SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
AMENDMENT NO. 2 TO SCHEDULE 13E-3
(RULE 13e-100)
TRANSACTION STATEMENT UNDER SECTION 13(e)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND
RULE 13e-3 THEREUNDER
RULE 13e-3 TRANSACTION STATEMENT UNDER SECTION
13(e) OF THE SECURITIES EXCHANGE ACT OF 1934
CALLOWAY'S NURSERY, INC.
(Name of the Issuer)
CALLOWAY'S NURSERY, INC.
(Names of Person(s) Filing statement)
COMMON STOCK, $0.01 PAR VALUE
(Title of Class of Securities)
131255101
(CUSIP Number of Class of Securities)
Daniel G. Reynolds
Calloway's Nursery, Inc.
Suite 200
4200 Airport Freeway
Fort Worth, Texas 76117-6200
(817) 222-1122
with a copy to:
Gene G. Lewis, Esq.
Locke Liddell & Sapp LLP
Suite 3400
600 Travis Street
Houston, TX 77002-3095
(Name, Address and Telephone Numbers of Person Authorized to
Receive Notices and Communications on Behalf of the Person(s)
Filing Statement)
This statement is filed in connection with (check the appropriate
box):
a.[ ]The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C or Rule 13e-
3(c) under the Securities Exchange Act of 1934.
b.[ ]The filing of a registration statement under the Securities
Act of 1933.
c.[ ]A tender offer.
d.[X]None of the above.
Check the following box if the soliciting materials or
information statement referred to in checking box (a) are
preliminary copies: [ ]
Check the following box if the filing is a final amendment
reporting the results of the transaction: [ ]
Calculation of Filing Fee
Transaction Value Amount of Filing Fee
$3,197* $.26
*The transaction valuation was based upon the purchase price of
all shares of the common stock, $0.01 par value, of Calloway's
Nursery, Inc. from holders of record of fewer than 100 shares of
Calloway's Nursery, Inc. common stock, as of November 20, 2003,
at $0.90 per share.
[X]Check the box if any part of the fee is offset as provided by
Rule 0-11(a)(2)of the Securities Exchange Act of 1934 and
identify the filing with which the offsetting fee was previously
paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $8.09
Filing Party: Calloway's Nursery Inc.
Form of Registration No.: SC 13E-3
Date Filed: September 18, 2003
TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 13E-3 THEREUNDER
This Rule 13e-3 Transaction Statement on Schedule 13E-3(this
"Schedule 13E-3") is being filed by Calloway's Nursery, Inc., a
Texas corporation (the "Company"), the issuer of the equity
securities that are the subject of the Rule 13e-3 transaction, in
connection with an odd-lot stock purchase offer with the intended
result that the Company will cease to be a publicly held company
and will become a private corporation. After the filing of this
Schedule 13E-3, the Company intends to distribute an Odd-Lot
Purchase Offer (the "Odd-Lot Purchase Offer") describing the
offer to its shareholders. A copy of the Odd-Lot Purchase Offer
in substantially the form intended to be distributed to its
shareholders is filed herewith as Exhibit 24.
ITEM 1. SUMMARY TERM SHEET
The required information is incorporated herein by reference to
the section of the Odd-Lot Purchase Offer entitled "SUMMARY."
ITEM 2. SUBJECT COMPANY INFORMATION
The name of the subject company is Calloway's Nursery, Inc. The
address of the Company's principal executive offices is 4200
Airport Freeway, Suite 200, Fort Worth, Texas 76117- 6200, and
its telephone number is (817) 222-1122. The subject class of
equity securities is common stock, $0.01 par value per share.
Additional required information is incorporated by reference to
the section of the Odd-Lot Purchase Offer entitled "MARKET FOR
THE COMMON STOCK."
ITEM 3. IDENTITY AND BACKGROUND OF THE FILING PERSON
The filing person is the subject company. Additional required
information is incorporated herein by reference to the sections
of the Odd-Lot Purchase Offer entitled "THE COMPANY" and
"MANAGEMENT - Board of Directors and - Non-Director Executive
Officers."
ITEM 4. TERMS OF THE ODD-LOT PURCHASE OFFER
The required information is incorporated herein by reference to
the section of the Odd-Lot Purchase Offer entitled "THE ODD-LOT
PURCHASE OFFER."
ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND
AGREEMENTS.
The required information is incorporated herein by reference to
the sections of the Odd-Lot Purchase Offer entitled "MANAGEMENT -
Security Ownership of Management and - Certain Transactions with
Management."
ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
The required information is incorporated herein by reference to
the sections of the Odd-Lot Purchase Offer entitled "THE ODD-LOT
PURCHASE OFFER - Background and Description of the Odd-Lot
Purchase Offer" and "SPECIAL FACTORS - Effects of the Odd-Lot
Purchase Offer."
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS
The required information is incorporated by reference to the
sections of the Odd-Lot Purchase Offer entitled "SPECIAL FACTORS
- Purpose and Reasons for the Odd-Lot Purchase Offer; -
Alternatives to the Odd-Lot Purchase Offer and - Effects of the
Odd-Lot Purchase Offer."
ITEM 8. FAIRNESS OF THE TRANSACTION
The required information is incorporated by reference to the
section of the Odd-Lot Purchase Offer entitled "SPECIAL FACTORS -
Fairness of the Odd-Lot Purchase Offer; - Fairness of the Offer
Price and - Approval of the Odd-Lot Purchase Offer."
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS
The required information is incorporated by reference to the
section of the Odd-Lot Purchase Offer entitled "SPECIAL FACTORS -
Approval of the Odd-Lot Purchase Offer."
ITEM 10. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION
The required information is incorporated by reference to the
section of the Odd-Lot Purchase Offer entitled "THE ODD-LOT
PURCHASE OFFER - Source of Funds."
ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
The required information is incorporated herein by reference to
the section of the Odd-Lot Purchase Offer entitled "MANAGEMENT -
Security Ownership of Management."
ITEM 12. SOLICITATION OR RECOMMENDATION
The required information is incorporated herein by reference to
the sections of the Odd-Lot Purchase Offer entitled "SPECIAL
FACTORS - Fairness of the Odd-Lot Purchase Offer; - Fairness of
the Offer Price; - Approval of the Odd-Lot Purchase Offer and -
Recommendation of the Board."
ITEM 13. FINANCIAL STATEMENTS
The information contained in Item 8 of the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 2003
is incorporated by reference.
Additional required information is incorporated by reference to
the section of the Odd-Lot Purchase Offer entitled "SUMMARY
FINANCIAL INFORMATION."
ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED
The required information is incorporated by reference to the
section of the Odd-Lot Purchase Offer entitled "THE ODD-LOT
PURCHASE OFFER - Persons Implementing the Odd-Lot Purchase
Offer."
ITEM 15. ADDITIONAL INFORMATION
Not applicable.
ITEM 16. EXHIBITS
1. Disclosure Statement regarding the Negotiated Purchase
Plan dated September 17, 2003 (filed as Exhibit 1 to the Schedule
13E-3, File No. 005-41995, effective September 18, 2003).
2. Loan Agreement between the Company and The Frost
National Bank dated September 21, 1999 (filed as Exhibit 2 to the
Schedule 13E-3, File No. 005-41995, effective September 18,
2003).
3. Form of Employment Agreement dated July 3, 1991 between
the Company and James C. Estill (filed as Exhibit 10(a) to the
Company's Registration Statement on Form S-1, as amended, File
No. 33-40473, effective June 26, 1991).
4. Extension of Employment Agreement between the Company
and James C. Estill dated July 2, 1996 (filed as Exhibit 10(m) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996).
5. Extension of Employment Agreement between the Company
and James C. Estill dated May 9, 2001 (filed as Exhibit 10(p) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2001).
6. Form of Employment Agreement dated July 3, 1991 between
the Company and John T. Cosby (filed as Exhibit 10(b) to the
Company's Registration Statement on Form S-1, as amended, File
No. 33-40473, effective June 26, 1991).
7. Extension of Employment Agreement between the Company
and John T. Cosby dated July 2, 1996 (filed as Exhibit 10(n) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996).
