SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14(a)-12
Siena Holdings, Inc.
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, $0.10 Par Value
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2) Aggregate number of securities to which transaction applies:
6,000,000
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
$ 1.41 ($1.41 * 500,000 = $ 705,000.00)
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4) Proposed maximum aggregate value of transaction:
$ 3,525,000.00
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5) Total fee paid:
$705.00
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|_| Fee paid previously with preliminary materials.
|X| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$1,500.00
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2) Form, Schedule or Registration Statement No.:
0000060150
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3) Filing Party:
Siena Holdings, Inc.
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4) Date Filed:
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SIENA HOLDINGS, INC.
5068 W. PLANO PARKWAY, SUITE 300
PLANO, TX 75093
(972) 381-4255
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 10, 2003
As a shareholder of Siena Holdings, Inc. (the "Company"), you are hereby given
notice of and invited to attend in person or by proxy the Special Meeting of
Shareholders of the Company to be held at The Hotel DuPont, Wilmington, Delaware
on November 10, 2003, at 10:00 a.m. local time, for the following purposes:
1. To consider and act upon a Reverse Stock Split (the "Reverse Stock
Split") of the Company's outstanding common stock that would result
in the shareholders receiving one share of New Common Stock in
exchange for every 500,000 shares of Existing Common Stock that they
currently own. Since no new certificates representing fractional
shares will be issued, each shareholder owning less than 500,000
shares of Existing Common Stock, or who would otherwise receive
fractional shares as a result of the Reverse Stock Split, will
receive in exchange for each share of Existing Common Stock cash in
the amount of $1.41 per share. The Reverse Stock Split and related
cash purchase by the Company of fractional shares resulting from the
Reverse Stock Split is proposed to take the Company private.
2. If the Reverse Stock Split is approved, to consider and act upon an
amendment to the Company's Certificate of Incorporation to reduce
the Company's authorized common stock from 15,000,000 authorized
shares to 30 authorized shares, which is in proportion to the
Reverse Stock Split.
3. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on October 14, 2003, as
the Record Date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at such meeting. Only shareholders at the
close of business on the Record Date are entitled to notice of and to vote at
such meeting. The transfer books will not be closed.
You are cordially invited to attend the meeting. HOWEVER, WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING, MANAGEMENT DESIRES TO HAVE THE MAXIMUM
REPRESENTATION AT THE MEETING AND RESPECTFULLY REQUESTS THAT YOU DATE, EXECUTE
AND MAIL PROMPTLY THE ENCLOSED PROXY IN THE ENCLOSED STAMPED ENVELOPE FOR WHICH
NO ADDITIONAL POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. A proxy may be
revoked by a shareholder by notifying the Secretary of the Company in writing at
any time prior to its use, by executing and delivering a subsequent proxy or by
personally appearing at the Annual Meeting and casting your vote, each as
specified in the enclosed proxy statement.
By order of the Board of Directors
W. Joseph Dryer, President Secretary
YOUR VOTE IS IMPORTANT.
PLEASE EXECUTE AND RETURN PROMPTLY THE ENCLOSED
PROXY CARD IN THE ENVELOPE PROVIDED.
SIENA HOLDINGS, INC.
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 10, 2003
TO OUR SHAREHOLDERS:
This Proxy Statement is furnished to the shareholders of Siena Holdings, Inc.
(the "Company") for use at a Special Meeting of Shareholders on November 10,
2003 (the "Special Meeting), for the purposes set forth in the accompanying
Notice of Special Meeting of Shareholders. The enclosed proxy is solicited on
behalf of the Board of Directors of the Company and can be revoked at any time
prior to the voting of the proxy (as provided herein).
Unless a contrary choice is indicated, all duly executed proxies received by the
Company will be voted as follows:
1. FOR the approval of a Reverse Stock Split of the Company's
outstanding common stock that would result in the shareholders
receiving one share of New Common Stock (the "New Common Stock") in
exchange for every 500,000 shares of Existing Common Stock (the
"Existing Common Stock") that they own as of the effective date.
Since no new certificates representing fractional shares will be
issued, each shareholder owning less than 500,000 shares of Existing
Common Stock, or who would otherwise receive fractional shares as a
result of the Reverse Stock Split, will receive in exchange for each
share of Existing Common Stock cash in the amount of $1.41 per
share. The Reverse Stock Split - and related cash purchase by the
Company of fractional shares resulting from the Reverse Stock Split
is proposed to take the Company private.
