the Company’s shareholders of the Forward Split, and vice versa. If the shareholders do not approve either the Reverse Split or the Forward Split, then the Proposed Transaction will fail and will not be consummated, even if one of the two stock splits received enough votes to pass independently.
As a result of his stock holdings, Mr. Hays has the power to approve, on behalf of both
(i) the holders of the class B common stock and (ii) the holders of the class A and class B common stock, voting together as a single class, both the Reverse Split and the Forward Split, without the affirmative vote of any other shareholder. In addition, Mr. Hays and the Grandchildren’s Trust, as a result of their collective stock holdings, have the power to approve, on behalf of the holders of the class A common stock, both the Reverse Split and the Forward Split, without the affirmative vote of any other shareholder. Mr. Hays and the Grandchildren’s Trust have indicated to us that they intend to vote “FOR” both the Reverse Split and the Forward Split. Accordingly, we expect the Proposed Transaction to be approved.
Effective Date
The Proposed Transaction will become effective as of the date that the
State of Wisconsin accepts for filing Articles of Amendment to our Articles (one amendment effecting the Reverse Split and a second amendment effecting the Forward Split), or on any later date that we may specify in the Articles of Amendment to our Articles. We intend to effect the Proposed Transaction through the filing of such Articles of Amendment on the day the Proposed Transaction is approved by our shareholders or as soon as practicable thereafter.
On or following the Effective Date, Nasdaq will file a Form 25 with the SEC, and we will file a Form 15 with the SEC, in each case to terminate the
registration of the class B common stock under the Exchange Act and to delist our class B common stock from trading on Nasdaq.
T
he Company’s class A common stock will continue to be registered with the SEC under the Exchange Act and continue to be traded on Nasdaq following the consummation of the Proposed Transaction. Accordingly, the Company will continue to be subject to the filing of periodic reports and other documents under the Exchange Act, just as it is today.
Payment for Fractional Shares
The
Company’s transfer agent, American Stock Transfer & Trust Company (the “Transfer Agent”), will act as the Company’s agent for purposes of paying for fractional shares of class B common stock in connection with the Proposed Transaction.
Share
holders owning less than
1,764,560
shares of class B common stock at the Effective Date will receive $53.44
in cash, without interest, for each share of class B common stock owned by such holder immediately prior to the Reverse Split. Mr. Hays is the only shareholder of the Company who is expected to own 1,764,560
or more shares of class B common stock at the Effective Date and, therefore, will not receive any cash as a result of the Reverse Split. The Forward Split that will immediately follow the Reverse Split will reconvert Mr. Hays’ shares of class B common stock back into the same number of shares of class B common stock he held immediately before the Effective Date. As a result, the total number of shares of class B common stock held by Mr. Hays will not change after completion of the Proposed Transaction.
Shareholders owning less than 1,764,560
shares of class B common stock at the Effective Date who hold their shares in certificated form will receive a letter of transmittal as soon as practicable after the Proposed Transaction is consummated with instructions on how to surrender existing certificates in exchange for cash payment. As soon as practicable after the Transfer Agent receives surrendered certificates from any such shareholder, together with a duly completed and executed letter of transmittal with respect thereto, and such other documents as the Company may require, the Transfer Agent will deliver to such shareholder cash in an amount equal to $53.44
in cash, without interest, for each share of class B common stock owned by such holder immediately prior to the Reverse Split. Shareholders owning less than 1,764,560
shares of class B common stock at the Effective Date who hold their shares electronically in book-entry form with the Transfer Agent do not need to take any action to receive $53.44
in cash, without interest, for each share of class B common stock owned by such holder immediately prior to the Reverse Split. The Transfer Agent will deliver to such shareholders cash in an amount equal to $53.44
in cash, without interest, for each share of class B common stock owned by such holder immediately prior to the Reverse Split.
For purposes of determining ownership of shares of class B common stock on the Effective Date, such shares will be considered held by the person in whose name such shares are registered on the records of the Company or, in the case of shares held by a broker, bank or other third party (
“Participants”) in “street name” on behalf of its client, in the name of the person whose account such shares are held in by such Participants on the Effective Date, regardless of the beneficial ownership of those shares. Upon effecting the Proposed Transaction, the Company intends to treat shareholders holding class B common stock in “street name” in the same manner as registered shareholders whose shares are registered in their names. Prior to the Effective Date, the Company will conduct an inquiry of all the Participants that hold shares of class B common stock in “street name.” These Participants will be instructed to effect the Proposed Transaction for their beneficial holders holding class B common stock in “street name.” These Participants will provide the Company with information on how many fractional shares will be cashed out.