8. Extension of Employment Agreement between the Company
and John T. Cosby dated May 9, 2001 (filed as Exhibit 10(q) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2001).
9. Form of Employment Agreement dated July 3, 1991 between
the Company and John S. Peters (filed as Exhibit 10(c) to the
Company's Registration Statement on Form S-1, as amended, File
No. 33-40473, effective June 26, 1991).
10. Extension of Employment Agreement between the Company
and John S. Peters dated July 2, 1996 (filed as Exhibit 10(o) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996).
11. Extension of Employment Agreement between the Company
and John S. Peters dated May 9, 2001 (filed as Exhibit 10(r) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2001).
12. Employment Agreement between the Company and C.
Sterling Cornelius dated September 21, 1999 (filed as Exhibit
10(k) to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1999).
13. Calloway's Nursery, Inc. Stock Purchase Plan (filed as
Exhibit 28 to the Company's Registration Statement on Form S-8,
as amended, File No. 33-46170, effective March 3, 1992).
14. Calloway's Nursery, Inc. 1991 Stock Option Plan (filed
as Exhibit 10(d) to the Company's Registration Statement on Form
S-1, as amended, File No. 33-40473, effective June 26, 1991).
15. Calloway's Nursery, Inc. 1995 Stock Option Plan for
Independent Directors (filed as Exhibit 99(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1995).
16. Calloway's Nursery, Inc. 1996 Stock Option Plan (filed
as Exhibit A to the Company's Proxy Statement for its 1996 annual
meeting of shareholders).
17. Calloway's Nursery, Inc. 1997 Stock Option Plan (filed
as Exhibit A to the Company's Proxy Statement for its 1997 annual
meeting of shareholders).
18. Calloway's Nursery, Inc. 1998 Stock Option Plan (filed
as Exhibit A to the Company's Proxy Statement for its 1998 annual
meeting of shareholders).
19. Calloway's Nursery, Inc. 1999 Stock Option Plan (filed
as Exhibit A to the Company's Proxy Statement for its 1999 annual
meeting of shareholders).
20. Form of Individual Stock Option Grant to Non-Employee
Directors (filed as Exhibit 20 to the Schedule 13E-3, File No.
005-41995, effective September 18, 2003).
21. Lease Agreement between the Company and Frost National
Bank, Trustee, for George J. Wechsler and Dorothy I. Wechsler for
1570 Ruiz Street, San Antonio (filed as Exhibit 21 to the
Schedule 13E-3, File No. 005-41995, effective September 18,
2003).
22. Lease Agreement between the Company and Frost National
Bank, Trustee, for George J. Wechsler and Dorothy I. Wechsler for
7007 San Pedro Avenue, San Antonio (filed as Exhibit 22 to the
Schedule 13E-3, File No. 005-41995, effective September 18,
2003).
23. Lease Agreement between the Company and Frost National
Bank, Trustee, for George J. Wechsler and Dorothy I. Wechsler for
6714 South Flores Street, San Antonio (filed as Exhibit 23 to the
Schedule 13E-3, File No. 005-41995, effective September 18,
2003).
*24. Odd-Lot Purchase Offer.
25. Letter of Transmittal.
26. Letter from James C. Estill, President of Calloway's Nursery
Inc. to the Shareholders.
*Filed herewith
SIGNATURES
After due inquiry and to the best of his knowledge and belief,
the undersigned certifies that the information contained in this
statement is true, complete and correct.
CALLOWAY'S NURSERY, INC.
By: /s/ Daniel G. Reynolds
Daniel G. Reynolds
Vice President and Chief
Financial Officer
January 9, 2004
EXHIBIT INDEX
1. Disclosure Statement regarding the Negotiated Purchase
Plan dated September 17, 2003 (filed as Exhibit 1 to the Schedule
13E-3, File No. 005-41995, effective September 18, 2003).
2. Loan Agreement between the Company and The Frost
National Bank dated September 21, 1999 (filed as Exhibit 2 to the
Schedule 13E-3, File No. 005-41995, effective September 18,
2003).
3. Form of Employment Agreement dated July 3, 1991 between
the Company and James C. Estill (filed as Exhibit 10(a) to the
Company's Registration Statement on Form S-1, as amended, File
No. 33-40473, effective June 26, 1991).
4. Extension of Employment Agreement between the Company
and James C. Estill dated July 2, 1996 (filed as Exhibit 10(m) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996).
5. Extension of Employment Agreement between the Company
and James C. Estill dated May 9, 2001 (filed as Exhibit 10(p) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2001).
6. Form of Employment Agreement dated July 3, 1991 between
the Company and John T. Cosby (filed as Exhibit 10(b) to the
Company's Registration Statement on Form S-1, as amended, File
No. 33-40473, effective June 26, 1991).
7. Extension of Employment Agreement between the Company
and John T. Cosby dated July 2, 1996 (filed as Exhibit 10(n) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996).
8. Extension of Employment Agreement between the Company
and John T. Cosby dated May 9, 2001 (filed as Exhibit 10(q) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2001).
9. Form of Employment Agreement dated July 3, 1991 between
the Company and John S. Peters (filed as Exhibit 10(c) to the
Company's Registration Statement on Form S-1, as amended, File
No. 33-40473, effective June 26, 1991).
10. Extension of Employment Agreement between the Company
and John S. Peters dated July 2, 1996 (filed as Exhibit 10(o) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996).
11. Extension of Employment Agreement between the Company
and John S. Peters dated May 9, 2001 (filed as Exhibit 10(r) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2001).
12. Employment Agreement between the Company and C.
Sterling Cornelius dated September 21, 1999 (filed as Exhibit
10(k) to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1999).
13. Calloway's Nursery, Inc. Stock Purchase Plan (filed as
Exhibit 28 to the Company's Registration Statement on Form S-8,
as amended, File No. 33-46170, effective March 3, 1992).
14. Calloway's Nursery, Inc. 1991 Stock Option Plan (filed
as Exhibit 10(d) to the Company's Registration Statement on Form
S-1, as amended, File No. 33-40473, effective June 26, 1991).
15. Calloway's Nursery, Inc. 1995 Stock Option Plan for
Independent Directors (filed as Exhibit 99(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1995).
16. Calloway's Nursery, Inc. 1996 Stock Option Plan (filed
as Exhibit A to the Company's Proxy Statement for its 1996 annual
meeting of shareholders).
17. Calloway's Nursery, Inc. 1997 Stock Option Plan (filed
as Exhibit A to the Company's Proxy Statement for its 1997 annual
meeting of shareholders).
18. Calloway's Nursery, Inc. 1998 Stock Option Plan (filed
as Exhibit A to the Company's Proxy Statement for its 1998 annual
meeting of shareholders).
19. Calloway's Nursery, Inc. 1999 Stock Option Plan (filed
as Exhibit A to the Company's Proxy Statement for its 1999 annual
meeting of shareholders).
20. Form of Individual Stock Option Grant to Non-Employee
Directors (filed as Exhibit 20 to the Schedule 13E-3, File No.
005-41995, effective September 18, 2003).
21. Lease Agreement between the Company and Frost National
Bank, Trustee, for George J. Wechsler and Dorothy I. Wechsler for
1570 Ruiz Street, San Antonio (filed as Exhibit 21 to the
Schedule 13E-3, File No. 005-41995, effective September 18,
2003).
22. Lease Agreement between the Company and Frost National
Bank, Trustee, for George J. Wechsler and Dorothy I. Wechsler for
7007 San Pedro Avenue, San Antonio (filed as Exhibit 22 to the
Schedule 13E-3, File No. 005-41995, effective September 18,
2003).
23. Lease Agreement between the Company and Frost National
Bank, Trustee, for George J. Wechsler and Dorothy I. Wechsler for
6714 South Flores Street, San Antonio (filed as Exhibit 23 to the
Schedule 13E-3, File No. 005-41995, effective September 18,
2003).
*24. Odd-Lot Purchase Offer.
25. Letter of Transmittal.
26. Letter from James C. Estill, President of Calloway's
Nursery Inc. to the Shareholders.
