==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
SCHEDULE TO
(Rule 14D-100)
Tender Offer Statement under Section 14(d)(1) or 13(e)(1)
Of the Securities Exchange Act of 1934
(Amendment No. 4)
---------------
GAYLORD CONTAINER CORPORATION
(Name of Subject Company (Issuer))
TEMPLE-INLAND ACQUISITION CORPORATION
an indirect, wholly-owned subsidiary of
TEMPLE-INLAND INC.
(Names of Filing Persons (Offerors))
Class A Common Stock, par value $.0001 per share
(Including the Associated Rights to Purchase Preferred Stock)
(Title of Class of Securities)
368145108
(CUSIP Number of Class of Securities)
M. Richard Warner, Esq.
Temple-Inland Inc.
303 South Temple Drive
Diboll, TX 75941
(936) 829-5511
(Name, Address and Telephone Number of Person Authorized
To Receive Notices and Communications on Behalf of the Filing Persons)
Copy to:
Stephen W. Hamilton, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
(202) 371-7000
? Check the box if the filing relates solely to preliminary
communications made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to which the
statement relates:
[x] third-party tender offer subject to Rule 14d-1.
[ ] issuer tender offer subject to Rule 13e-4.
[ ] going-private transaction subject to Rule 13e-3.
[ ] amendment to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment reporting the
results of the tender offer: ?
=============================================================================
This Amendment No. 4 (this "Amendment") amends and supplements the
Tender Offer Statement on Schedule TO filed with the Securities and Exchange
Commission on September 28, 2001 (as amended, the "Schedule TO") by
Temple-Inland Acquisition Corporation, a Delaware corporation (the
"Purchaser"), and Temple-Inland Inc. a Delaware corporation (the "Parent"),
relating to the offer to purchase all outstanding shares of Class A Common
Stock, par value $.0001 per share (the "Common Stock"), of Gaylord Container
Corporation, a Delaware corporation (the "Company"), including the associated
rights to purchase preferred stock issued pursuant to the Rights Agreement (as
defined in the Offer to Purchase) (the "Rights" and, together with the Common
Stock, the "Shares"), at a price of $1.80 per Share, net to the seller in
cash, without interest, upon the terms and subject to the conditions set forth
in the Offer to Purchase, dated September 28, 2001 (the "Offer to Purchase"),
and in the related Letter of Transmittal (which, together with the Offer to
Purchase, as either may be amended or supplemented from time to time,
collectively constitute the "Offer"), copies of which are attached to and
filed with the Schedule TO as Exhibits (a)(1) and (a)(2), respectively. The
Offer is made pursuant to an Agreement and Plan of Merger, dated as of
September 27, 2001 (the "Merger Agreement"), among the Parent, the Purchaser
and the Company, which contemplates the merger (the "Merger") of the Purchaser
with and into the Company. Any capitalized term used and not otherwise defined
herein shall have the meaning ascribed to such term in the Offer to Purchase.
ITEM 11. ADDITIONAL INFORMATION.
Item 11 of the Schedule TO is hereby amended and supplemented by
adding the following thereto:
On October 10, 2001, Absolute Recovery Hedge Fund, L.P. and Absolute
Recovery Hedge Fund, Ltd. filed an amended complaint in their lawsuit
initiated on October 1, 2001 (the "Amended Complaint") against Parent,
Purchaser, the Company and State Street Bank and Trust Company and Fleet
National Bank. The Amended Complaint, among other changes and additions, adds
allegations that the Notes Tender Offers are coercive, inadequately disclosed
and violate Section 14(e) of the Securities Exchange Act of 1934 and Rule
14e-3 promulgated thereunder.
Parent, Purchaser and the Company believe that the lawsuit and the
Amended Complaint is without merit and intend to defend against the lawsuit
vigorously.
The above description of the Amended Complaint is qualified in its
entirety by the text of the Amended Complaint, a copy of which is attached
hereto as Exhibit (a)(11) and incorporated herein by reference.
ITEM 12. EXHIBITS.
Item 12 of the Schedule TO is hereby amended and supplemented to add
the following exhibit:
(a)(11) Amended Class Action Complaint filed by Absolute Recovery
Hedge Fund, L.P. and Absolute Recovery Hedge Fund, Ltd. in the United States
District Court for the Southern District of New York, on October 10, 2001.
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
TEMPLE-INLAND INC.
By: /s/ M. Richard Warner
-------------------------------
Name: M. Richard Warner
Title: Vice President and Chief
Administrative Officer
TEMPLE-INLAND ACQUISITION CORPORATION
By: /s/ M. Richard Warner
-------------------------------
Name: M. Richard Warner
Title: Vice President and Chief
Administrative Officer
Date: October 12, 2001
EXHIBIT INDEX
Exhibit Description
(a)(11) Amended Class Action Complaint filed by Absolute Recovery
Hedge Fund, L.P. and Absolute Recovery Hedge Fund, Ltd. in
the United States District Court for the Southern District
of New York, on October 10, 2001.