2. FOR the approval of an amendment to the Company's Certificate of
Incorporation to reduce the Company's authorized common stock from
15,000,000 authorized shares to 30 authorized shares, which is in
proportion to the Reverse Stock Split.
3. The proxies will be voted in accordance with the recommendation of
management as to any other matters, which may properly come before
the Special Meeting.
The Reduction in Authorized Common Stock is contingent upon shareholder approval
of the Reverse Stock Split proposal. If the Reverse Stock Split proposal is not
approved, the Reduction in Authorized Common Stock proposal will not be
submitted to a vote at the Special Meeting.
Each shareholder will receive one share of New Common Stock in exchange for
every 500,000 shares of Existing Common Stock that they currently own. Since no
new certificates representing fractional shares will be issued, shareholders who
would otherwise receive fractional shares as a result of the Reverse Stock Split
will instead receive for each share of Existing Common Stock cash in the amount
of $1.41 per share.
The Reverse Stock Split will become effective upon the filing of an amendment to
our Certificate of Incorporation with the Secretary of State of the State of
Delaware, or such later date as specified in the filing. As soon as practicable
after the Reverse Stock Split is effective, a letter of transmittal will be
mailed to all holders of the Company's Common Stock for use in surrendering your
stock certificates in connection with the Reverse Stock Split.
The record of shareholders entitled to vote at the Special Meeting was taken at
the close of business on October 14, 2003 (the "Record Date"). The approximate
date on which this Proxy Statement and the enclosed proxy are first being sent
to shareholders is October 16, 2003. The principal executive offices of the
Company are located at 5068 W. Plano Parkway, Suite 300, Plano, Texas 75093.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE PROPOSED TRANSACTIONS, PASSED ON
THE MERITS OF THE PROPOSED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE DISCLOSURE IN THE DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT OR RELATED SCHEDULE 13E-3,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
TABLE OF CONTENTS
SUMMARY TERM SHEET 1
SPECIAL FACTORS 8
Purpose and Reasons for the Reverse Stock Split 8
Potential Disadvantages 10
Background 11
Alternatives Considered by the Board of Directors 14
Fairness of the Reverse Stock Split 15
Opinion of Charenton Advisors 18
Certain Effects of Reverse Stock Split and the Reduction in Authorized 28
Common Stock on the Company's Shareholders
Contractual Right 31
Federal Income Tax Consequences 32
PROPOSAL NO. 1 REVERSE STOCK SPLIT 33
General 33
Exchange of Certificates and Payment of Fractional Shares 33
Vote Required 34
Voting Procedures and Revocability of Proxies 34
Appraisal Rights 35
PROPOSAL NO. 2 REDUCTION IN AUTHORIZED COMMON STOCK 36
General 36
Vote Required 36
Voting Procedures and Revocability of Proxies 36
INFORMATION ABOUT SIENA HOLDINGS, INC 37
General 37
Description of Common Stock 37
Current Directors and Executive Officers 37
Ownership of Voting Securities of the Company 38
Price Range Of Common Stock And Dividends 40
Persons Making the Solicitation 41
PROPOSALS OF SHAREHOLDERS 41
OTHER MATTERS 41
FINANCIAL INFORMATION AND INCORPORATION BY REFERENCE 41
FORWARD-LOOKING STATEMENTS 42
AVAILABLE INFORMATION 42
APPENDIX A AMENDMENT TO CERTIFICATE OF INCORPORATION
APPENDIX B OPINION OF CHARENTON ADVISORS
SUMMARY TERM SHEET
This summary highlights selected information from this Proxy Statement and may
not contain all of the information that is important to you. To better
understand the terms and conditions of the Reverse Stock Split, as well as the
consequent Amendment to the Company's Certificate of Incorporation, you should
carefully read this entire document, its attachments and the other documents to
which we refer.
WHAT IS THE COMPANY PROPOSING?
o The Company is proposing that the Company's shareholders approve a
Reverse Stock Split of the Company's outstanding common stock that
would result in shareholders receiving one share of New Common Stock
in exchange for every 500,000 shares of Existing Common Stock that
they currently own. The Reverse Stock Split and related cash
purchase by the Company of fractional shares resulting from the
Reverse Stock Split is proposed to take the Company private. The
principal reason for "going private" is to relieve the Company of
the increased costs, burdens and risks of remaining a public
company.
o Previously, the Company proposed that since no new certificates
representing fractional shares would be issued each shareholder
owning less than 500,000 shares of Existing Common Stock, or who
would otherwise receive fractional shares as a result of the Reverse
Stock Split, would receive in exchange for each share of Existing
Common Stock cash in the amount of $1.28 plus a Contractual Right
(the Contractual Right) to receive the residual proceeds from the
Termination of the Management Agreement and the resulting
liquidation of Siena Housing Management Corp. caused by the sale of
the assisted care facility provided that this termination of the
Management Agreement following the sale of the assisted care
facility occurs on or before December 31, 2003.