*Filed herewith
Exhibit 24
ODD-LOT PURCHASE OFFER
OF
CALLOWAY'S NURSERY, INC.
January 9, 2004
TABLE OF CONTENTS
Page
SUMMARY 1
THE ODD-LOT PURCHASE OFFER 3
Background and Description of the Odd-Lot Purchase Offer
3
Appraisal Rights 3
Special Provisions for Unaffiliated Shareholders 3
Source of Funds 4
Persons Implementing the Odd-Lot Purchase Offer 4
Federal Income Tax Consequences 4
Accounting Treatment 5
SPECIAL FACTORS 5
Purpose and Reasons for the Odd-Lot Purchase Offer 5
Alternatives to the Odd-Lot Purchase Offer 7
Effects of the Odd-Lot Purchase Offer 7
Fairness of the Odd-Lot Purchase Offer 8
Fairness of the Offer Price 9
Approval of the Odd-Lot Purchase Offer 11
Recommendation of the Board 12
THE COMPANY 13
MARKET FOR THE COMMON STOCK 14
MANAGEMENT 15
Board of Directors 16
Non-Director Executive Officers 18
Security Ownership of Management 18
Certain Transactions with Management 20
SUMMARY FINANCIAL INFORMATION 21
WHERE YOU CAN FIND MORE INFORMATION 22
SUMMARY
Calloway's Nursery, Inc. (the "Company") operates retail
garden centers in the four largest metropolitan areas in Texas,
Dallas, Fort Worth, Houston and San Antonio, reaching a combined
population of 11.4 million. Founded in 1986, the Company's first
four retail stores opened in Dallas in 1987. Since that time,
the Company has grown to 26 retail stores in its four market
areas.
To improve the Company's financial performance, the Company
hereby offers to purchase from record holders of fewer than 100
shares of the Company's common stock all their shares of Company
common stock, with the intended result that the Company's common
stock will cease to be registered under the Securities Exchange
Act of 1934 (the "Exchange Act"), likely resulting in the shares
no longer being actively traded.
This summary briefly describes an offer (the "Odd-Lot
Purchase Offer") approved by the Board of Directors (the "Board")
of the Company that would allow the Company to purchase the
common stock of the Company from certain shareholders. This
summary describes the material terms and features of the Odd-Lot
Purchase Offer, but a more detailed description is also included
in this disclosure statement. See "THE ODD-LOT PURCHASE OFFER;
FAIRNESS OF THE ODD-LOT PURCHASE OFFER."
The Odd-Lot Purchase Offer
* The Company offers to purchase from all holders of record of
fewer than 100 shares of the Company's common stock all their
shares of Company common stock for $0.90 per share.
* The Company seeks to reduce the number of record holders of
its common stock to fewer than 300 (a "successful completion").
* The offer is not conditioned on acceptance of the offer by a
minimum number of holders or for a minimum or maximum number of
shares.
* To participate in the offer, a shareholder must deliver a
letter of transmittal along with his odd-lot shares to the
Company prior to the termination of the offer.
* The Company will not terminate or withdraw the offer prior
to February 10, 2004.
Effects of the Odd-Lot Purchase Offer
* If upon the completion of the Odd-Lot Purchase Offer the
Company has fewer than 300 record holders of common stock, the
Company intends voluntarily to suspend trading of its common
stock on the NASDAQ SmallCap Market and terminate its
registration under the Exchange Act.
Benefits of the Odd-Lot Purchase Offer
* If successfully completed, the Odd-Lot Purchase Offer will
enable the Company to terminate the registration of its common
stock under the Exchange Act and thus suspend its obligation to
file annual and periodic reports and other filings with the
Securities and Exchange Commission (the "SEC"). The Board
estimates that the Company will save approximately $500,000
annually, once the termination of the common stock's registration
becomes effective, by eliminating the substantial costs
associated with being a public company, including the preparation
and filing of periodic reports with the SEC.
Disadvantages of the Odd-Lot Purchase Offer
* Following the successful completion of the Odd-Lot Purchase
Offer, the shareholders of the Company, including unaffiliated
shareholders, will likely experience reduced liquidity for their
shares of common stock.
* After the Company ceases to make SEC filings, unaffiliated
shareholders will not receive the same information about the
Company that would be available through SEC filings and will
accordingly have greater difficulty obtaining information about
the operations and financial condition of the Company.
* There can be no assurance that the Odd-Lot Purchase Offer
will be successfully completed. If an insufficient number of
shareholders accept the Company's offer, the Company will not be
able to terminate the registration of its common stock under the
Exchange Act.
Board Determination of Fairness of the Odd-Lot Purchase Offer
* The Board has determined that the Odd-Lot Purchase Offer is
advisable, fair and in the best interests of the Company and its
shareholders, including the Company's unaffiliated shareholders.
The Odd-Lot Purchase Offer is fair to the Company's shareholders,
including unaffiliated shareholders, not selling their shares
because the Company will benefit substantially from the
elimination upon deregistration of the substantial costs of being
a public company. Unaffiliated shareholders selling their shares
in the Odd-Lot Purchase Offer will receive a fair purchase price
substantially in excess of current market prices. The Board
recommends that shareholders holding fewer than 100 shares of the
Company's common stock accept the Company's offer to purchase and
sell their shares of common stock to the Company pursuant to the
Odd-Lot Purchase Offer, because doing so will facilitate the
successful completion of the Odd-Lot Purchase Offer.
THE ODD-LOT PURCHASE OFFER
Background and Description of the Odd-Lot Purchase Offer
Upon a review of the Company's financial condition and
results of operations and the poor performance of the Company's
common stock on the NASDAQ SmallCap Market, the Board determined
it was appropriate to consider the possibility of going private.
The members of management were instructed to explore business
strategies and alternatives for the Company and its shareholders
going forward. The management presented the Board with several
options for changing the Company's status from a public to a
private company. The Board, after consultation with its outside
legal counsel and management, unanimously determined that the Odd-
Lot Purchase Offer is the fairest and most efficient available
means to reduce the number of shareholders and permit the Company
to go private.
In the Odd-Lot Purchase Offer the Company offers to purchase
all of the shares of the Company's common stock held by
shareholders of record holding fewer than 100 shares of the
Company's common stock. The purchase price is $0.90 per share.
The Company presently intends to hold any purchased shares as
treasury stock. The Company offer is not conditioned on
acceptance of the offer by a minimum number of holders or for a
minimum or maximum number of shares. The Company will not
terminate or withdraw the offer prior to February 10, 2004.
To participate in the Odd-Lot Purchase Offer, a shareholder
must deliver a properly completed letter of transmittal and the
certificates evidencing the shares of common stock being tendered
pursuant to the Odd-Lot Purchase Offer to the Company prior to
the termination of the offer. The consideration for tendering
the odd-lot shares pursuant to the Odd-Lot Purchase Offer will be
delivered as soon as practicable after the acceptance of the odd-
lot shares by the Company. Only holders of record are authorized
to tender their odd-lot shares.
Appraisal Rights
Shareholders do not have the right to demand the appraised
value of their shares (dissenter's rights) in conjunction with
the Odd-Lot Purchase Offer under the Texas Business Corporation
Act. There may exist other rights or actions under the Texas
Business Corporation Act, Texas common law or federal or state
securities laws for shareholders who object to the Odd-Lot
Purchase Offer. Although the nature and extent of such rights or
actions are uncertain and may vary depending on the facts or
circumstances, shareholder challenges to corporate action in
general are related to the fiduciary responsibilities of
corporate officers and directors, to the fairness of the
corporate transactions and the adequacy of disclosure.
Special Provisions for Unaffiliated Shareholders
No provisions have been made to grant unaffiliated
shareholders access to the corporate files of the Company or to
obtain counsel or appraisal services at the expense of the
Company. However, under Texas law, certain shareholders of a
corporation may examine the books and records of the corporation.
Upon a written demand stating the purpose of the demand, a
shareholder holding the Company's common stock for at least six
months immediately preceding a demand or a shareholder holding at
least 5% of all outstanding shares of the Company's common stock,
has the right to examine and extract information from the
Company's relevant books and records of account, minutes and
share transfer records. A shareholder may examine or extract
information from such records in person or by agent at any
reasonable time for any proper purpose.