EXHIBIT (a)(11)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
_______________________________________________________x
:
ABSOLUTE RECOVERY HEDGE FUND, L.P., : 01-CV-8811 (LAK)
ABSOLUTE RECOVERY HEDGE FUND, LTD., :
on behalf of themselves and all others similarly :
situated, :
:
Plaintiffs, :
:
v. :
:
GAYLORD CONTAINER CORP., :
TEMPLE-INLAND ACQUISITION :
CORP., TEMPLE-INLAND INC., :
STATE STREET BANK AND TRUST COMPANY : JURY TRIAL DEMANDED
and FLEET NATIONAL BANK, :
:
Defendants. :
_______________________________________________________x
AMENDED CLASS ACTION COMPLAINT
Plaintiffs, by their attorneys, allege upon information and belief,
except for those allegations which pertain to themselves, which allegations
are based upon personal knowledge as follows: 1. Plaintiffs bring this action
on their own behalf and as a noteholders' class action on behalf of all
holders (the "noteholders") of the following publicly traded notes issued by
Gaylord Container Corporation: 9-3/4% Senior Notes Due 2007 ("9-3/4% Notes");
and 9-3/8% Senior Notes Due 2007 ("9-3/8% Notes") (collectively, the "Notes").
Plaintiffs allege breaches of the terms of the relevant indentures (the
"Indentures"), breaches of fiduciary duties and disclosure violations under
applicable federal securities laws, state law and common law.
JURISDICTION AND VENUE
2. This action is brought pursuant to: The Trust Indenture Act of
1939, 15 U.S.C.ss.77aaa, et seq.; principles of state and common law; the
Declaratory Judgments Act, 28 U.S.C.ss.2201; and Section 14(e) of the
Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C.ss.78n(e)] and
Rule 14e-3(a) promulgated thereunder by the SEC [17 C.F.R.ss.240-143.3(a)].
3. The Court has jurisdiction of the subject matter of this action
pursuant to 28 U.S.C. ss.ss. 1331, 1337 and 1367(a) and Section 27 of the
Exchange Act. The acts and transactions alleged herein arise in connection
with interstate commerce and involve use of the mails and other
instrumentalities of interstate commerce.
4. Venue is proper in this District pursuant to 28 U.S.C. ss. 1391
(b)-(c) and Section 27 of the Exchange Act.
5. In connection with the acts alleged in this complaint, defendants,
directly or indirectly, used the means and instrumentalities of interstate
commerce, including, but not limited to, the mails, interstate telephone
communications and the facilities of the national securities markets. THE
PARTIES
6. (a) Plaintiff Absolute Recovery Hedge Fund, L.P., a Delaware
limited partnership, is the holder of $235,000 in principal amount of 9-3/4%
Notes.
(b) Plaintiff Absolute Recovery Hedge Fund, Ltd., a Bermuda
corporation, is the holder of $265,000 in principal amount of 9-3/4% Notes.
7. Defendant Gaylord Container Corporation ("Gaylord" or the
"Company") is a Delaware corporation, whose headquarters are located at 500
Lake Cook Road, Suite 400, Deerfield, Illinois 60015. Gaylord is a
manufacturer of paper and paper packaging products.
8. (a) Defendant Temple-Inland Acquisition Corporation
("Acquisition") or the "Purchaser") is a Delaware corporation and an indirect
wholly-owned subsidiary, of defendant Temple-Inland Inc. ("Parent") (Parent
and Acquisition are collectively referred to herein as "Temple-Inland").
Temple-Inland Inc. is a manufacturer of corrugated packaging and building
products, whose principal executive offices are located at 1300 MoPac
Expressway South, Austin, Texas 78746.
(b) Defendant Inland Container Corp. I is a wholly-owned subsidiary
of Temple-Inland which was organized to facilitate Temple-Inland's tender
offer for the Notes.
9. Defendant State Street Bank and Trust Company ("State Street") is
a Massachusetts Chartered Trust Company, whose principal executive offices are
located at 225 Asylum Street, 23rd Floor, Hartford, Connecticut, 16103. State
Street is the Trustee for the 9-3/8% Notes.
10. Defendant Fleet National Bank ("Fleet") is a National Banking
Association, whose principal executive offices are located at 777 Main Street,
Hartford, Connecticut 06115. Fleet is the Trustee for the 9-3/4% Notes. State
Street and Fleet are sometimes collectively referred to herein as the
"Trustees."
CLASS ACTION ALLEGATIONS
11. Plaintiffs bring this action on their own behalf and as a class
action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf
of all holders of the Notes (collectively, the "Noteholders") (except
defendants and any person, firm trust, corporation, or other entity related to
or affiliated with any defendant) and their transferees and successors in
interest. Plaintiffs do not proceed on a class basis with respect to the
Fourth Claim for relief.
12. This action is properly maintainable as a class action for the
following reasons: (a) The Class is so numerous that joinder of all members is
impracticable. There are $425 million in face amounts of the Notes outstanding
and in public hands. The Notes are actively and publicly traded. It is
estimated that there are hundreds, if not thousands, of members of the Class.
(b) There are questions of law and fact that are common to the Class
and that predominate over questions affecting any individual class member.
13. Plaintiffs are committed to prosecuting this action and have
retained competent counsel experienced in litigation of this nature.
Plaintiffs, holders of a class of Senior Notes, are similarly situated with
all other class members. Their claims are typical of the claims of the other
members of the Class and plaintiffs have the same interests in this case as
the other members of the Class. Plaintiffs are adequate representatives of the
Class and will fairly and adequately protect the interests of the Class.