The Company originally expected that this transaction, if it were to
close, would close in the fourth quarter of 2003. However, as
recently reported, on August 29, 2003, this Management Agreement
was, in fact, terminated earlier than anticipated due to the closing
of the sale of the assisted care facility Treemont.
In the interest of providing the full residual benefit of this
transaction to Siena's shareholders, shareholders who would
otherwise receive fractional shares as a result of the Reverse Stock
Split will now receive for each share of Existing Common Stock cash
in the amount of $1.41 per share, which represents the sum total of
the originally proposed $1.28 per share plus the fully-diluted,
pro-rata share of the residual proceeds from the assisted care
facility transaction of $.13 per share.
o If the Reverse Stock Split is approved, there will only two
shareholders of the Company; namely, John P. Kneafsey, Chairman and
CEO of Siena, and CSFB, an unaffiliated shareholder. Mr. Kneafsey
will own approximately 86% of the Company's common stock. CSFB will
own the remaining 14% of the common stock. It is currently
anticipated that all executive officers and directors will retain
their positions in the Company.
o For further information, see "SPECIAL FACTORS - Purpose and Reasons
for The Reverse Stock Split." Also, see "PROPOSAL NO. 1 REVERSE
STOCK SPLIT - Exchange of Certificates and Payment of Fractional
shares."
1
WHY IS THE COMPANY PROPOSING A REVERSE STOCK SPLIT?
o The Reverse Stock Split and payment of cash in lieu of fractional
shares resulting therefrom has been unanimously approved by the
Company's Board of Directors and is proposed to reduce the number of
shareholders of record to less than 300, thereby allowing the
Company to terminate its registration under the Exchange Act and
relieving the Company of the costs typically associated with the
filing of public documents, since as a private company, Siena would
no longer be required to file annual and quarterly reports with the
Securities and Exchange Commission (the "SEC"). The Reverse Stock
Split will provide the Company's shareholders with liquidity by
allowing them to liquidate their shares for cash at a fair value
without affecting the market price.
o The Company believes, based upon historical information, that it may
save at least $75,000 to $150,000 per year in costs associated with
being a public reporting company. However, these cost savings are
not expected to be fully realized until the fiscal year ended June
30, 2004, if at all.
o The reasons for the Reverse Stock Split are discussed below under
"SPECIAL FACTORS -- Purpose and Reasons for the Reverse Stock
Split."
WHAT ARE THE PURPOSES OF AND REASONS FOR THE REVERSE STOCK SPLIT?
o Because the Company has more than 300 shareholders of record and its
common stock is registered under Section 12(g) of the Exchange Act,
the Company is required to comply with the disclosure and reporting
requirements under the Act. Since shareholders are not currently
realizing many of the principal benefits of public ownership, the
Board determined that the increasing costs of public reporting were
not warranted as Siena's status as a public company places
significant financial burdens and legal risks on the Company.
o The costs of being a public company in general, and the cost of
remaining a public company in particular, are expected to increase
dramatically in the near future. For example, the Company's
directors' and officers' insurance premiums are expected to increase
30% to 50% upon renewal. Audit fees and other costs of compliance,
such as attorneys' fees, are increasing as is potential liability of
officers and directors which will likely result in further increases
in insurance premiums.
In light of Siena's current size and resources, the Board does not
believe that such costs are justified, and believes that it is in
the Company's best interests to eliminate the administrative and
financial burdens associated with being and remaining a public
company.
2
o The Reverse Stock Split will reduce the number of the Company's
shareholders below 300, which will cause the Company's common stock
to become eligible for termination of registration under the
Exchange Act. The Company's Board of Directors considered the
following factors when recommending the Reverse Stock Split:
o The cost savings per year that the Company expects to realize
as a result of the deregistration of the Company's common
stock and the decrease in expenses relating to servicing
shareholders holding small positions in the Company's common
stock;
o The additional savings in terms of management's and employees'
time that will no longer be spent preparing the periodic
reports required of publicly-traded companies and managing
shareholder relations and communications;
o The fact that the Company has not been able to realize many of
the benefits associated with being a publicly-traded company,
such as enhanced shareholder value and access to capital
markets due to the limited liquidity and low market price of
the Company's common stock;
o The belief that the Company's shareholders have not benefited
proportionately from the costs of registration and OTC
Bulletin Board trading of its common stock, principally as a
result of the relatively thin trading market for its common
stock, which may have resulted in depressed market prices for
the Company's common stock; lack of market makers and analysts
following the Company's performance; and a practical
limitation of Siena's shareholders' abilities to sell
relatively large blocks of their shares in the open market
without significantly decreasing the market price, thereby
effectively rendering their investment illiquid.
o The purposes and reasons for the Reverse Stock Split are discussed
below under "SPECIAL FACTORS - Purpose and Reasons for the Reverse
Stock Split."