Unavailability of Appraisal or Dissenters
’ Rights
No appraisal or dissenters
’ rights are available under Wisconsin law to holders of class A common stock or class B common stock in connection with the Proposed Transaction.
Source and Amount of Funds and Expenses
Based on estimates of the record ownership of our class B common stock, the expected number of shares of our class B common stock outstanding,
the expected number of outstanding stock options and restricted shares tied to our class B common stock, and other information as of the Record Date, and assuming that approximately 1,775,684 shares of our class B common stock (before giving effect to the Reverse Split) are cashed out pursuant to the Proposed Transaction, we estimate that the total funds required to consummate the Proposed Transaction, including expenses, will be approximately $102.175 million. Approximately $101 million of this amount will be used to pay the consideration to holders of class B common stock entitled to receive cash for their fractional shares in the Reverse Split and to cash out the holders of outstanding options to purchase class B common stock and restricted shares of class B common stock in connection with the Proposed Transaction,
and approximately $1.175 million will be used to pay the costs of the Proposed Transaction:
Cash
Consideration to Holders of class B common stock (including holders of outstanding options to purchase class B common stock and restricted shares of class B common stock)
|
|
$
|
101,000,000
|
|
Legal fees
|
|
$
|
500,000
|
|
Accounting fees
|
|
$
|
175,000
|
|
A
dvisor fees
|
|
$
|
50,000
|
|
Printing, solicitation, mailing, transfer agent, exchange agent, and related costs
|
|
$
|
30,000
|
|
SEC and
Nasdaq fees
|
|
$
|
30,000
|
|
Miscellaneous fees and expenses
|
|
$
|
190,000
|
|
Bank fees
and expenses
|
|
$
|
200,000
|
|
Total Estimated
Costs and Expenses
|
|
$
|
102,175,000
|
|
The expected costs
described above include approximately $
538,000 of fees and expenses incurred by Mr. Hays in connection with exploring strategic alternatives, including the Proposed Transaction, for which we have reimbursed Mr. Hays.
Final costs of the Proposed Transaction may be more or less than the estimates shown above.
We expect to pay the costs of the Proposed Transaction, including the amounts to be paid to holders of class B common stock for their fractional shares and payments to cash out outstanding options to purchase class B common stock and restricted shares of class B common stock, from cash on hand and through borrowings under the Term Loan. However, we do not currently have any definitive agreements with FNB to loan funds to us to fund the costs of the Proposed Transaction. Accordingly, any loans by FNB to fund the costs of the Proposed Transaction will be subject to the negotiation and execution by us and FNB of appropriate definitive agreements. We do not currently have any alternative financing arrangement or alternative financing plans in the event borrowings from FNB are not available. Should we enter into definitive documentation with FNB to borrow funds to fund the costs of the Proposed Transaction, we intend to make repayments under each of the proposed Credit Facilities in the normal course of business from ordinary cash flow generated from operations.
On
September 18, 2017, we entered into the Commitment Letter with FNB, which expires on December 29, 2017, to provide (i) a Term Loan of $70 million, (ii) a Delayed Draw Term Loan facility of $20 million, and (iii) a Line of Credit in an amount equal to $10 million, in each case subject to the terms and conditions set forth in the Commitment Letter. Should we enter into definitive documentation relating to the Credit Facilities with FNB, we will use (A) the Term Loan to fund, in part, the Reverse Split, the cashing out of outstanding stock options and restricted shares tied to the class B common stock and the costs of the Proposed Transaction, (B) the Delayed Draw Term Loan, if used, is designated to fund any future business acquisitions or repurchasing of class A common stock (we do not presently have plans for any acquisitions or class A common stock repurchases) and (C) the Line of Credit to fund ongoing working capital needs and for other general corporate purposes. Under the proposed terms of the Credit Facilities, we will be the borrower under the Term Loan, the Delayed Draw Term Loan (if any), and the Line of Credit. The following is a description of the anticipated terms of the Credit Facilities, although the final terms of definitive documentation may be different from those set forth below.