Plaintiffs anticipate that there will be no difficulty in the management of
this litigation as a class action.
14. For the reasons stated herein, a class action is superior to
other available methods for the fair and efficient adjudication of this action
and the claims asserted herein. The likelihood that individual members of the
Class will prosecute separate individual actions is remote due to the burden
and expense of prosecuting litigation of this nature and magnitude. Absent a
class action, the class members will continue to suffer damage, and
defendants' violations of law will proceed without remedy. Defendants are
acting in a manner which affects all shareholders in the same or similar
fashion and would be subjected to potentially differing legal requirements or
standards of conduct if this litigation were not certified to proceed as a
class action on behalf of all Noteholders.
SUBSTANTIVE ALLEGATIONS
A. The Notes And Their Indentures
15. In fiscal 1998, the Company issued $200 million principal amount
of 9-3/8% Notes. In fiscal 1997, the Company issued $225 million of 9-3/4%
Notes. State Street and Fleet are identified as the Indenture Trustees for the
9-3/8% Notes and the 9-3/4% Notes, respectively and, in such capacity, owe
fiduciary duties to the holders of each of their series of Notes.
16. Section 4.15 of the Indenture governing the 9-3/8% Notes states,
in pertinent part, that: "(a) In the event of a Change of Control, each Holder
will have the right to require that the Company repurchase all or a portion of
such Holders' Notes pursuant to the offer described in paragraph (b) below
(the 'Change of Control Offer') at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase." Section 4.15(b) continues:"(b) Within 30 days following the
date upon which the Change of Control occurred (the 'Change of Control Date')
requiring the Company to make a Change of Control Offer pursuant to this
Section 4.15, the Company shall send . . . a notice to each Holder, with a
copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer." Section 4.15 thereafter further delineates procedures for a
Change of Control Offer, including specific responsibilities of the Trustee.
17. Section 1.01 of the Indenture governing the 9-3/8% Notes states
that: "'Change of Control' means if at any time any Person or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) acquires, in
one or more transactions (i) beneficial ownership (within the meaning of Rule
13(d)(3) under the Exchange Act) of 50% or more of the voting power
represented by all voting securities of the Company . . . . "
18. Section 5.01 of the Indenture governing the 9-3/8% Notes,
entitled "When Company May Merge, Etc.," states in pertinent part:
(a) The Company shall not, in a single transaction or through a
series of related transactions, consolidate with or merge with or
into . . . another Person . . . , unless:
(1) either the Company shall be the survivor of such merger or
consolidation or the surviving Person . . . shall expressly assume,
by an indenture supplemental hereto, executed and delivered to the
Trustee on or prior to the consummation of such transaction, in a
form satisfactory to the Trustee, all the obligations of the Company
under the Notes and this Indenture;
(2) . . .;
(3) . . . ; and
(4) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation,
merger, transfer or adoption and such supplemental indenture comply
with this Article Five, that the surviving Person (if other than the
Company) agrees to be bound hereby, and that all conditions precedent
herein provided relating to such transaction have been satisfied.
19. Moreover, pursuant to Section 4.12 of the Indenture governing the
9-3/4% Notes, Gaylord is prohibited from incurring or otherwise becoming
liable for other debt that is pari passu or senior in status. This clause
protects the senior notes against dilution subsequent to their issuance.
20. Sections 1.01, 4.12, 4.15 and 5.01 of the Indenture governing the
9-3/4% Notes contains substantially the same provisions regarding a Change of
Control Offer.
21. The Indentures and the Notes issued thereunder are expressly
governed by New York law (excluding its conflict of law principles).
B. The Transaction
22. On September 27, 2001, Temple-Inland and Gaylord announced the
signing of a definitive merger agreement (the "Merger Agreement") by which
Temple-Inland will acquire Gaylord. Pursuant to the terms of the agreement,
Temple-Inland would begin cross-conditional tender offers for all of Gaylord's
outstanding shares and outstanding 9 3/8% Notes, 9 3/4% Notes and 9 7/8%
Senior Subordinated Notes due 2008 (the "9 7/8% Senior Subordinated Notes").
Certain outstanding bank debt and other senior secured debt obligations of
Gaylord would be paid or otherwise satisfied. Assuming that all shares and all
notes are tendered, the total consideration for the transaction is
approximately $786 million, consisting of $1.80 per share, or approximately
$100 million, to purchase the outstanding shares of Gaylord, and approximately
$686 million to acquire all the notes and to satisfy the bank debt and other
senior secured debt obligations.
23. Then, on September 28, 2001, Temple-Inland, through its
wholly-owned subsidiary Inland Container Corporation I, commenced a tender
offer and consent solicitation for each series of notes. Specifically, the
tender offers are for: the purchase of 100% of the outstanding principal
amount of the 9-3/8% Notes at a price of $735 per $1000 principal amount; 100%
of the outstanding principal amount of the 9-3/4% Notes at a price of $735 per
$1000 principal amount; and 100% of the 9-7/8% Senior Subordinated Notes at a
price of $240 per $1000 principal amount.