WHAT WILL I RECEIVE IF THE REVERSE STOCK SPLIT IS APPROVED?
If the Reverse Stock Split is approved by the shareholders and
implemented:
o One share of New Common Stock will be exchanged for every 500,000
shares of Existing Common Stock held as of the effective date. Since
no new certificates representing fractional shares will be issued,
shareholders who would otherwise receive fractional shares as a
result of the Reverse Stock Split will instead receive for each
share of Existing Common Stock cash in the amount of $1.41 per
share.
o Fractional shares will be purchased from holders at a rate of $1.41
per share. This transaction will not involve commissions or other
transaction fees that would be charged if you sold shares on the
open market. The Company reasonably estimates that up to an
aggregate of approximately $ 3,525,000 will be paid to its
shareholders for their resulting fractional shares.
3
o The procedure for this exchange and the payment of cash in lieu of
fractional shares is described below under the caption "PROPOSAL ONE
- Exchange of Certificates and Payment of Fractional Shares".
o The $1.41 per share cash consideration represents a 34% premium over
the $1.05 per share closing price for Siena's common stock on
January 31, 2003, the last day of trading prior to Siena's
announcement that it had established a Special Committee of its
Board of Directors to explore a "going private' transaction by means
of a Reverse Stock Split, and a 85% premium over the twelve-month
low of $.76 per share.
WHAT DOES "GOING PRIVATE" MEAN?
o "Going Private" means that the Company will no longer be a public
reporting company under the federal securities laws. As there will
then only be two shareholders of record remaining, registration of
Siena's stock under the Securities Exchange Act of 1934, as amended
(the "Exchange Act" or the "'34 Act"), will be terminated, resulting
in the delisting of Siena common stock from the OTC Bulletin Board.
o If the Reverse Stock Split is approved, the Company will no longer
be required to file annual, quarterly and other reports that it
currently files with the Securities and Exchange Commission (the
"SEC").
o As the Company's common stock will no longer be quoted on the OTC
Bulletin Board, there will no longer be a public market for the
Company's stock.
o "Going Private" is described below under the caption "SPECIAL
FACTORS -- Purpose and Reasons for the Reverse Stock Split."
How Did the Board of Directors Determine the Fairness of the Reverse Stock
Split?
o On February 13, 2003, the Board of Directors approved the formation
of a Special Committee of Independent Directors to explore a "going
private" transaction by means of a Reverse Stock Split.
o The Transaction was subject to a number of conditions including the
approval of the Transaction by the Special Committee, the receipt of
a fairness opinion from the financial advisor to the Special
Committee that the Transaction is fair to the Company's
shareholders, and approval by the Company's shareholders.
o With respect to valuation, the Board of Directors established the
Special Committee of the Board of Directors, which consists solely
of independent members of the Board, which engaged Charenton
Advisors, an independent valuation firm, to determine the fair value
of the fractional shares to be paid in cash in the Reverse Stock
Split.
4
o The Board of Directors and Mr. Kneafsey, in his individual capacity,
determined that the Reverse Stock Split was fair to both affiliated
and unaffiliated shareholders based on the liquidity opportunity
provided in the absence of an active trading market, and the benefit
to continuing shareholders of reduced expenses.
The Reverse Stock Split will provide the Company's shareholders with
liquidity by allowing them to liquidate their investment for cash.
Since Siena's shares are relatively thinly-traded, it may be
difficult for a significant shareholder to sell his holdings without
affecting the market price.