Source of Funds
The total cost of implementing the Odd-Lot Purchase Offer
transactions is not expected to exceed $75,000. Costs include
legal fees, stock transfer agent fees, and the cost of acquiring
shares. The funds will come from the operating cash flows
provided by the Company's business and existing credit
facilities. As required by the Company's bank loan agreement,
the Company has obtained the approval of its lender to purchase
shares of the Company's common stock pursuant to the Odd-Lot
Purchase Offer.
Persons Implementing the Odd-Lot Purchase Offer
John T. Cosby and Daniel G. Reynolds, both Vice Presidents
of the Company, will have primary responsibility for implementing
the Odd-Lot Purchase Offer. Such officers will be assisted by
other officers and employees of the Company. None of such
persons will receive any special compensation for his efforts in
implementing the Odd-Lot Purchase Offer. The Company does not
intend to use any non-employees to contact its shareholders in
connection with the Odd-Lot Purchase Offer.
Federal Income Tax Consequences
A shareholder who chooses to sell his shares of Company
common stock held as a capital asset will recognize a capital
gain or loss on such sale equal to the difference between the
cash received for the shares and the shareholder's adjusted tax
basis in his stock. Such capital gain or loss will be treated as
a long-term capital gain or loss if, at the time of the sale, the
shareholder has held such stock for more than one year;
otherwise, the capital gain or loss will be short term. Non-
corporate taxpayers are generally subject to a maximum federal
rate of (a) 15% on their long-term capital gains and (b) 35% on
their short-term capital gains. All taxpayers are subject to
certain limitations on the deductibility of their capital losses.
In addition, a shareholder who sells his common stock to the
Company may be required to furnish the shareholder's social
security number or taxpayer identification number to the Company
or the transfer agent. Failure to provide such information or
the providing of incorrect information may result in backup
withholding. Each shareholder should consult his own tax
advisors in order to determine the tax consequences to him of the
proposed purchase under the Odd-Lot Purchase Offer.
Accounting Treatment
The purchase of shares by the Company will be accounted for
as a purchase of treasury stock. The Company records treasury
stock purchases at cost. The par value of the purchased shares
will reduce common stock, and the excess of the cost over par
value will reduce additional paid-in capital.
SPECIAL FACTORS
Purpose and Reasons for the Odd-Lot Purchase Offer
The purpose of the Odd-Lot Purchase Offer is to reduce the
number of common shareholders to fewer than 300 shareholders of
record, thus allowing the Company to terminate its common stock's
registration under the Exchange Act. The Board believes that the
proposed Odd-Lot Purchase Offer will maximize shareholder value
by relieving the Company of the substantial costs of remaining a
public company with reporting requirements. The direct and
indirect costs associated with the Company's compliance with the
filing and reporting requirements of the Exchange Act have a
material adverse effect on the Company's financial performance
and the various costs associated with remaining a public company
are expected to increase further as a result of recent
legislative and regulatory initiatives to improve corporate
governance. Shareholders eligible to sell their shares in the Odd-
Lot Purchase Offer are provided an opportunity to sell their
shares at a fair price substantially in excess of current market
prices.
For the fiscal year ended September 30, 2002, the Company
spent $487,000, 16% of its December 31, 2003 market
capitalization, in costs related to being a public company, the
largest portion of which were attributable to fees paid for audit
services and audit related services. The Company estimates that
those costs will increase to approximately $730,000 for fiscal
year 2004.
By terminating its common stock's registration and relieving
itself of the reporting requirements of the Exchange Act and
other obligations, the Company estimates it will save
approximately $500,000 annually, once the termination of the
registration becomes effective. The Company believes the savings
will result from the elimination of NASDAQ stock market fees,
press release expenses and certain legal fees, as well as a
significant reduction in audit fees, independent directors'
compensation, officers and directors liability insurance, tax
compliance, printing and mailing costs, filing fees, stock
transfer agent expenses and other direct expenses associated with
the required SEC filings and being a public company. These
savings result from relief from the costs of complying with
securities laws and regulations, as well as reduction of other
costs which are typically higher for public companies, such as
directors and officers liability insurance. The following table
describes these estimated costs and savings:
2003 Estimated Estimated Estimated
Expenses 2004 2004 Annual
Expenses Expenses Savings
if Private
Audit fees, $144,000 $225,000 $50,000 $175,000
including
quarterly reviews
Independent 111,000 100,000 80,000 20,000
directors
compensation
Directors and 65,000 125,000 50,000 75,000
officers liability
insurance
NASDAQ Stock Market 23,000 60,000 00 60,000
fees
Audit related fees 23,000 100,000 8,000 92,000
(filing of Form S-
8, audit of
employee benefit
plan, due
diligence
assistance)
Other non-audit 32,000 35,000 20,000 10,000
services (tax
compliance)
Printing and EDGAR 16,000 30,000 10,000 20,000
filing fees
Stock transfer agent 20,000 20,000 10,000 10,000
fees
Press release fees 12,000 12,000 -- --
Legal fees (annual 36,000 12,000 -- --
report, quarterly
reports and proxy)
Annual meeting costs 6,000 10,000 2,000 8,000
& other
Total public company $487,000 $729,000 $230,000
related costs $499,000
The Company also incurs indirect costs as a result of
management's time expended in preparation and review of such
filings.
The Board has no present intention or, in its judgment, any
current or foreseeable ability to raise capital through sales of
securities in a public offering or to acquire other business
entities using its stock as the consideration for any such
acquisition. Therefore, the Company is unlikely to take
advantage of its current status as a public company for these
purposes.
Based on the Company's size and resources the Board does not
believe the costs associated with remaining a public company are
justified. Because the Company is not receiving any material
benefits from its current status as a public company and the
costs of remaining a public company are high, the Board has
determined that it would be irresponsible to continue as a public
company in such circumstances. In light of these
disproportionate costs, the Board believes that it is in the best
interests of the Company and its shareholders, including its
unaffiliated shareholders, to eliminate the administrative and
financial burden of remaining a public company subject to the
reporting requirements of the Exchange Act. As discussed below,
the Odd-Lot Purchase Offer was determined to be the best method
for becoming a non-reporting company. See"-- Alternatives to the
Odd-Lot Purchase Offer."
Alternatives to the Odd-Lot Purchase Offer
In addition to the Odd-Lot Purchase Offer, the Board
considered conducting a series of negotiated transactions with
individual shareholders holding not more than 500 shares and two
reverse stock split proposals as a method for reducing the number
of shareholders. Of the four alternatives, the Odd-Lot Purchase
Offer was the most efficient and cost effective method for
reducing the number of Company shareholders to fewer than 300.
Because of applicable tender offer rules, the negotiated purchase
proposal would be difficult to implement in a manner that would
likely enable the Company to reduce its shareholders of record to
less than 300. Both reverse stock split proposals considered
would require more time to complete and cost the Company
substantially more money than the proposed Odd-Lot Purchase
Offer. The Board believes that the Odd-Lot Purchase Offer
provides the most efficient and economical method for changing
the Company's status from a reporting company under the Exchange
Act to a non-reporting company.
Effects of the Odd-Lot Purchase Offer
The Company is offering to purchase all the shares of all
record holders of fewer than 100 shares of the Company's common
stock for $.90 per share. The Company will not offer to purchase
shares from the holders of more than 100 shares of the Company's
common stock. Upon consummation of a purchase between a
shareholder and the Company, the shareholder will be paid the
purchase price in cash.
When, as a result of the Odd-Lot Purchase Offer, the total
number of shareholders is reduced to less than 300, the Company
intends promptly to suspend trading of its common stock from the
NASDAQ SmallCap Market and terminate the common stock's
registration under the Exchange Act. As a result of the
suspension of trading, the Company anticipates there will be no
organized public market for the Company's common stock. Upon
termination of the registration of the common stock, the
reduction in public information concerning the Company and the
termination of the Company's status as a reporting company will
likely adversely affect the liquidity of the common stock. Upon
the termination of the common stock's registration under the
Exchange Act, the Company will no longer be subject to certain
provisions of the Exchange Act, including the requirement to file
periodic reports with the SEC or provide annual reports to
shareholders. Consequently, unaffiliated shareholders who retain
an equity interest in the Company will not receive the same
information regarding the Company's operations and financial
status that is currently available to them through SEC filings.