24. At the same time, Temple-Inland has also commenced a tender offer
to purchase all of the outstanding shares of Gaylord at a price of $1.80 per
share in cash. Gaylord's Board of Directors has unanimously recommended that
its shareholders accept the offer and tender their shares. In that regard,
Gaylord's Board of Directors has received fairness opinions from Deutsche Bank
Alex. Brown Inc. and Rothschild Inc., its financial advisors, stating that the
consideration to be received by Gaylord's shareholders is fair from a
financial point of view to such shareholders. No such financial opinion has
been provided (or attempted) stating that the tender offer consideration is
fair to the holders of the notes (nor could it be).
25. In connection with the tender offers, the Change of Control
provisions, inter alia, in the Indentures are not being honored. Instead, a
"consent payment" of $20 per $1000 principal amount will be paid for each note
tendered prior to the consent payment deadline (which precedes by 14 days the
tender offers deadline) and will be in consideration for a tendering
noteholder's waiver of that person's rights under the respective Indentures
and Notes. The consent payment of $20 per $1000 principal amount was
arbitrarily selected and is grossly inadequate in relation to the rights being
surrendered.
26. If defendants succeed in securing the consent of a majority of
Gaylord's noteholders, they intend to amend and/or modify the following
Indenture provisions:
-- Section 4.03 -- Limitation on Restricted Payments
-- Section 4.04 -- Corporate Existence
-- Section 4.05 -- Payment of Taxes and Other Claims
-- Section 4.06 -- Maintenance of Properties and Insurance
-- Section 4.07 -- Compliance Certificate; Notice of Default
-- Section 4.09 -- SEC Reports
-- Section 4.10 -- Waiver of Stay; Extension or Usury Laws
-- Section 4.11 -- Limitation on Transactions With Affiliates
-- Section 4.12 -- Limitation on Incurrence of Additional
Indebtedness
-- Section 4.13 -- Limitation on Dividends and Other Payment
Restrictions
-- Section 4.14 -- Limitation on Liens
-- Section 4.15 -- Change of Control
-- Section 4.16 -- Limitation on Asset Sales
-- Section 4.17 -- Limitation on Incurrence of Subordinated
Debt
-- Section 4.18 -- Guarantees by Restricted Subsidiaries
-- Section 5.01 -- When Company May Merge, Etc.
-- Section 5.02 -- Successor Corporation Substituted
27. The Indenture amendments would also eliminate the following from
the definition of "Event of Default" in the Indentures:
-- Section 6.01 (2) -- Failure to comply with covenants
-- Section 6.01 (4) -- Cross-default
-- Section 6.01 (5) -- Judgment defaults
28. Finally, the Indenture amendments would eliminate the following
guarantee provisions in the Indentures:
-- Section 10.01 Unconditional Guarantee
-- Section 10.04 Subsidiary Grantors May Consolidate on Certain
Terms
29. Although the tender offer for the Notes expires on October 26,
2001, the consent payment deadline expires on October 12, 2001. Noteholders
who tender after October 12 would be eligible to receive the purchase price
(per $1000 principal amount), but not the $20 consent payment (setting up, in
effect, two different classes of tender offerees who would receive different
consideration). Thus, if the consent payment deadline expires and defendants
obtain consents from a majority of the noteholders, defendants will have the
ability to amend the terms of the Indentures (even if the tender offers fail
to achieve the 90% minimum tender).
30. The transaction is contingent upon, among other things: (a) at
least two-thirds of the outstanding shares of Gaylord being validly tendered
and (b) at least 90% of the aggregate principal amount of the outstanding
notes of each series being validly tendered.
31. The transaction is purportedly not conditioned upon financing.
Temple-Inland has reportedly received a financing commitment from Citibank,
N.A., to fund its offer for all outstanding shares of Gaylord, to acquire all
the notes, to satisfy the bank debt and other senior secured bank obligations,
and to pay costs and expenses associated with the transaction. Citibank's
financing would be senior to any untendered notes, contrary to Section 4.12 of
the Indentures, as detailed above. The tender offers for the outstanding stock
and notes are both set to expire on October 26, 2001.
32. Gaylord has in place a "poison pill" shareholders' rights plan
which precludes any unsolicited takeover not approved by the Board. As a
condition of the proposed transaction, Gaylord has waived the protections of
the poison pill to allow the Temple Inland offer to proceed. Therefore,
Gaylord's directors have utilized the Company's preclusive anti-takeover
defenses solely to foster and unfair and inadequate transaction which serves
their own interests to the detriment of the superior claims held by
Noteholders.
33. According to Standard & Poor's, "because Temple-Inland's balance
sheet is already stretched . . . this acquisition could lead to the
deterioration of th[at] company's financial profile." In Standard & Poor's
view, Temple-Inland's completion of the tender offers for Gaylord's notes
"will be tantamount to a default" on Gaylord's debt. In addition, if the
acquisition is completed as currently structured, with a minimum 90% tender
requirement for the notes, Gaylord's senior unsecured and senior subordinated
debt ratings on its remaining outstanding notes will be lowered to "D,"
Standard & Poor's lowest ratings, and then all ratings would be withdrawn.
34. According to Gaylord's most recent SEC filing, the Company's
directors and executive officers own 13.1 % of the Company's common stock,
with Gaylord's Chairman and Chief Executive Officer, Marvin Pomerantz, owning
8.3% of Gaylord's shares. It is believed that these individuals do not own any
of Gaylord's notes. In addition, Mr. Pomerantz will receive $8 million in
accelerated employee benefits in connection with the transaction.