Similarly, there are a large number of shareholders who own limited
amounts of Siena's shares, and whose liquidity is reduced because
typical transaction costs for public sale of their shares in most
cases represents a large percentage of the value of their holdings
at current prices. The Reverse Stock Split will allow such
shareholders to liquidate their holdings at a fair value without
these transaction costs by receiving cash for their shares. See
"SPECIAL FACTORS -- Fairness of the Reverse Stock Split."
o Charenton Advisors opined to the Special Committee that a value of
$1.28 per share of Existing Common Stock plus a Contractual Right in
connection with the Reverse Stock Split is fair from a financial
point of view to the shareholders of the Company's common stock. The
Special Committee and the Board did not assign a specific value to
the Contractual Right. The Special Committee and the Board of
Directors relied upon the opinion of Charenton Advisors. See
"SPECIAL FACTORS -- Opinion of Charenton Advisors."
Previously, the Company proposed that since no new certificates
representing fractional shares would be issued, each shareholder
owning less than 500,000 shares of Existing Common Stock, or who
would otherwise receive fractional shares as a result of the Reverse
Stock Split, would receive in exchange for each share of Existing
Common Stock cash in the amount of $1.28 plus a Contractual Right
(the Contractual Right) to receive the residual proceeds from the
Termination of the Management Agreement and the resulting
liquidation of Siena Housing Management Corp. caused by the sale of
the assisted care facility provided that this termination of the
Management Agreement following the sale of the assisted care
facility occurs on or before December 31, 2003.
However, as recently reported, on August 29, 2003, this Management
Agreement was, in fact, terminated earlier than anticipated due to
the closing of the sale of the assisted care facility Treemont.
In the interest of providing the full residual benefit of this
transaction to Siena's shareholders, shareholders who would
otherwise receive fractional shares as a result of the Reverse Stock
Split will now receive for each share of Existing Common Stock cash
in the amount of $1.41 per share, which represents the sum total of
the originally proposed $1.28 per share plus the fully-diluted,
pro-rata share of the residual proceeds from the assisted care
facility transaction of $.13 per share.
DO I HAVE APPRAISAL RIGHTS?
o Under Delaware law, the law governing the Reverse Stock Split, you
do not have the right to demand the appraised value of your shares.
5
WHAT ARE THE PRINCIPAL ADVANTAGES OF THE REVERSE STOCK SPLIT?
o Currently, a relatively thin trading market exists for the Company's
securities, so cashing out fractional shares in a Reverse Stock
Split will permit both affiliated and unaffiliated shareholders to
obtain cash for their otherwise illiquid share holdings without
incurring brokerage or other transaction costs at a fair value and
without affecting the market price.
o The Company believes, based upon historical information, that it may
save at least $75,000 to $150,000 per year in costs associated with
being a public reporting company. However, these cost savings are
not expected to be fully realized until the fiscal year ended June
30, 2004, if at all.
o The Special Committee and the Board of Directors further concluded
that, given the lack of a meaningful market for Siena's Common
Stock, the Reverse Stock Split afforded shareholders a unique
opportunity to receive fair value for their shares. In addition, the
Special Committee and the Board believe that the Reverse Stock Split
constitutes the most expeditious, efficient, cost effective and
fairest method to convert the Company from a reporting company to a
privately held non-reporting company in comparison to other
alternatives considered by the Company.
o To review the principal advantages of the Reverse Stock Split in
greater detail, please read the discussions under "SPECIAL FACTORS
-- Purpose and Reasons for the Reverse Stock Split"
WHAT ARE THE PRINCIPAL DISADVANTAGES OF THE REVERSE STOCK SPLIT?
o Shareholders who are cashed-out completely will no longer have any
ownership or voting rights in the Company and will not be able to
participate in any future growth or profits that the Company may
experience.
o If the Reverse Stock Split is effected, the Company will become a
private company, and there will be no opportunity for a public
market for the Company's securities to develop unless the Company
re-registers under the Exchange Act in the future, which is not
anticipated at this time.
o To review the principal disadvantages of the Reverse Stock Split in
greater detail, please read the discussion under "SPECIAL FACTORS -
Purpose and Reasons for The Reverse Stock Split."
WHAT ARE THE TAX IMPLICATIONS OF THE REVERSE STOCK SPLIT?
o In general, based upon existing federal income tax law, shareholders
who receive cash in lieu of fractional shares of New Common Stock
will be treated as receiving cash as payment in exchange for their
fractional shares of New Common Stock, and they will recognize a
capital gain or loss in an amount equal to the difference between
the amount of cash received and the adjusted basis of the fractional
shares surrendered for cash. Whether gains or losses from the sale
of capital assets are short-term or long-term capital gains or
losses depends on the period the capital asset was held.