Principal, interest rate, and fees
Principal and accrued interest amounts outstanding under the Term Loan are due and payable monthly during the term of the Term Loan, which shall expire on the fifth anniversary of the closing date of the Term Loan. The Term Loan will bear interest at a fixed rate of
the five (5) year London Interbank Offered Rate (“LIBOR”) swap index rate plus a spread (i.e., as of September 13, 2017, this fixed rate would have been 4.16%).
In the event that the Delayed Draw Term Loan is used, interest only payments will be due through the calendar year in which the Delayed Draw Term Loan is drawn upon. After that, amortization will occur at the then current Term Loan rate and schedule with principal and accrued interest amounts outstanding under the Delayed Draw Term Loan due and payable monthly during the term of the Delayed Draw Term Loan, which shall expire on the fifth anniversary of the closing date of the Term Loan.
The Delayed Draw Term Loan (if drawn upon) will bear interest at a floating rate equal to the thirty (30) day LIBOR index, plus 225 basis points.
Principal amounts outstanding under the Line of Credit are due and payable in full at maturity, which shall be the third anniversary of the closing date of the Line of Credit. The Line of Credit will bear interest (which shall accrue and be due on a monthly basis during the term of the Line of Credit) at a floating rate equal to the thirty (30) day LIBOR index, plus 225 basis points.
In
addition to paying interest on outstanding principal under the Credit Facilities, we will be required to pay at the closing of the Credit Facilities a one-time fee equal to 0.25% of the amount borrowed under the Term Loan. We will also be obligated to pay ongoing unused commitment fees quarterly in arrears pursuant to the Line of Credit and the Delayed Draw Term Loan facility at a rate of 0.20% per annum based on the actual daily unused portions of the Line of Credit and the Delayed Draw Term Loan facility, respectively.
Guarantee and security
All obligations under the Credit Facilities will be guaranteed by each of our direct and indirect active, wholly owned, material domestic subsidiaries, as determined by FNB in its reasonable discretion (each, a
“guarantor”).
The Credit Facilities will each be secured, subject to permitted liens and other agreed upon exceptions, by a first-priority lien on and perfected security interest in substantially all of our and the guarantors
’ present and future assets (including, without limitation, fee-owned real property, and limited, in the case of the equity interests of foreign subsidiaries, to 65% of the outstanding equity interests of such subsidiaries).
Certain covenants and other terms
The Credit Facilities will contain customary representations and warranties and customary events of default.
The Credit Facilities will also contain certain affirmative and negative covenants, including, but not limited to, restrictions, subject to certain exceptions, on our ability to:
|
●
|
create, incur, assume, or permit to exist any additional indebtedness;
|
|
●
|
effect repurchases of class A common stock in excess of certain maximum allowances;
|
|
●
|
enter into certain acquisition transactions;
|
|
●
|
create, incur, assume, or permit to exist any liens upon any assets;
|
|
●
|
enter into any transactions the effect of which would be a change of control;
|
|
●
|
purchase, make, incur, assume, or permit to exist any investment, loan, or advance to or in any other person; and
|
|
●
|
enter into any transactions with affiliates.
|
The Credit Facilities will also contain certain financial covenants with respect to minimum fixed charge coverage ratio and maximum cash flow leverage ratio.
Pursuant to the Credit Facilities, we will be required to maintain a minimum fixed charge coverage ratio of 1.10x for all testing periods throughout the term(s) of the Credit Facilities. The Commitment Letter defines “fixed charge coverage ratio” as follows: free cash flow (pre-tax net income
plus
interest
plus
depreciation
plus
amortization
plus
non-cash compensation expense
minus
distributions/dividends (subject to certain permitted stock repurchase exclusions)
minus
cash tax expense
minus
unfinanced capital expenditures (subject to certain permitted acquisition exclusions)) divided by contractual minimum debt service (contractual principal and interest loan payments
plus
contractual capital lease payments). Pursuant to the Credit Facilities, we will also be required to maintain a cash flow leverage ratio of 3.00x or less for all testing periods throughout the term(s) of the Credit Facilities. The Commitment Letter defines “cash flow leverage” as follows: funded senior debt (total outstanding principal balances on all loans
less
contractually subordinated debt
plus
outstanding capital lease obligations) divided by earnings before interest, taxes, depreciation, and amortization (pre-tax net income
plus
interest
plus
depreciation
plus
amortization
plus
non-cash compensation expense).