35. Notably, while the tender offer price for the stock reflects
greater than a 100% premium over the unaffected market price for the shares,
the notes are being repurchased at little or no premium and at a deep discount
to their par value.
C. Gaylord's Insolvent Condition
36. Gaylord is insolvent by any measure. According to its 10-K filing
with the SEC for the fiscal year ending September 30, 2000, Gaylord's total
stockholders' equity (deficit) was a negative $86.8 million. As for the 2000
fiscal year, Gaylord's net cash decreased by $9.7 million, leaving the Company
with cash and cash equivalents at year end which totaled only $700,000. As of
September 30, 2000, Gaylord's long-term debt totaled $911.2 million.
37. For the nine months ended June 30, 2001, Gaylord lost another
$14.7 million, and its total stockholders' deficit increased to $100.3
million.
38. Moreover, according to a September 21, 2001, analyst's report
issued by Deutsche Banc Alex. Brown, Gaylord will be unlikely to satisfy the
financial covenants in its indentures for the December 2001 quarter "absent a
dramatic improvement in the company, industry and/or economy. " Notably,
Deutsche Banc was, at the same time, serving as one of the Company's financial
advisors in connection with the proposed transaction and rendered a financial
opinion to the Gaylord Board attesting to the fairness of the transaction from
the shareholders' point of view.
39. The purchase prices reflected in the transaction confirm
Gaylord's insolvent status. Giving effect to Gaylord's $278 million in total
bank debt, which will be paid in full, and other senior debt which will also
be paid in full, and further taking into account that $200 million of 9-3/8%
Notes will be purchased for $151 million (representing a $49 million discount
from face), that $225 million of 9-3/4% Notes will be purchased for $169.9
million (representing a $55.1 million discount from face) and that $250
million of 9-7/8% Senior Subordinated Notes will be purchased for $65 million
(representing a $185 million discount from face), debt repurchases will total
$686 million. In addition, Gaylord's unaffected stock price immediately prior
to announcement of the proposed transaction was approximately $44.8 million
(56 million shares X $0.80 per share). Thus, Gaylord's enterprise value (the
market value of its debt plus its equity), based on the actual purchase prices
for the debt, is approximately $740.8 million. However, Gaylord's total
outstanding debt obligations amounted to $966.1 million as per its June 30,
2001 10-Q. As a result, the value of Gaylord's assets demonstrably falls short
of its liabilities and the Company is therefore unquestionably insolvent.
40. Temple-Inland wishes to acquired Gaylord and evidences a
willingness to do so for consideration (payment and assumption of liabilities)
of about $927 million. Payments to noteholders and shareholders would
constitute about $485 million of this total. Temple-Inland has no particular
reason to care how that sum is distributed to the various classes of security
holders. No doubt Gaylord's Board could have negotiated a different structure
had it wished. However, under the absolute priority rule that would apply in a
Bankruptcy, and a total payout of $485 million to the security holders, the
senior noteholders would receive $425 million, the senior subordinate $60
million and the shareholders nothing. So, in essence, the Gaylord Board
recommended transaction departs from absolute priority largely by paying the
senior noteholders $105 million less than their fair share (under absolute
priority) and paying the shareholders $100 million more than they would
receive under absolute priority ($0).
41. Another approach to exploring Gaylord's insolvency is to examine
its ability to pay its debts as they come due on a current basis. Gaylord is
insolvent by this measure as well. Here, Gaylord has lost money throughout
fiscal 2001 (ending September 30, 2001), reporting total losses of $13.5
million through the first three quarters ending June 30, 2001. While the
Company managed to report a small $2.4 million profit in 2000, it reported
large losses in 1997, 1998 and 1999 ($82m, $82.5m and $46.4m respectively).
Recognizing its difficulties, Gaylord states in its June 30, 2000 10-Q, that:
"Unless there is significant product price improvement for converted product
beyond current levels, however, the company will need to seek covenant
modifications to its bank credit agreement by the end of 2001." In other
words, Gaylord anticipated difficulty servicing its debt obligations and will
need modifications from its lenders, modifications that may or may not be
made. Current recessionary trends do not auger well for any significant return
to profitability for Gaylord in the foreseeable future.
42. Furthermore, a September 28, 2001, research report issued by
Barclay's uses three additional, different methodologies to value Gaylord on a
going-concern basis, none of which exceed the outstanding debt obligations of
the Company.
43. Given Gaylord's clearly insolvent status, the Company, by and
through its directors, has assumed fiduciary responsibilities to its creditors
which take precedence over any fiduciary duties that would otherwise be owed
to Gaylord's shareholders. The assets of Gaylord are, therefore, impressed
with a constructive trust for the benefit of its creditors which Gaylord,
through the acts of its directors, several of whom own significant amounts of
shares, is impairing and improperly diverting to the holders of the common
stock. In seeking to sell the Company or otherwise to dispose of its assets,
Gaylord's directors were required to obtain 100% payment for the holders of
the senior notes, treating them the same as the holders of bank debt and other
secured debt, whether or not this would result in the shareholders receiving
little or nothing at all. In a bankruptcy or receivership, that would
certainly be the result and Gaylord should not be permitted to achieve
indirectly that which could not have been achieved directly by use of more
conventional methods of financial reorganization.