6
o This summary is provided for general information only, and does not
purport to the address all aspects of the range of possible federal
income tax consequences of the Reverse Stock Split and is not
intended as tax advice to any person. In particular, and without
limiting the foregoing, this summary does not account for or
consider the federal income tax consequences to shareholders of the
Company in light of their individual investment circumstances or to
holders subject to special treatment under the federal income tax
laws.
o To review the tax implications of the Reverse Stock Split in greater
detail, please read the information described under "SPECIAL FACTORS
-- Federal Income Tax Consequences."
THE COMPANY STRONGLY RECOMMENDS THAT SHAREHOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN
TAX EFFECTS OF THE REVERSE STOCK SPLIT IN LIGHT OF THEIR INDIVIDUAL
CIRCUMSTANCES.
HOW WILL THE CERTIFICATE OF INCORPORATION BE AMENDED?
o The Company's Certificate of Incorporation will be amended to reduce
the number of authorized shares of the Company's common stock from
15,000,000 authorized shares to 30 authorized shares, which is in
proportion to the ratio proposed in the Reverse Stock Split.
o This reduction in authorized common stock has been unanimously
approved by the Company's Board of Directors and is proposed to
reduce the number of shares that the Company is authorized to issue
in the same proportion as the Reverse Stock Split, and will not be
implemented unless the shareholders also approve the Reverse Stock
Split.
o The Reduction in Authorized Common Stock Proposal is contingent on
shareholder approval of the Reverse Stock Split proposal.
Accordingly, if the shareholders do not approve the Reverse Stock
Split, the Board of Directors will not submit the Reduction in
Authorized Common Stock Proposal to a vote at the Special Meeting.
If the Reverse Stock Split is not approved, the Reduction in
Authorized Common Stock Proposal will be abandoned.
o If the shareholders approve only the Reverse Stock Split Proposal,
the Company will most likely nevertheless effect the Reverse Stock
Split Proposal and the Company's authorized common stock will remain
15,000,000 shares.
o The reduction in the number of authorized common shares is described
below under the caption "PROPOSAL TWO -- Reduction in Authorized
Common Stock."
7
SPECIAL FACTORS
Purpose and Reasons for the Reverse Stock Split
The Board of Directors and Mr. Kneafsey, in his individual capacity, believe
that the primary purpose of the Reverse Stock Split is to enable the Company to
terminate the registration of its common stock under Section 12(g) of the 1934
Act. The Company's Board of Directors and Mr. Kneafsey, in his individual
capacity, hold the view that the Company and its shareholders currently derive
no material benefit from continued registration under the 1934 Act.
The Board of Directors and Mr. Kneafsey, in his individual capacity, have
decided to engage in the Reverse Stock Split proposal at this time because the
sooner the proposal can be implemented, the sooner the Company will cease to
incur the expenses and burdens of being a public company (which are only
expected to increase significantly) and the sooner shareholders who are to
receive cash in this transaction will receive and be able to reinvest or
otherwise make use of such cash payments.
Because the Company has more than 300 shareholders of record and its common
stock is registered under Section 12(g) of the Exchange Act, the Company is
required to comply with the disclosure and reporting requirements under the Act.
Since shareholders are not currently realizing many of the principal benefits of
public ownership, the Board determined that the increasing costs of public
reporting were not warranted as Siena's status as a public company places
significant financial burdens and legal risks on the Company.
The costs of remaining a public company are expected to increase significantly
in the near future. For example, the Company's directors' and officers'
insurance premiums are expected to increase 30% to 50% upon renewal. Audit fees
and other costs of compliance, such as attorneys' fees, are increasing as is the
potential liability of officers and directors which will likely result in
further increases in insurance premiums. In light of Siena's current size and
resources, the Board does not believe that such costs are justified. Therefore,
the Company's Board believes that it is in its best interests to eliminate the
administrative and financial burdens associated with being and remaining a
public company.
The Reverse Stock Split, the proposed purchase of fractional shares and the
proposed reduction of the number of authorized shares have been unanimously
approved by the Company's Board of Directors. The purpose being to take the
Company private by reducing the number of shareholders of record to two, which
is less than 300, thereby: perhaps most importantly, permitting unaffiliated
shareholders to liquidate their shares at a fair value; allowing the Company to
react more quickly to corporate opportunities; and relieving the Company of the
costs associated with being a public company and the required filing of periodic
reports and other documents with the SEC.
The Board of Directors believes that the Company's Common Stock has remained
relatively thinly traded and has provided little liquidity for the Company's
shareholders, particularly those shareholders with larger equity positions in
the Company. Since Siena's shares are relatively thinly traded, it may be
difficult for a significant shareholder to cash out without affecting the market
price. Using publicly reported trading data and management's records, and not
attempting to correct for duplicative trades, the Company's chief executive
officer, its president, and one director together accounted for about 70% of the
volume that was reported to have traded over the past two years. On the 146 days
in which the shares traded between June 1, 2001, and April 7, 2003, only 15 days
had volume of more than 10,001 shares while 81 days had volume of less than
1,001 shares.