Conditions to closing and FNB
’s funding of the proposed Credit Facilities include, without limitation: (i) definitive documentation in respect of the Proposed Transaction in a form acceptable to FNB and consummation of the Proposed Transaction substantially concurrently with initial borrowings under the Term Loan, (ii) the execution and delivery by the applicable parties (including FNB, the Company, and the guarantors) of definitive agreements with respect to the Credit Facilities and other credit documentation, in each case consistent with the terms provided in the Commitment Letter, (iii) receipt by FNB of satisfactory documentation and information about us and our subsidiaries, sufficient for FNB to complete its diligence process, (iv) the payment of fees and expenses due to FNB under the terms of the Commitment Letter required to be paid on the closing date of the Credit Facilities, (v) the absence of any “Material Adverse Effect,” as such term is defined in the Commitment Letter, and (vi) the Company migrating and maintaining its primary banking relationship with FNB post-closing.
Material U.S. Federal Income Tax Consequences
For purposes of this discussion, a
“U.S. Holder” means, for United States federal income tax purposes, an individual who is a citizen or resident alien of the U.S., a corporation or other entity taxable for U.S. federal income tax purposes as a corporation created or organized in or under the laws of the U.S., any state thereof or the District of Columbia, or an estate or trust treated as a U.S. person under Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the “Code”). This summary is limited to U.S. persons that hold our class B common stock as capital assets within the meaning of Section 1221 of the Code for federal income tax purposes (generally, assets held for investment).
The discussion is based upon the Code and regulations, rulings, judicial decisions, and administrative pronouncements and interpretations thereunder as of the date of this
proxy statement. These authorities may be repealed, revoked or modified, perhaps with retroactive effect, so as to produce U.S. federal income tax consequences different from those discussed below. No ruling has been or will be sought from the Internal Revenue Service regarding the income or other tax consequences of the Proposed Transaction, and no assurance can be given that the Internal Revenue Service will not challenge the conclusions stated below or will not assert, or that a court will not sustain, a position contrary to any of the income tax consequences described below.
This summary does not purport to be a complete analysis of all of the potential U.S. federal income tax effects and does not address all of the tax consequences that may be relevant to a particular shareholder in light of his, her or its individual circumstances. Without limiting the generality of the foregoing, this summary does not address the effect of any special rules applicable to certain types of holders, including, without limitation, financial institutions, regulated investment companies, mutual funds, retirement plans, tax-exempt organizations, insurance companies, dealers or traders in securities, holders that received their stock pursuant to the exercise of employee stock options or otherwise as compensation, holders who hold their stock as part of a hedge, straddle, conversion, constructive sale, or other arrangement involving more than one position or other risk reduction, or other integrated transaction, non-U.S. holders, holders who functional currency is not the U.S. dollar, or investors in pass-through entities and the applicable pass-through entity, including a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes and Subchapter S corporations.
This summary is of a general nature and is included herein solely for information purposes. This summary is not intended to be, and should not be construed to be, legal or tax advice. Because U.S. tax consequences may differ from one holder to the next, the discussion set out below does not purport to describe all of the tax considerations that may be relevant to you and your particular situation. Accordingly, you are advised to consult your own tax advisor as to the U.S. federal, state, local and other tax consequences of the Proposed Transaction. The statements of U.S. tax law set out below are based on the laws and interpretations in force as of the date of this
proxy statement
, and are subject to any changes occurring after that date. Any statement herein regarding any U.S. federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any penalties that may be imposed under the Code. You should seek advice based on your particular circumstances from an independent tax advisor
.