44. Instead, Gaylord's directors favored their interests over those
of the noteholders. Indeed, there is no indication that the Board established
a special committee of independent directors even though several Gaylord
directors/officers are being accorded clearly preferential treatment. Putting
that aside, no subcommittee specifically devoted to the interests of
noteholders, and having its own expert advisors, was apparently ever put into
place to ensure that all affected classes of investors would be able to
negotiate on a level playing field. In that regard, it is worth noting that
the CEO is receiving $8.0 million post-tax in cash now for retirement benefits
that would not come due for many years. Another officer-director, Mr. Casey,
is also receiving a $1.9 million severance payment and a third director, Mr.
Hayford, will receive an after-tax payment of $3.8 million, representing the
actuarial value of his retirement benefits. Also, each non-employee director
of the Company, Mary Sue Coleman, Harve Ferrill, John Goodenow, David Hawkins,
Warren Hayford and Ralph MacDonald, will vest the 1,000 phantom stock units
granted upon a change of control of the Company -- yet they are attempting to
subvert the change of control provisions in the Indentures, as set forth
below, Those six directors are a majority of the Board and two other
directors, namely Pomerantz, and Casey are receiving substantial cash
payments. Despite these irremediably conflicting circumstances, no special
committee was created, nor did the independent directors have separate counsel
or financial advisors. It is likely that none of these lucrative employment,
retirement and/or severance benefits would be paid or payable in a Chapter 11
proceeding.
45. It cannot make any economic difference to Temple-Inland how its
purchase price is allocated among the Gaylord stockholders. Temple-Inland will
have the same ownership and the same tax base regardless of a revised
allocation. Therefore, the alleged industrial logic and economic benefits to
the two corporate entities would not be adversely affected by reallocation. It
is clear, therefore, that these precise terms and allocations were driven by
the desire of Gaylord insiders to enrich themselves at the expense of their
debtholders.
46. Temple-Inland has knowingly aided and abetted and substantially
assisted in the breaches of fiduciary duties and other wrongs committed by
Gaylord and the Trustees. The Trustees, for their part, have primarily
participated in, and aided and abetted, the breaches and wrongdoing alleged
herein by their overt and tacit cooperation, assistance and acquiescence. In
that regard, none of the documentation specified by Sections 4.15 and 5.01 of
the Indenture governing the 9-3/8% Notes (or their equivalents), concerning a
Change of Control, have been demanded or obtained, and the Trustees have
knowingly permitted Temple Inland to attempt to obtain the extinguishment of
the Noteholders' rights for the trivial sum of $20 per $1000 principal amount.
D. The Notes Tender Offer And Consent Solicitation Are Coercive And
Inadequately Disclosed
47. On September 28, 2001, Temple-Inland, through its wholly-owned
subsidiary Inland Container Corporation I, disseminated a Offer To Purchase
And Consent Solicitation Statement to holders of the Notes (the "Tender Offer
Materials"). As set forth below, the tender offer and consent solicitation for
the notes are structured in a manner designed to coerce holders of the Notes
into tendering them. Moreover, Temple-Inland and Gaylord have attempted to
attract tenders of the Notes through materially false and misleading
statements and omissions in the Tender Offer Materials and exhibits thereto.
48. As structured, the tender offers will have the effect of forcing
all Noteholders to tender irrespective of their displeasure with the economic
terms of the tender offers. Noteholders who tender accept a substantial
discount on the face value of their notes. If, on the other hand, the
transaction goes through, abstaining noteholders would have an illiquid claim
against a new firm having very questionable value and laden with additional
debt that it will be unlikely to service.
49. Furthermore, many of the noteholders are institutional investors
and are themselves fiduciaries and, acting individually, cannot afford to hold
the securities and risk their being relegated to the status of holders of
notes which are illiquid, unrated and stripped, by virtue of the consent
solicitation, of all their protective features. In short, the securities which
the noteholders would retain if they did not tender would, in material
respects, not be the same securities and would, in reality, be inferior.
50. The consent solicitation is also highly coercive. Importantly,
although the tender offer for the Notes expires on October 26, 2001, the
consent payment deadline expires 14 days earlier on October 12, 2001. In that
regard, a "consenting" noteholder would be tendering agreement not only to the
amendment to the Indentures but to a waiver of any claims in connection with
the proposed transaction. Moreover, even a tendering noteholder would not
receive the $20 consent payment if the tender were made after October 12,
2001. Thus, defendants are coercively attempting to stampede the noteholders
to make an early decision to tender, thereby render their "majority" consent
and thus all but assure the success of their coercive tender offers.
51. The consent solicitation is coercive and, thus illegal, as it is
clearly a partial, front-loaded tender offer. Any abstaining noteholder will
be left with securities whose terms are so materially degraded as to
constitute the holding of a different and much less valuable security. In
these types of tender offers, a noteholder is all but forced to tender
immediately, to prevent further economic harm to him.
52. Additionally, the Tender Offer Materials are materially false and
misleading for several reasons. The facts about Gaylord's insolvent nature and
implications of the tender offers are not properly disclosed, nor is there any
discussion of the Company's likely inability to pay the Company's debts as
they come due on a current basis. Nowhere is there an explicit discussion of
insolvency, fraudulent conveyance risks or the right to priorities that would
exist in a bankruptcy proceeding. Nowhere does Gaylord disclose that the
substance of the deal is imposing even more senior secured debt on top of
those public notes that do not tender, while giving $100 million of the
proceeds, unjustifiably and inappropriately, to equity. This raises the risk
that if completed the entire transaction will be held to be a fraudulent
conveyance and the money "clawed back" from the former equity holders who
received cash.