8
The Board also recognized the concerns of a large number of the Company's
shareholders owning limited amounts of Siena's shares, whose liquidity is
reduced because typical transaction costs for public sale of their shares in
most cases represents a large percentage of the value of their holdings at
current prices. The Reverse Stock Split will allow such shareholders to
liquidate their holdings at a fair value without these transaction costs by
receiving cash for their shares. In addition, because of the small size of the
Company, the relatively thin trading market, and the limited liquidity of the
Existing Common Stock, the Company has not been able to utilize the shares as a
source of financing for its capital needs. For these reasons, the Company has
not been able to realize the principal benefits of public ownership and since
the Company's management does not expect any changes in this situation for the
foreseeable future, the Board determined that the costs of remaining a public
company were not warranted.
As a private company with two shareholders, the Company also would have the
ability to react more quickly to corporate opportunities, which currently would
require shareholder approvals, such as potential mergers or sales of the
Company's assets. Neither the Company nor any of the proposed continuing
shareholders are presently aware of any such corporate opportunities.
The Board further believes that "going private" will enhance the Company's
competitive position. Most of the Company's direct competitors are privately
held companies. The Company believes that it suffers a significant competitive
disadvantage because it is required to disclose to the public certain
information that privately held competitors are not required to disclose. This
disclosure provides those competitors with considerably more information about
the Company than the Company is able to obtain about such competitors.
The Board of Directors also believes that there are considerable costs and
burdens to the Company in remaining a public reporting company. To comply with
its obligations under the Exchange Act, the Company incurs direct and indirect
costs associated with compliance with the filing and reporting requirements
imposed on public companies. Examples of direct costs savings from the
termination of registration of the company's common stock include: lower
printing and mailing costs; reduced reporting and disclosure requirements due to
the company's private status; and such as word processing costs and preparing
electronic filings in the EDGAR format prescribed by the SEC. The Company also
believes that there will be a significant reduction in audit and legal fees, and
there will be additional savings in director and officer liability insurance
once the Company is no longer subject to the reporting requirements of the
Exchange Act. The Company also incurs substantial indirect costs as a result of
executive time expended to prepare and review such Exchange Act filings. The
termination of the registration of the Company's common stock is expected to
effectively eliminate or at least substantially reduce many of these costs.
The Company also expects the Reverse Stock Split to substantially reduce the
costs of servicing shareholder accounts. The costs of printing and mailing
materials to shareholders increases for each shareholder account, regardless of
the number of shares held by the shareholder. Many of the Company's shareholders
hold a relatively small number of shares, and the cost of servicing such
accounts is disproportionate to the size of the holdings.
Based on its experience in prior years, the Company believes that overall
savings of at least $75,000 to $150,000 annually may be realized by "going
private." This amount, however, is just an estimate, and the actual savings to
be realized may be higher or lower than such estimate. It is expected that the
savings will not be fully realized until the fiscal year ending June 30, 2004.
However, the Company cannot guarantee that the benefits of "going private" will
be accomplished as rapidly as currently expected, or at all.
9
Shareholders will benefit from the Reverse Stock Split in that each shareholder
will receive one share of New Common Stock in exchange for every 500,000 shares
of Existing Common Stock that they currently own. Since no new certificates
representing fractional shares will be issued, shareholders who would otherwise
receive fractional shares as a result of the Reverse Stock Split will instead
receive for each share of Existing Common Stock cash in the amount of $1.41 per
share, which the Company believes provides a substantial benefit since there is
currently a relatively thin trading market. The $1.41 per share cash
consideration represents a 34% premium over the $1.05 per share closing price
for Siena's common stock on January 31, 2003, the last day of trading prior to
Siena's announcement that it had established a Special Committee of its Board of
Directors to explore a "going private' transaction by means of a Reverse Stock
Split, and a 85% premium over the twelve-month low of $.76 per share.
If the Reverse Stock Split is approved and implemented using the proposed
formula, the number of shareholders of record of the Company's common shares
will be fewer than 300. The Company intends to terminate the registration of its
common stock under the Exchange Act pursuant to Section 12 of the Exchange Act.