Tax Consequences of Proposed Transaction to a U.S. Holder
The following is a summary of material U.S. federal income tax consequences of the Proposed Transaction to the Company
’s unaffiliated holders of our class B common stock who are U.S. Holders. A U.S. Holder’s receipt of cash in exchange for the fraction of a share of class B common stock resulting from the Reverse Split will be a taxable transaction to such holder for U.S. federal income tax purposes. If the receipt of cash qualifies as a sale or exchange of the U.S. Holder’s stock under Section 302 of the Code, the U.S. Holder generally should recognize gain or loss equal to the difference between the amount of cash received by such holder and such holder’s adjusted tax basis in the class B common stock exchanged in the Proposed Transaction. Any such gain or loss will constitute capital gain or loss and will be long-term capital gain or loss if the U.S. Holder has held the class B common stock for more than one year. In general, long-term capital gains of a non-corporate U.S. Holder are taxed at lower rates than those applicable to ordinary income. The deductibility of capital losses is subject to certain limitations.
The Proposed Transaction will generally be treated as a sale or exchange of such stock if the exchange (1) results in the complete redemption of the holder
’s interest in the Company, (2) is “substantially disproportionate” with respect to such holder, or (3) is “not essentially equivalent to a dividend” under the specific facts and circumstances. The tests are not only applied to the stock owned directly by a holder, but also to the stock that the holder owns indirectly based on certain attribution rules under Section 318 of the Code. Under Section 318 of the Code, a U.S. Holder will generally be considered to own stock that is owned (and, in some cases, constructively owned) by some members of such holder’s family and by entities in which such holder, a member of such holder’s family, or a related entity has an interest.
|
●
|
Complete Termination
. A U.S. Holder’s exchange of class B common stock for cash in the Proposed Transaction generally will result in a complete termination of such holder’s interest in the Company if, following the Proposed Transaction, (i) the holder no longer owns (directly or indirectly) any stock (including class A common stock) of the Company or (ii) the holder no longer directly owns any stock of the Company and is eligible to waive (and does in fact waive) constructive ownership of stock such holder is considered to own under Section 318 of the Code.
|
|
●
|
Substantial Disproportionate Redemption.
A U.S. Holder’s exchange of class B common stock for cash in the Proposed Transaction generally will meet the “substantially disproportionate test” if, after the Proposed Transaction, (i) the holder owns (directly or indirectly) less than 50% of the voting power of the Company, and (ii) the ratio of voting stock owned (directly or indirectly) by the holder to all outstanding voting stock of the Company after the transaction is less than 80% of the ratio of voting stock owned (directly or indirectly) by the holder to all outstanding voting stock of the Company before the transaction.
|
|
●
|
Not Essentially Equivalent to a Dividend
. For the Proposed Transaction to meet the “not essentially equivalent to a dividend test,” a U.S. Holder must experience a “meaningful reduction” in its proportionate interest in the Company as a result of the exchange, taking into account the constructive ownership rules described above. Whether a “meaningful reduction” takes place with respect to a particular holder depends on each holder’s individual facts and circumstances. In some instances, the Internal Revenue Service has ruled that even a small reduction in the proportionate interest of a minority stockholder in a publicly held corporation who exercises no control over the corporate affairs of the company may constitute a “meaningful reduction.”
See, e.g.
, Rev. Rul. 76-385, 1976-2 C.B. 92.
|
Each U.S. Holder is urged to consult its own tax advisor as to the application of the Section 302 tests to such holder under its particular circumstances
.
In 2013, the Company undertook
the 2013 Recapitalization, which was a reclassification of its common stock into class A common stock and class B common stock. At the time, the Company stated it did not believe that either the class A common stock or class B common stock would constitute “Section 306 stock” within the meaning of Section 306(c) of the Code. The Company continues to believe that the class B common stock does not constitute “Section 306 stock.” However, if the class B common stock is determined to constitute Section 306 stock, a U.S. Holder may be deemed to realize ordinary income as opposed to capital gain as a result of the Proposed Transaction. The rules of Section 306 of the Code are complex, and each U.S. Holder is urged to consult its own tax advisor as to the application of Section 306 to such holder under its particular circumstances.
Backup Withho
lding and Information Reporting
In general, information reporting requirements will apply to cash received in the Proposed Transaction by a U.S. Holder.
Additionally, backup withholding, currently at a rate of 28%, will apply to such payments if a U.S. Holder fails to furnish a taxpayer identification number, furnishes an incorrect taxpayer identification number, fails to report interest or dividends properly or otherwise fails to comply with applicable requirements of the backup withholding rules. Exempt recipients that are not subject to backup withholding and do not provide an IRS Form W-9 may nonetheless be treated as foreign payees subject to withholding under the Foreign Account Tax Compliance Act, and may be withheld upon at the 30% rate. Any amounts withheld under the backup withholding rules will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service. The Company cannot refund amounts once they are withheld.