53. Furthermore, attached as an exhibit to the offer to purchase, as
Annex B, is a letter from Gaylord to "Holders of the Notes ("Noteholders") of
Gaylord Container Corporation" (the "Gaylord Letter"). In the Gaylord Letter,
Gaylord expressly states that the "Company's Board of Directors is expressing
no opinion to Noteholders as to acceptance or rejection of the Notes tender
offers." Instead, Gaylord cite to a laundry list of factors which it "believes
that Noteholders should consider. . . . "
54. In this regard, defendants affirmatively misrepresent that the
transaction is "not coercive." Although defendants assert that the
noteholders' prospects in any bankruptcy proceeding are "inherently
uncertain," they fail to mention that, in such a proceeding, the Company's
stockholders would receive no monies whatsoever, before the senior noteholders
were made whole.
55. Finally, in the Gaylord Letter, defendants misleadingly omit
that:
-- they owe fiduciary duties to the noteholders and are
breaching those duties;
-- the tender offers are being made in an effort to side-step a
bankruptcy proceeding wherein the stockholders would receive
nothing and the executives would not enjoy their lucrative
golden parachutes;
-- in a bankruptcy proceeding a noteholder would likely fare
better than in connection with this transaction;
-- although Gaylord's directors have taken a neutral position
with respect to the tender offer and consent solicitation,
the Company should have taken a position against these
tender offers; and
-- that no independent persons negotiated on behalf of the
noteholders and that no independent financial advisor could
have rendered an opinion finding that the transaction is
fair from the noteholders' point of view.
56. Notably, Gaylord has retained two financial advisors, both acting
on behalf of the shareholders, who stand to receive more than $10 million in
compensation if the proposed transactions are consummated. The expenses and
costs that the Company has and continues to incur with respect to the tender
offers are utterly wasteful and, given the Company's patently insolvent
status, fraudulent conveyances.
FIRST CLAIM FOR RELIEF
(For Violation of The Trust Indenture Act of 1939)
57. Plaintiffs repeat and reallege the allegations set forth above.
58. Fleet and State Street, as Trustees for the respective Indentures
for the 9-3/8% Notes and the 9-3/4% Notes, owe fiduciary duties to the
Noteholders, and a private right of action exists under the Trust Indenture
Act of 1939 to enforce those duties.
59. The Trustees are, or will be, violating their fiduciary duties
by, among other things: (a) permitting and/or facilitating the plan by which
the Change of Control provisions in the Indentures will be end-run and
subverted; (b) permitting and/or facilitating the scheme by which $100 million
of the $786 million in total acquisition costs will be diverted to Gaylord's
stockholders, representing a 100% premium over the stock's unaffected market
price, when, due to the Company's insolvency, no amount should be allocated to
the stockholders until the Noteholders are paid in full; and (c) failing to
act diligently and aggressively to protect the Noteholders against the actions
of a conflicted Gaylord Board dominated by, and solely devoted to, the
interests of shareholders.
60. Defendants Gaylord and Temple-Inland are participating in and
knowingly aiding and abetting and substantially assisting in the commission of
such wrongs.
61. As a result of the foregoing, plaintiffs and other members of the
Class are suffering irreparable injury for which there is no adequate remedy
at law.
SECOND CLAIM FOR RELIEF
(For Breaches of Fiduciary Duty and Unfair Dealing)
62. Plaintiffs repeat and reallege the allegations set forth above.
63. By reason of the foregoing, the Company, by and through its
directors, and the Trustees have each violated their fiduciary duties to the
Noteholders and breached implied covenants of fair dealing in the Indentures
by permitting, facilitating and/or favoring the proposed transaction.
Defendants have acted in bad faith and disloyally to the Noteholders in order
to promote their own interests and that of other shareholders without regard
to their fiduciary duties to protect and enhance the interests of the
Noteholders given Gaylord's insolvent and precarious financial status.
64. Defendants' fiduciary breaches are exacerbated by the coercive
nature of the tender offers for the Notes. As structured, the tender offers
will force all Noteholders to tender irrespective of their displeasure with
the economic terms of the tender offers. That is because the noteholders, many
of whom are institutional investors and are themselves fiduciaries, cannot
afford to hold the securities and risk their being relegated to the status of
holders of notes which are illiquid, unrated and stripped, by virtue of the
consent solicitation, of all their protective features. In short, the
securities which the noteholders would retain if they did not tender would, in
material respects, not be the same securities and would, in reality, be
inferior.
65. Additionally, Gaylord and the Trustees have engaged in acts of
unfair dealing by failing to provide independent noteholder representation in
negotiating and considering the proposed transaction and failing to secure
financial advisory services and a fairness opinion from the point of view of
the noteholders.
66. In connection with the tender offers, noteholders are not being
advised of these deficiencies in the process by which the transaction has been
structured and proposed. Further, noteholders are not being advised that
consummation of the tender offers is likely to cause a default under
Temple-Inland's loan covenants, raising substantial risk that Temple-Inland
will be unable to close the transaction.