After deregistration, an unaffiliated shareholder may request the
Company for access to information that is reasonably related to
such person's interest in the Company as a shareholder. Under
Texas law, a shareholder holding shares of the Company's common
stock for at least six months immediately preceding a demand or a
shareholder holding at least 5% of all outstanding shares has the
right for a proper purpose to examine and extract information
from the Company's relevant books and records of account, minutes
and share transfer records. The Board has not yet determined
what information regarding the Company's operations it will
continue to provide to the shareholders retaining an equity
interest in the Company.
Fairness of the Odd-Lot Purchase Offer
The Board believes that the Odd-Lot Purchase Offer is fair
and in the best interests of the Company and its shareholders,
including the Company's unaffiliated shareholders.
To determine the best interests of the Company and its
shareholders, the Board considered a number of factors arguing in
favor of or against the Odd-Lot Purchase Offer. On the positive
side, the Board and members of management reviewed and discussed:
- the Company's potential cost savings resulting from the
termination of the registration of the Company's common stock;
- the anticipated effect of such savings on the Company's
total expenses and future prospects; and
- the elimination of the substantial amount of time and effort
currently expended by management in complying with the
requirements of being a public company.
The Board also considered the following negative effects of
termination of common stock registration:
- the inability of the Company to access the public capital
markets;
- the reduced ability of the Company to use its shares to
effect acquisitions;
- the likely adverse effect on the market for the common stock
and the shareholders' ability to buy and sell shares; and
- the reduced access of unaffiliated shareholders to Company
information that is now available through SEC filings.
Taking all of these factors into consideration, the Board
determined that the advantages of terminating registration of the
common stock outweighed the potential detriments of
deregistration. In particular, the Board concluded that because
the Company has no present intention or, in the Board's judgment,
any current or foreseeable ability to raise capital through sales
of securities in a public offering or to acquire other business
entities using its publicly traded stock as consideration, the
estimated annual savings of approximately $500,000 would
significantly benefit the Company. The Board also considered the
reduction in the liquidity of the common stock and the
shareholders' ability to buy and sell shares, but concluded that
the favorable effect of the anticipated cost savings on the
Company's financial performance and future prospects exceeded any
detriment arising from the loss of liquidity.
The Board considered alternatives to the Odd-Lot Purchase
Offer, such as a series of negotiated purchases with individual
shareholders and a reverse stock split, but determined that the
Odd-Lot Purchase Offer was the most expeditious and economical
way of changing the Company's status from that of a public
company to a private company.
Fairness of the Offer Price
The Board made its initial determination of the purchase
price to be offered to certain of its shareholders at a meeting
of the Board held on September 11, 2003, where the Board approved
a plan to reduce the number of Company shareholders of record
below 300 through a series of negotiated purchases with
individual shareholders. Members of management of the Company
prepared a report (the "Management Report") analyzing the
significant factors, in management's view, affecting the value of
the common stock of the Company. The Board was also provided all
requested financial information about the Company. After a
determination was made that applicable tender offer rules would
make the negotiated purchase plan difficult to implement in a
manner that would likely enable the Company to reduce its
shareholders of record to less than 300, the Board approved the
Odd-Lot Purchase Offer at its meeting held on November 12, 2003.
At such meeting, the Board also confirmed $.90 as the purchase
price in the Odd-Lot Purchase Offer.
In determining the purchase price, the Board considered the
following methods of valuation: market prices, net book value,
estimated sale value, discounted cash flows, and liquidation
value.
Market Prices. At its September meeting, the Board looked
at the average closing price for the twelve-month period ended
August 31, 2003, both weighted for trading volume and unweighted.
The average closing price for such period was $0.83 and the
average weighted closing price was also $0.83. At the November
meetings the Board considered recent trading prices of the common
stock, which was in the $0.60 per share range. The closing price
on December 31, 2003, was $.45.
Net Book Value. At its September meeting, the Board
considered the Company's net book value per common share of $0.96
as of June 30, 2003. Because of year-to-date performance and the
seasonality of the Company's business, the Board anticipated that
the net book value per common share would decrease substantially
in the fourth quarter. Net book value per common share is the
shareholders' equity of the Company in excess of its redeemable
preferred stock divided by the number of shares outstanding
determined in accordance with United States generally accepted
accounting principles ("GAAP"). Net book value may not
necessarily be indicative of the fair value of the Company
because GAAP book values do not necessarily reflect the fair
market value of the Company's assets.
Other Valuation Methods Considered. At its September
meeting the Board also considered the relevance of other
valuation methods, such as: (i) discounted estimated future cash
flows, (ii) value of the Company if sold to an unaffiliated third
party, and (iii) liquidation value.
The Company's EBITDA was $264,000 in fiscal 2002 and the
Company had negative EBITDA of ($1,412,000) in fiscal year 2001.
At its September meeting the Board noted that the Company
anticipated negative cash flows from operating activities and
negative EBITDA for fiscal year 2003. Accordingly, the Board
believed that trying to estimate future cash flows for purposes
of valuing the Company would be speculative. "EBITDA" means the
sum of the Company's net income plus its expenses for interest,
taxes, depreciation and amortization.
Similarly, because of the Company's negative or low EBITDA
in recent years and anticipated negative EBITDA and negative
operating cash flows in 2003, at its September meeting the Board
concluded that the Company could not likely be sold to an
unaffiliated third party for an amount approaching the Company's
June 30, 2003 net book value. The Board also considered the
likely improvement to the Company's cash flows and EBITDA in the
event of the successful completion of the Odd-Lot Purchase Offer,
and concluded that the Company could still not likely be sold for
an amount approaching the Company's June 30, 2003 net book value.
Management confirmed to the Board that during the last 4 years it
had not been contacted by any persons interested in acquiring the
Company through a purchase or business combination transaction
and that it was not aware of any likely suitors.
At the September meeting the Board also considered the
liquidation value of the Company's assets. Although very
difficult to quantify, based on discussions with management the
Board determined that, in a liquidation, it was unlikely that the
Company would realize gains from sales of appreciated assets,
such as the Company's real estate, in excess of the substantial
losses it would likely realize on the sale of its inventory, much
of it perishable. Accordingly, the Board concluded that
liquidation value would likely not approach the Company's June
30, 2003 net book value.
The Board did not assign specific weight to any particular
valuation method in the determination of the purchase price for
the purposes of the Odd-Lot Purchase Offer, instead considering
all the foregoing information and giving it such weight as it
deemed relevant. As a result, the Board concluded at its
September meeting that $0.90 per share was a fair purchase price
to all unaffiliated shareholders selling in connection with the
Odd-Lot Purchase Offer, and the Board remains of that view.
In addition, the Board determined that the purchase price
pursuant to the Odd-Lot Purchase Offer was fair to all
shareholders of the Company, including those shareholders who do
not sell pursuant to the Odd-Lot Purchase Offer. At an estimated
cost of $75,000, including expenses, the elimination upon
deregistration of the substantial costs associated with
compliance with the filing and reporting requirements imposed on
public companies would more than offset the costs of the Odd-Lot
Purchase Offer. Therefore, even though not all shareholders will
participate in the Odd-Lot Purchase Offer, the successful
completion of the Odd-Lot Purchase Offer and the resulting
benefits to the Company are in the best interests of the Company
and fair to all of its shareholders.
Approval of the Odd-Lot Purchase Offer
The Board has unanimously approved the Odd-Lot Purchase
Offer. The Board, including all the directors who are not
employees of the Company, determined that it was not in the best
interests of the Company or its shareholders, including the
Company's unaffiliated shareholders, to retain an independent
financial advisor, third-party advisor or unaffiliated
representative to act solely on behalf of unaffiliated
shareholders to negotiate the terms of the Odd-Lot Purchase Offer
or to prepare a report or opinion as to the procedural and/or
substantive fairness of the proposed Odd-Lot Purchase Offer. The
Board determined that the expense of retaining such
representation would outweigh the benefits to the Company and its
shareholders.