Escheat Laws
The unclaimed property and escheat laws of each state provide that, under circumstances defined in that state
’s statutes, holders of unclaimed or abandoned property must surrender that property to the state. Persons whose shares of class B common stock are cashed out pursuant to the Reverse Split and whose addresses are unknown to us generally will have a period of years from the Effective Date in which to claim the cash payment payable to them. For example, with respect to class B common stock shareholders whose last known addresses are in Wisconsin, as shown by our records, the period is five years. Following the expiration of that five-year period, Wisconsin escheat laws would likely cause the cash payments to escheat to the State of Wisconsin. For class B common stock shareholders who reside in other states or whose last known addresses, as shown by our records, are in states other than Wisconsin, such states may have abandoned property laws which call for such state to obtain either (i) custodial possession of property that has been unclaimed until the owner reclaims it; or (ii) escheat of such property to the state. Under the laws of such other jurisdictions, the “holding period” or the time period which must elapse before the property is deemed to be abandoned may be shorter or longer than five years. If we do not have an address for the holder of record of the shares of class B common stock, then unclaimed cash-out payments would be turned over to our state of incorporation, the State of Wisconsin, in accordance with its escheat laws.
Accounting Treatment
We anticipate that we will account for the Proposed Transaction by treating the fractional shares of class B common stock repurchased as cancelled shares. The effective vesting of outstanding equity awards tied to the class B common stock will result in a nonrecurring charge to the income statement, with an increase to additional paid in capital. The repurchase of fractional shares of class B common stock in the Reverse Split, the cashing out of the outstanding equity awards tied to class B common stock and the retirement of treasury shares will result in a reduction to total shareholders
’ equity. Additional borrowings to fund the Proposed Transaction will result in increased liabilities and decreased net income for increased interest expense, net of tax. Tax expense will decrease in the period of the Proposed Transaction due to the charges for share based compensation as well as the additional tax benefit for the excess of the payment price to settle the class B common stock equity awards over the original value of the awards. Earnings per share will increase as a result of there being fewer shares of our Common Stock outstanding after the Proposed Transaction.
Regulatory Approvals
The Company is not aware of any material governmental or regulatory approval required for
the consummation of the Proposed Transaction, other than compliance with the applicable federal and state securities laws, Nasdaq rules and Wisconsin corporate laws.
MEETING AND VOTING INFORMATION
Time and Place
The Special Meeting will be held on
[●], November [●], 2017 at [●], local time, at our corporate offices located at 1245 Q Street, Lincoln Nebraska 68508.
Who May Vote
Only holders of record of the Company
’s class A common stock and class B common stock at the close of business on the Record Date (i.e., October [●], 2017) are entitled to vote at the Special Meeting. On that date, the Company had outstanding and entitled to vote: (a) [●] shares of class A common stock, each of which is entitled to one-one-hundredth (1/100
th
) of one vote per share, with an aggregate of [●] votes; and (b) [●] shares of class B common stock, each of which is entitled to one vote per share, with an aggregate of [●] votes.
Voting
If a broker, bank or other nominee holds your shares, you will receive instructions from them that you must follow in order to have your shares voted.
If a bank, broker or other nominee holds your shares and you wish to attend the Special Meeting and vote in person, you must obtain a “legal proxy” from the record holder of the shares giving you the right to vote the shares.
If you hold your shares in your own name as a holder of record, you may instruct the proxy holders how to vote your shares of Common Stock by completing, signing and dating the
enclosed proxy card where indicated and by mailing or otherwise returning the card to us before the Special Meeting. This proxy statement, including Appendix A and Appendix B hereto, the proxy card and any other proxy solicitations materials will be available on the Internet at https://www.rdgir.com/national-research-corporation. The proxy holders will vote your shares in accordance with your instructions. If you sign and return a proxy card without giving specific voting instructions, your shares will be voted ‘FOR” the Reverse Split and “FOR” the Forward Split. Of course, you may also choose to attend the meeting and vote your shares in person.