67. Moreover, Gaylord's outlays for the fees of financial advisors
and counsel in pursuing the proposed transaction and its potential costs for
break-up fees and expense reimbursement are, or will be, fraudulent
conveyances in light of the Company's insolvent and precarious financial
condition.
68. Each defendant has rendered substantial assistance in the
accomplishment of the fiduciary breaches and other wrongs complained of
herein. In taking the actions, as particularized herein, to aid and abet and
substantially assist in the wrongs complained of, all defendants acted with an
awareness of the primary wrongdoing, realized that their conduct substantially
assisted the accomplishment of that wrongdoing, and overall contributed to the
course of wrongful conduct.
69. As a result of the foregoing, plaintiffs and other members of the
Class are suffering irreparable injury for which there is no adequate remedy
at law.
THIRD CLAIM FOR RELIEF
(For Declaratory Relief)
70. Plaintiffs repeat and reallege the allegations set forth above.
71. Plaintiffs seek declaratory relief pursuant to the Declaratory
Judgments Act, 28 U.S.C.ss.2201.
72. Declaratory relief is sought, inter alia, as to the following
matters: (a) Gaylord's fiduciary duties owed to noteholders;
(b) Gaylord's insolvent status;
(c) the impact of the contractual provisions in the Indentures,
particularly with reference to Change of Control; (d) the consent payment and
coercive nature of the tender offers; and (e) the existence of a constructive
trust over all Gaylord's assets for the benefit of Gaylord's creditors and
defendants' invasion of that trust.
73. Plaintiffs and other members of the Class are suffering
irreparable injury as to which they seek declaratory relief and for which
there is no adequate remedy at law. FOURTH CLAIM FOR RELIEF
Injunctive And Equitable Relief Against Temple-Inland,
Inland Container Corporation I And Gaylord For
Violations Of Sections 14(e) Of The Exchange Act
And Rule 14e-3(a) Promulgated Thereunder
74. Plaintiffs repeat and reallege each and every paragraph above as
if fully set forth herein.
75. This claim is brought individually on behalf of the plaintiffs
and not on behalf of the Class. This claim seeks only injunctive and/or
equitable relief.
76. This Count is brought by plaintiffs against Temple-Inland, Inland
Container Corporation I and Gaylord with respect to the Tender Offer Documents
for violations of Sections 14(e) of the Exchange Act and Rule 14e-3(a)
promulgated thereunder. Section 14(e) of the Exchange Act provides that it is
unlawful to make any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading or to engage in any
fraudulent, deceptive, or manipulative acts or practices, in connection with .
. . any solicitation of security holders in opposition to or in favor of any
such offer, request, or invitation.
77. Rule 14e-3(a) provides in pertinent part that it shall constitute
a fraudulent, deceptive or manipulative act or practice within the meaning of
section 14(e) for any person who is in possession of material information
relating to a tender offer which information he knows or has reason to know is
non-public to purchase or sell or cause to be purchased or sold any such
securities, unless within a reasonable time prior to any purchase or sale such
information and its source are publicly disclosed by press release or
otherwise.
78. Temple-Inland, Inland Container Corporation I and Gaylord
knowingly and/or recklessly caused to be issued or permitted and acquiesced in
or controlled the issuance of the Tender Offer Documents.
79. The Tender Offer Documents are materially false and misleading as
set forth herein. The disclosure of these facts in the Tender Offer Documents
is highly material to plaintiffs in deciding whether to tender their notes,
consent or otherwise evaluating their options with respect to the transaction.
80. As a result of the foregoing, Temple-Inland, Inland Container
Corporation I and Gaylord are violating Section 14(e) of the Exchange Act and
Rule 14e-3(a) promulgated thereunder by the SEC.
81. By reason of the foregoing, plaintiffs will be damaged, and
unless injunctive and/or declaratory relief is granted, will continue to be
irreparably injured and damaged.
JURY TRIAL DEMANDED
Plaintiffs hereby demand a trial by jury
WHEREFORE, plaintiffs demand judgment in favor of themselves and the
other members of the Class, as follows: (a) declaring this action to be
properly maintainable as a class action (except for the Fourth Claim) and
certifying plaintiffs as the class representatives; (b) granting declaratory
relief as set forth in the Third Claim For Relief; (c) enjoining defendants
from proceeding with the challenged transactions; (d) enjoining the Notes
Tender Offer and Consent Solicitation for violating Section 14(e) and Rule
14e-3; (e) if the transactions are consummated, rescinding and setting them
aside; (f) imposing a constructive trust on Gaylord's assets for the benefit
of its creditors; (g) alternatively, directing defendants, jointly and
severally, to account to the Class for the damages sustained by Class members
and all profits unlawfully obtained by defendants as a result of the wrongs
complained of; (h) awarding plaintiffs the costs and expenses of this action,
including reasonable counsel and expert fees; and (i) awarding such other and
further relief as may be just, necessary and appropriate under the
circumstances.
Dated: October 10, 2001.
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
By:/s/ Steven G. Schulman
-----------------------
Steven G. Schulman (SS-2561)
Samuel H. Rudman (SR-7957)
U. Seth Ottensoser (UO-9703)
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
Attorneys For Plaintiffs