In considering whether an independent financial advisor,
third-party advisor or unaffiliated representative was necessary
in order to make this transaction procedurally fair to the
Company's shareholders, including its unaffiliated shareholders,
the Board evaluated whether the interests of the unaffiliated
shareholders would be adequately represented and whether the
proposed purchase price could be fairly determined by the Board.
The Board determined that there was sufficient representation in
the decision-making at the Board level to protect the interests
of unaffiliated shareholders. The Board is comprised of seven
members, three of whom are not employees of the Company or an
affiliate of the Company. All members of the Board hold in
excess of 100 shares of the Company's common stock and will not
be eligible to participate in the Odd-Lot Purchase Offer. The
successful completion of the Odd-Lot Purchase Offer will have no
material effect on the Board members' interest in the Company
since it would reduce net book value per common share by about
$0.01 per share, and would increase their respective percentage
ownership of the Company by approximately 0.05%. The Board also
noted the effect that the costs of being a public company is
having on the Company's financial situation is adversely
affecting all of its shareholders, whether or not affiliated with
the Company. In addition, the Board found that no independent
committee of the Board was necessary to review the fairness of
the Odd-Lot Purchase Offer, noting that each Board member could
adequately convey his opinions and concerns to the entire Board
without the need for the establishment of such a committee.
The Board has determined it is unnecessary to require a
majority vote of the unaffiliated shareholders to approve the Odd-
Lot Purchase Offer. Unaffiliated shareholders holding fewer than
100 shares will have an opportunity to determine whether or not
they want to remain a shareholder or participate in the Odd-Lot
Purchase Offer with the Company following the announcement of the
proposed plan. Unaffiliated shareholders holding 100 or more
shares of the Company's common stock will have an opportunity to
sell their shares on the public market prior to the completion of
the proposed Odd-Lot Purchase Offer and the resulting suspension
of trading and deregistration, although that opportunity will be
somewhat limited by the thin trading market for the Company's
common stock. No executive officer or director intends to try to
sell his shares in advance of the Company terminating the common
stock's Exchange Act registration. The Board considered the
consequences to unaffiliated shareholders who will remain
shareholders of the Company following the successful completion
of the Odd-Lot Purchase Offer and the resulting deregistration.
The Board determined that the lack of a public market for the
shares will be offset by the cost savings that will result from
terminating the common stock's Exchange Act registration. The
past performance of the Company's common stock is poor, the
shares trade infrequently and with minimal volume, and therefore
there is currently a thin trading market. In addition, the
successful completion of the proposed Odd-Lot Purchase Offer will
not materially change the rights, preferences or limitations of
the unaffiliated shareholders who retain an equity interest in
the Company, reducing net book value per common share by about
$0.01 and increasing their percentage ownership in the Company by
about 0.05%.
Those unaffiliated shareholders who retain an equity
interest in the Company following the successful completion of
the Odd-Lot Purchase Offer will indirectly bear the cost of the
proposed plan. However, the Board believes that the proposed
plan is efficient and economical and that, if successful, the
cost of the Odd-Lot Purchase Offer will be offset by the
anticipated savings of being a private company without the duty
to comply with the periodic reporting requirements of the
Exchange Act. In addition, the Company will save a substantial
amount of time and funds by eliminating the administrative
burdens of complying with such requirements.
Recommendation of the Board
After consideration of all of the facts, the Board has
unanimously determined that the proposed Odd-Lot Purchase Offer,
taken as a whole, is substantively and procedurally fair to, and
in the best interests of the Company and its shareholders,
including the Company's unaffiliated shareholders. The Board
recommends that unaffiliated shareholders holding of record fewer
than 100 shares of the Company's common stock accept the
Company's offer and sell their shares to the Company because
doing so will facilitate the successful completion of the Odd-Lot
Purchase Offer.
THE COMPANY
Calloway's Nursery, Inc. (the "Company") operates retail
garden centers in the four largest metropolitan areas in Texas:
Dallas, Fort Worth, Houston and San Antonio, reaching a combined
population of 11.4 million. The address of its principal
executive offices is 4200 Airport Freeway, Suite 200, Fort Worth,
Texas 76117-6200. The telephone number of its principal executive
offices is (817) 222-1122. The total number of shares of the
Company's common stock, $0.01 par value, outstanding on December
31, 2003 was 6,961,890.
The Company's management team consists of professionals that
have worked together for most of the time that the Company has
been in operation. Several members of the management team have
been actively involved in the retail garden industry or green
industry throughout their professional career. The goal of the
management team is to continuously improve the Company's products
and services.
Founded in 1986, the Company's first four retail stores
opened in Dallas in 1987. Since that time, the Company has grown
to 26 retail stores: 16 Calloway's Nursery retail stores in the
Dallas and Fort Worth markets ("Dallas and Fort Worth Markets"),
7 Calloway's Nursery retail stores in the San Antonio market
("San Antonio Market") and 3 Cornelius Nurseries retail stores in
the Houston market ("Houston Market").
Locations are selected on the basis of demographic data,
traffic patterns and shopping habits. All 26 retail stores are
Company-operated. The Company focuses on quality and breadth of
selection in bedding plants and nursery stock, complemented by
other related garden products such as soil amendments and
fertilizers. Apart from Christmas, approximately two-thirds of
its retail sales are derived from living plants. The remaining
one-third is made up of products that primarily relate to their
care and nurturing.
All retail stores sell Christmas merchandise. The Houston
Market stores have developed a stronger and more financially
beneficial focus on Christmas than have the Dallas, Fort Worth
and San Antonio market stores.
Texas is the third largest retail market in the United
States for "green industry" sales, which includes (i) wholesale
grower sales, (ii) landscape-related sales, (iii) home center and
mass merchandiser retail sales and (iv) retail garden center
sales (which includes the Company's retail stores).
According to the Office of the Comptroller of Public
Accounts, Texas green industry sales increased from approximately
$6.3 billion in 1997 to approximately $8.0 billion in 2001.
However, retail garden center sales have declined each year from
1997 - 2001, from approximately $1.8 billion in 1997 to
approximately $1.5 billion in 2001. The most rapid growth for
green industry sales over that period has been in home center and
mass merchandiser retail sales.
The Company has retail stores in the four largest markets in
Texas: the Dallas, Fort Worth, Houston and San Antonio Markets.
Together, these four markets account for approximately 38% of
Texas' retail garden center sales.
During the last five years, the Company has not been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or been a party to a civil proceeding of
a judicial or administrative body of competent jurisdiction that
resulted in a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or
state securities laws, or a finding of any violation of any such
law.
MARKET FOR THE COMMON STOCK
The Company's common stock has been traded on NASDAQ under
the symbol CLWY since June 26, 1991. Through March 20, 2002 the
common stock traded on the NASDAQ National Market. Since March
21, 2002 the common stock has traded on the NASDAQ SmallCap
Market.
The following table sets forth the high, low and closing
price information for each quarter of the most recent five fiscal
years, as well as the current fiscal year:
High Low Close
Fiscal Year 1999
First Quarter $1.375 $1.000 $1.125
Second Quarter 1.500 1.125 1.313
Third Quarter 2.000 1.250 1.375
Fourth Quarter 1.563 1.125 1.125
Fiscal Year 2000
First Quarter 1.438 .938 1.188
Second Quarter 1.500 .969 1.375
Third Quarter 1.500 .813 1.188
Fourth Quarter 1.750 1.125 1.375
Fiscal Year 2001
First Quarter 1.750 1.063 1.250
Second Quarter 1.625 1.141 1.188
Third Quarter 1.600 1.000 1.300
Fourth Quarter 1.390 .850 .940
Fiscal Year 2002
First Quarter 1.210 .680 .950
Second Quarter 1.300 .800 1.130
Third Quarter 1.280 1.000 1.050
Fourth Quarter 1.140 .700 .890
Fiscal Year 2003
First Quarter 1.000 .620 .880
Second Quarter .950 .710 .800
Third Quarter .880 .620 .800
Fourth Quarter .940 .500 .600
Fiscal Year 2004
First Quarter $.680 $.330 $.450
The closing price of the common stock on December 31, 2003
as reported by NASDAQ was $.45. As of December 31, 2003 there
were 294 shareholders of record.