Revoking Your Voting Instructions to Your Proxy Holders
If you are a holder of record and you vote by proxy, you may later revoke your proxy instructions by:
|
●
|
sending a written statement to that effect to
Kevin R. Karas, Secretary, National Research Corporation, 1245 Q Street, Lincoln, Nebraska 68508;
|
|
●
|
submitting a
proxy card with a later date and signed as your name appears on the shareholder account; or
|
|
●
|
voting in person at the Special Meeting
(although attendance at the meeting will not, by itself, revoke a proxy).
|
If a broker, bank or other nominee holds your shares and you vote by proxy, you may later revoke your proxy instructions by informing your broker, bank or other nominee in accordance with that entity
’s procedures.
Voting Groups;
Required Votes; Quorum; Abstentions; Broker Non-Votes
Under
Wisconsin law and the Company’s Articles, the following three “voting groups” must approve both the Reverse Split and the Forward Split: (1) the holders of the class A common stock and the class B common stock, voting together as a single class; (2) the holders of the class A common stock, voting separately as an independent voting group; and (3) the holders of the class B common stock, voting separately as an independent voting group.
A
ssuming a quorum of each voting group is present at the Special Meeting, the number of votes cast within the voting group for approval of each of the Reverse Split and the Forward Split must exceed the number of votes cast against it. The Reverse Split is conditioned upon the approval by the Company’s shareholders of the Forward Split, and vice versa. If the shareholders do not approve either the Reverse Split or the Forward Split, then the Proposed Transaction will fail and will not be consummated, even if one of the two stock splits received enough votes to pass independently.
The presence of a majority of the votes entitled to be cast by each voting group constitute
s a quorum for the purpose of transacting business at the Special Meeting.
Abstentions and broker non-votes will be counted as present in determining whether there is a quorum; however, they will not constitute a vote
“for” or “against” each of the Reverse Split and the Forward Split and will be disregarded in the calculation of votes cast. A broker non-vote occurs when a broker submits a proxy card with respect to shares that the broker holds on behalf of another person but declines to vote on a particular matter, either because the broker elects not to exercise its discretionary authority to vote on the matter or does not have authority to vote on the matter.
INFORMATION ABOUT THE COMPANY
The Company is a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer
loyalty for healthcare providers, payers and other healthcare organizations. The Company’s solutions enable its clients to understand the voice of the customer with greater clarity, immediacy and depth. The Company’s heritage, proprietary methods, and holistic approach enable its partners to better understand the people they care for and design experiences that inspire loyalty and trust, while also facilitating regulatory compliance and the shift to population-based health management. The Company’s ability to measure what matters most and systematically capture, analyze and deliver insights based on self-reported information from patients, families and consumers is critical in today’s healthcare market. The Company believes that access to and analysis of its extensive consumer-driven information is becoming more valuable as healthcare providers increasingly need to more deeply understand and engage patients and consumers in an effort towards effective population-based health management.
The Company
’s expertise includes the efficient capture, interpretation, transmittal and benchmarking of critical data elements from millions of healthcare consumers. Using its portfolio of solutions through internet-based business intelligence tools, the Company’s clients gain insights into what people think and feel about their organizations in real-time, allowing them to build on their strengths and resolve service issues with greater speed and personalization. The Company’s clients are also able to access networking groups, on-line education and an extensive library of performance improvement material that can be tailored to each of their unique needs.
The Company
’s portfolio of subscription-based solutions provide actionable information and analysis to healthcare organizations and payers across a range of mission-critical, constituent-related elements, including patient experience and satisfaction, community population health risks, workforce engagement, community perceptions, and physician engagement. The Company partners with clients across the continuum of healthcare services. The Company’s clients range from integrated health systems and post-acute providers, such as home health, long term care and hospice, to numerous payer organizations. The Company believes this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers towards a more collaborative and integrated service model.
The Company has achieved a market leadership position through its more than 35 years of industry innovation and experience, as well as its long-term, recurring revenue relationships (solutions that are used or required by a client each year) with many of the healthcare industry
’s largest organizations. Since its founding in 1981, the Company has focused on meeting the evolving information needs of the healthcare industry through internal product development, as well as select acquisitions.
The
principal executive offices of the Company are located at 1245 Q Street, Lincoln, Nebraska 68508 and its telephone number is (402) 475-2525.