The Company has never paid cash dividends on its common
stock. The Company's loan agreement prohibits payment of cash
dividends on its common stock. The Company intends to retain
earnings for further development of the business and, therefore,
does not intend to pay cash dividends on its common stock in the
foreseeable future. The Company has not purchased any shares of
its common stock during the past two years.
MANAGEMENT
Name Age Position
Stanley Block 63 Director
John T. Cosby 60 Vice President,
Secretary and
Director
Jim Estill 56 Chairman of the
Board,
President and
Chief
Executive
Officer
Daniel R. Feehan 52 Director
Timothy J. McKibben 54 Director
John S. Peters 51 Vice President
and Director
George L. Wechsler 87 Vice President
and Director
Daniel G. Reynolds 46 Vice President
and Chief
Financial
Officer
Marce E. Ward 36 Vice President
David S. Weger 52 Vice President
Board of Directors
Dr. Stanley Block, 63, a Chartered Financial Analyst, has
been a Professor of Finance at Texas Christian University,
located at 2900 Lubbock Street, Fort Worth, Texas 76109, since
1967. Texas Dr. Block is also an author, consultant and lecturer
in the area of finance. He has served as a member of the Board of
Directors of the Company since completion of its initial public
offering in June of 1991.
John T. Cosby, 60, is Vice President, Secretary and a
Director. Mr. Cosby, along with Jim Estill and John Peters, co-
founded the Company in 1986. He develops Calloway's Nursery
retail store locations, including site selection and development,
as well as conducting lease and acquisition negotiations. Prior
to 1986, Mr. Cosby worked at Sunbelt Nursery Group, serving as
Vice President -- Corporate Development and at Pier 1 Imports as
Real Estate Manager. Mr. Cosby received his BBA in Management
from Texas Wesleyan College in 1969 and his MBA in Management
from the University of Dallas in 1983. A Certified Mediator, Mr.
Cosby is Past Chairman of Optical Federal Credit Union, and Past
President of the Dispute Resolution Services
of Tarrant County.
Jim Estill, 56, is Chairman of the Board, President and
Chief Executive Officer. Along with John Cosby and John Peters,
Mr. Estill co-founded the Company in 1986. Prior to that, Mr.
Estill worked with Sunbelt Nursery Group, as President and Chief
Executive Officer. Mr. Estill received his BBA in Finance from
Texas Christian University in 1969, and his MBA from TCU in 1977.
Mr. Estill is a Texas Master Certified Nursery Professional
("TMCNP").
Daniel R. Feehan, 52, is president and chief executive
officer, and a member of the board of directors of Cash America
International, Inc., whose principal place of business is located
at 1600 West Seventh Street, Fort Worth, Texas 76102. He joined
Cash America in 1988 as chief financial officer and was named
president and chief operating officer in January 1990. In
February 2002 he was appointed chief executive officer. He is
also a member of the board of directors of AZZ Incorporated and
RadioShack Corporation.
Timothy J. McKibben, 54, is chairman of the board for Ancor
Holdings, Inc., an acquisitions and management company he co-
founded in 1994 that now manages ten companies in four diverse
industries. The principal place of business of Ancor Holdings,
Inc. is located at 201 Main Street, Fort Worth, Texas 76102. He
has more than 27 years experience in the medical supply industry.
He is also a member of the board of directors of Cash America
International, Inc.
John S. Peters, 51, is Vice President and Director of the
Company. Mr. Peters, along with Jim Estill and John Cosby, co-
founded the Company in 1986. He developed the original staff into
a team of industry professionals. He has primary responsibility
for distribution, human resources and administration. Prior to
1986, Mr. Peters worked with Sunbelt Nursery Group as Senior Vice
President of Operations, where he was responsible for operations
of all subsidiaries, including more than 100 stores in five
states, and two growing operations. Mr. Peters attended Texas
Christian University. A TMCNP, Mr. Peters is Past Chairman of the
TNLA, and currently serves on the TNLA Education and Research
Foundation.
George J. Wechsler, 87, is Vice President and a Director of
the Company. Mr. Wechsler joined the Company and was elected to
the Board of Directors in 2002. Prior to joining the Company Mr.
Wechsler was self-employed. He is a Past President of the TNLA,
and a past recipient of their "Outstanding Nurseryman Award".
Mr. Wechsler offices out of the Company's location at 1507 Ruiz
Street, San Antonio, Texas 78230.
Non-Director Executive Officers
Daniel G. Reynolds, 46, is Vice President, Chief Financial
Officer and Assistant Secretary. Mr. Reynolds joined the Company
in 1990, where he developed its financial, operating and
merchandising decision-support systems. His responsibilities
include financial and management reporting, treasury management,
credit facilities, corporate and shareholder records, SEC and
stock market compliance, public, media and investor relations,
risk management and budgeting. Mr. Reynolds also oversees design,
development, implementation and review of all transactional and
decision-support systems. Prior to 1990, Mr. Reynolds worked with
Atmos Energy Corporation as Financial Systems Manager and KPMG
LLP as Supervising Senior Accountant. Mr. Reynolds received his
BBA in Accounting from the University of Texas at Arlington. A
Certified Public Accountant, Mr. Reynolds is Past President of
the Fort Worth Chapter of Financial Executives International.
Marce E. Ward, 36, is Vice President, Dallas and Fort Worth
Markets. Mr. Ward began with the Company in retail store
management in 1987. He has primary responsibility for the
sixteen retail stores serving the Dallas and Fort Worth Markets.
Prior to being named Vice President, Mr. Ward served as General
Manager, Dallas and Fort Worth Markets since 2002, and
Merchandise Manager since 1995.
David S. Weger, 52, is Vice President, Merchandising. Mr.
Weger began with the Company in retail store management in 1987
with the opening of the first stores. He has responsibility for
the administration of planning, procurement and replenishment of
merchandise lines. Prior to 1987, Mr. Weger was Landscape
Designer with Odessa Nursery. He has also been Co-Owner of
Lessmon-Weger Garden Center in Colby, Kansas. Mr. Weger received
his BBA in Political Science and Education from Fort Hays State
University. A TMCNP, Mr. Weger is a Director of the TNLA, Past
President of TNLA, Region 5, and Past Chairman of the TNLA
Education Committee.
To the knowledge of Calloway's, during the last five years,
none of the foregoing directors or executive officers has been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or has been a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction that resulted in a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject
to, federal or state securities laws, or a finding of any
violation of any such law. All of the foregoing directors and
executive officers are citizens of the United States.
Security Ownership of Management
The following table sets forth certain information as to the
number of shares of Company common stock beneficially owned as of
December 31, 2003, by (i) each executive officer, (ii) each
director, and (iii) all of the executive officers and directors
of the Company as a group.
Except as otherwise indicated, each of the persons named
below has sole voting and investment power with respect to the
shares of Common Stock beneficially owned by that person.
Percent
of
Name of Beneficial Owner Number of Shares Shares
Outstanding
Dr. Stanley Block (1) 105,891 1.5%
John T. Cosby (2) 574,399 8.0%
James C. Estill (3) 1,307,735 17.8%
Daniel R. Feehan (4) 104,997 1.5%
Timothy J. McKibben (5) 154,311 2.2%
John S. Peters (6) 251,996 3.5%
Daniel G. Reynolds (7) 162,591 2.3%
Marce E. Ward (8) 59,468 0.8%
George J. Wechsler 6,325 0.1%
David S. Weger (9) 224,460 3.2%
All Directors and Executive
Officers as a group (10 persons) 2,952,173 36.4%
(1) Includes 1,500 shares that could be acquired through options
granted under the 1995 Stock Option Plan for Independent
Directors which are exercisable at $1.00 per share, 16,000
shares that could be acquired through options granted on an
individual grant basis in fiscal 1997 which are exercisable at
$1.125 per share, 32,000 shares that could be acquired through
options granted on an individual grant basis in fiscal 1999 which
are exercisable at $1.156 per share, and 44,000 shares that could
be acquired through options granted on an individual grant basis
in fiscal 2001 which are exercisable at $1.438 per share.
(2) Includes 120,000 shares that could be acquired through
options granted under the 1991 Stock Option Plan which are
exercisable at $1.00 per share, and 105,000 shares that could be
acquired through options granted under the 1997 Stock Option Plan
which are exercisable at $1.09 per share.
(3) Includes 260,000 shares that could be acquired through
options granted under the 1991 Stock Option Plan which are
exercisable at $1.00 per share, and 130,000 shares that could be
acquired through options granted under the 1997 Stock Option Plan
which are exercisable at $1.09 per share.
(4) Includes 3,000 shares that could be acquired through options
granted under the 1995 Stock Option Plan for Independent
Directors which are exercisable at $1.438 per share, and 36,000
shares that could be acquired through options granted on an
individual grant basis in fiscal 2002 which are exercisable at
$1.438 per share.
(5) Includes 3,000 shares that could be acquired through options
granted under the 1995 Stock Option Plan for Independent
Directors which are exercisable at $1.438 per share, and 36,000
shares that could be acquired through options granted on an
individual grant basis in fiscal 2002 which are exercisable at
$1.438 per share.
(6) Includes 45,000 shares that could be acquired through
options granted under the 1991 Stock Option Plan which are
exercisable at $1.00 per share, 25,000 shares that could be
acquired through options granted under the 1996 Stock Option Plan
which are exercisable at $1.125 per share, and 70,000 shares that
could be acquired through options granted under the 1998 Stock
Option Plan which are exercisable at $1.09 per share.
(7) Includes 24,000 shares that could be acquired through
options granted under the 1991 Stock Option Plan which are
exercisable at $1.00 per share, 10,000 shares that were granted
under the 1991 Stock Option Plan which are exercisable at $.94
per share, 16,000 shares that could be acquired through options
granted under the 1996 Stock Option Plan which are exercisable at
$1.125 per share, and 50,000 shares that could be acquired
through options granted under the 1999 Stock Option Plan which
are exercisable at $1.09 per share.
(8) Includes 6,000 shares that could be acquired through options
granted under the 1991 Stock Option Plan which are exercisable at
$1.00 per share, 8,000 shares that could be acquired through
options granted under the 1996 Stock Option Plan which are
exercisable at $1.125 per share, and 26,000 shares that could be
acquired through options granted under the 1999 Stock Option Plan
which are exercisable at $1.09 per share.
(9) Includes 25,000 shares that could be acquired through
options granted under the 1991 Stock Option Plan which are
exercisable at $1.00 per share, 10,000 shares that could be
acquired through options granted under the 1991 Stock Option Plan
which are exercisable at $.940 per share, 15,000 shares that
could be acquired through options granted under the 1996 Stock
Option Plan which are exercisable at $1.125 per share, and 50,000
shares that could be acquired through options granted under the
1999 Stock Option Plan which are exercisable at $1.09 per share.
Certain Transactions with Management
Employment Contracts. The Company's employment agreements
with Messrs. Estill, Cosby and Peters extend through July 2,
2006. Mr. Estill's agreement provides (i) for a minimum annual
base salary of $225,000, (ii) that the Company will continue to
maintain life insurance for Mr. Estill in the amount of
$1,500,000, the beneficiary of which may be designated by Mr.
Estill, (iii) that the Company will purchase disability insurance
for Mr. Estill sufficient to provide three years' compensation
should he become disabled and (iv) that, if Mr. Estill's
employment is terminated for any reason other than just cause or
is constructively terminated, Mr. Estill (a) will be entitled to
receive, within 15 days after such termination, a cash payment in
an amount equal to three times the sum of (X) Mr. Estill's then
current annual base salary and (Y) the amount of the bonus, if
any, earned by Mr. Estill in respect of the previous fiscal year
and (b) will be entitled to participate in all benefit programs
of the Company for a period of one year following such
termination. The Company will be deemed to have terminated the
agreement without "just cause" unless such termination resulted
from (i) Mr. Estill's willful and intentional failure to
substantially perform his duties, (ii) the commission by Mr.
Estill of an illegal act in connection with his employment or
(iii) the death or disability of Mr. Estill. Mr. Estill's
employment will be deemed to have been "constructively
terminated" (i) if his responsibilities or authority have been
significantly reduced, (ii) if Mr. Estill is required to relocate
outside of the Dallas-Fort Worth area or his salary is reduced in
violation of his employment agreement or (iii) if a change in
control of the Company occurs, as defined in the employment
agreement.
Mr. Cosby's employment agreement is identical to Mr.
Estill's except that Mr. Cosby is Vice President--Corporate
Development and his minimum annual base salary is $175,000.
Mr. Peters' employment agreement is also identical to Mr.
Estill's except that Mr. Peters is Vice President of the Company,
his minimum annual base salary is $175,000 and his life insurance
is in the amount of $500,000.
Affiliate Leases. In fiscal 2002 the Company entered the
San Antonio market by leasing seven retail store locations. Three
of those leases were entered into with Mr. George J. Wechsler
(the "Affiliate Leases"), who was elected to the Company's Board
of Directors and was named a Vice President of the Company at the
time of the transaction. The Affiliate Leases have three year
terms. Rental expense under the Affiliate Leases was $107,000 for
the nine-month period ended June 30, 2003 and $36,000 for the
three-month period ended June 30, 2003. No rental expense under
the Affiliate Leases was incurred for the nine-month or three-
month periods ended June 30, 2002.
SUMMARY FINANCIAL INFORMATION (UNAUDITED)
Fiscal Year Ended
September 30,
2003 2002 2001
(in thousands, except per share
amounts)
Balance Sheet Information:
Current assets $6,974 $10,373 $11,066
Noncurrent assets 11,023 13,752 16,195
Current liabilities 8,710 5,756 7,615
Noncurrent liabilities 7,336 9,051 9,575
Redeemable preferred stock -- 2,538 2,180
Book value per share $0.28 $1.04 $1.26
Income Statement Information:
Net sales $47,346 $43,251 $43,385
Gross profit 21,985 20,333 21,099
Income (loss) from continuing
Operations (3,481) 161 1,393
Net loss (4,841) (1,031) (2,136)
Income (loss) per common share from continuing operations:
Basic ($.57) $(0.03) $0.18
Diluted ($.57) $(0.03) $0.17
Net loss per common share:
Basic ($.77) ($0.22) ($0.58)
Diluted ($.77) ($0.22) ($0.56)
Ratio of earnings to fixed charges
(1.17) 1.49 2.88
WHERE YOU CAN FIND MORE INFORMATION
The Company files reports, proxy statements and other
information with the SEC under the Securities Exchange Act of
1934. You may read and copy this information at the following
locations of the SEC:
Public Reference Room
Room 1024
450 Fifth Street, N.W.
Washington, D.C. 20549
New York Regional Office
Suite 100
7 World Trade Center
New York, NY 10048
Chicago Regional Office
Citicorp Center
Suite 1400
500 West Madison Street
Chicago, IL 60661-2511
You may also obtain copies of this information by mail from
the public reference section of the SEC, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at prescribed rates. Please
call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. The SEC also maintains an Internet World
Wide Web site that contains reports, proxy statements and other
information about issuers, including the Company, who file
electronically with the SEC. The address of that site is
http://www.sec.gov.
The Company is incorporating by reference in this Disclosure
Statement some information it files with the SEC, which means
that the Company is disclosing important information to you by
referring you to those documents. Specifically, the Company
incorporates by reference its historical financial statements
from its Annual Report on Form 10-K for the fiscal year ended
September 30, 2003.
Upon request to the Company's offices at 4200 Airport
Freeway, Suite 200, Fort Worth, Texas 76117-6200, (817) 222-1122,
the Company will provide to any shareholder of the Company,
without charge, a copy of any and all documents filed with the
SEC incorporated by reference herein that are not included with
this Disclosure Statement.