MARKET PRICE OF COMMON STOCK
Market Information
The Company
’s class A common stock and class B common stock are traded on Nasdaq under the symbols “NRCIA” and “NRCIB,” respectively. The closing price of our class A common stock and class B common stock as of September 15, 2017 (the trading day prior to the announcement of the Proposed Transaction) was $34.25 and $53.42, respectively, and the closing price as of the Record Date was $[●] and $[●], respectively.
The following table sets forth the range of high and low sales prices for, and dividends declared on the class A common stock and class B common stock for the period from
October 1, 2015, through September 30, 2017:
|
|
Class A
|
|
|
Class B
|
|
|
|
High
|
|
|
Low
|
|
|
Dividends
Declared Per
Common Share
|
|
|
High
|
|
|
Low
|
|
|
Dividends
Declared Per
Common Share
|
|
2015 Quarter Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
$
|
17.42
|
|
|
$
|
11.32
|
|
|
$
|
0.44
|
|
|
$
|
38.22
|
|
|
$
|
31.88
|
|
|
$
|
2.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Quarter Ended
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
$
|
16.10
|
|
|
$
|
13.70
|
|
|
$
|
0.08
|
|
|
$
|
36.87
|
|
|
$
|
32.99
|
|
|
$
|
0.48
|
|
June 30
|
|
$
|
16.67
|
|
|
$
|
12.53
|
|
|
$
|
0.08
|
|
|
$
|
44.60
|
|
|
$
|
33.19
|
|
|
$
|
0.48
|
|
September 30
|
|
$
|
17.14
|
|
|
$
|
13.26
|
|
|
$
|
0.08
|
|
|
$
|
38.50
|
|
|
$
|
32.18
|
|
|
$
|
0.48
|
|
December 31
|
|
$
|
20.00
|
|
|
$
|
14.35
|
|
|
$
|
0.10
|
|
|
$
|
46.37
|
|
|
$
|
32.57
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 Quarter Ended
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
$
|
20.92
|
|
|
$
|
16.50
|
|
|
$
|
0.10
|
|
|
$
|
41.73
|
|
|
$
|
38.76
|
|
|
$
|
0.60
|
|
June 30
|
|
$
|
28.75
|
|
|
$
|
19.15
|
|
|
$
|
0.10
|
|
|
$
|
49.29
|
|
|
$
|
39.00
|
|
|
$
|
0.60
|
|
September 30
|
|
$
|
41.99
|
|
|
$
|
26.70
|
|
|
$
|
0.10
|
|
|
$
|
57.21
|
|
|
$
|
47.07
|
|
|
$
|
0.60
|
|
The payment and amount of future dividends, if any, is at the discretion of the Board and will depend on the Company
’s future earnings, financial condition, general business conditions, alternative uses of the Company’s earnings and other factors.
Share
holders
As of
the Record Date, there were approximately [●] shareholders of record and approximately [●] beneficial owners of the class A common stock and approximately [●] shareholders of record and approximately [●] beneficial owners of the class B common stock.
Common Stock Repurchase Information
In February 20
06, and as amended in connection with the 2013 Recapitalization
(which created the two classes of Common Stock), the Board authorized the repurchase of 2,250,000 shares of class A common stock and 375,000 shares of class B common stock in the open market or in privately negotiated transactions. Unless terminated earlier by resolution of the Board, the repurchase program will expire when the Company has repurchased all shares authorized for repurchase thereunder. The remaining shares that may be purchased under this authorization are 280,491 shares of class A common stock and 69,491 shares of class B common stock. The Company has not purchased any shares of class B common stock during the last two years.
In connection with
approving the Proposed Transaction, the Board further amended the foregoing stock repurchase authorization to provide that, immediately after the consummation of the Proposed Transaction, no shares of class B common stock shall be eligible to be repurchased.
Purchases
/Sales of Class B Common Stock by Directors and Executive Officers
None of the
directors or executive officers of the Company have engaged in any transaction in our class B common stock during the past 60 days. In the quarter ended March 31, 2016, Mr. Hays exercised options and acquired 24,043 shares of class B common stock for an average price of $15.70 per share and between a range of $13.06 to $19.09 per share. Other than the foregoing, Mr. Hays has not purchased any shares of class B common stock during the past two years. In connection with the Proposed Transaction, Mr. Hays and the Grandchildren’s Trust will effect the Swap.