Following the Reverse Stock Split, the decision by the Company to terminate
Exchange Act registration upon implementation of the Reverse Stock Split does
not require shareholder approval and will not be voted on at the Special
Meeting. The Company's duty to file periodic reports with the SEC, such as
quarterly and annual reports, will end once the Company has less than 300
shareholders of record.
The Company's Board of Directors on June 6, 2003 approved, subject to approval
by the Company's shareholders, a proposal to effect the Reverse Stock Split and
the Amendment to the Company's Certificate of Incorporation.
Adoption of the Reverse Stock Split and related Amendment are assured in view of
the Chief Executive Officer's statement that he intends to cause shares
controlled by him to be voted in favor of both proposals. The effect of the
Reverse Stock Split will be that each shareholder will receive one share of New
Common Stock in exchange for every 500,000 shares of Existing Common Stock that
they currently own. Since no new certificates representing fractional shares
will be issued, shareholders who would otherwise receive fractional shares as a
result of the Reverse Stock Split will instead receive for each share of
Existing Common Stock cash in the amount of $1.41 per share.
Potential Disadvantages
While the Company believes the Reverse Stock Split will result in the benefits
described above and elsewhere, several disadvantages should also be noted. The
ownership interest of shareholders holding less than 500,000 shares will be
terminated and such shareholders will not participate in the future growth or
profits, if any, of the Company. The Company will become a private company, and
continuing shareholders will not have the opportunity for a public market for
the Company's securities to develop unless the Company re-registers under the
Exchange Act in the future, which is not anticipated at this time.
After the Reverse Stock Split, the Company will terminate the registration of
its common stock under the Exchange Act and the Company will no longer be
subject to the reporting requirements under the Exchange Act. As a result of the
termination of the Company's reporting obligations under the Exchange Act:
o Less information will be required to be furnished to shareholders or
to be made publicly available by the Company;
o Various provisions of the Exchange Act, such as proxy statement
disclosure in connection with shareholder meetings and the related
requirement of an annual report to shareholders, will no longer
apply to the Company; and
10
o The reporting requirements and restrictions of the Exchange Act and,
significantly, the reporting provisions of Section 16, will no
longer apply to executive officers, directors and 10% shareholders
of the Company.
Furthermore, shareholders of the Company receiving cash as a result of the
Reverse Stock Split will be subject to federal income taxes and possibly state
and other taxes, as if they had sold their shares. As a result, shareholders who
receive cash due to the Reverse Stock Split may be required to pay taxes (or may
recognize a capital loss) on their respective shares of Existing Common Stock.
For further information, see "SPECIAL FACTORS - - Federal Income Tax
Consequences."
Background
During the fourth quarter of 2002, the Company's Board of Directors had a number
of informal discussions with management involving the issue of the Company
continuing to keep its common stock registered under the applicable provisions
of the Exchange Act or whether it would be in the best interests of the Company
and its shareholders to engage in a "going private" transaction that would
result in the Company's Existing Common Stock becoming eligible for termination
of registration under the Act.
These discussions arose out of the directors' collective realization that the
economic and regulatory climate in which the Company operates has changed
dramatically over the past year or so. The Board reviewed the transaction
history of the real estate assets of the Company and the market information
recently provided by the Company's real estate professionals. The Board realized
that, given the very significantly depressed nature of the Dallas commercial
real estate market, especially in the so-called "Dallas Telecom Corridor," that
the Company would be unlikely to be able to continue to sell its real estate
holdings at reasonable prices for the foreseeable future. As a result, the
Company's revenues would be significantly diminished, while its operating and
"carrying costs" would continue or increase. The Board concluded that a
liquidation of the real estate assets of the Company is not appropriate at this
time.
An example of this is the history of the Company's recent negotiations with Crow
Family Holdings. In February 2001, the Company completed the sale of
approximately 17 acres of property to Crow Family Holdings Industrial Texas, LP.
In addition, Crow Family Holdings acquired options, which expired 18 months from
the original sale date, to purchase substantially all of the Company's remaining
light industrial property. On February 22, 2002, the Company, at the Crow Family
Holdings' request, extended the closing on the expected sale of approximately 14
acres of the Company's property until August 22, 2002. The Company received a
$125,000 non-refundable deposit. On August 23, 2002, the Company was informed
that Crow Family Holdings would not close on this transaction, would not request
any further extensions, and would forfeit its $125,000 deposit.
During this time, Crow Family Holdings developed and constructed two light
industrial buildings on its property. As of this date, and based on the
Company's best information, neither of these buildings has been leased or sold
and both remain vacant.
The Board has concluded that the outlook for the commercial real estate market
in the Allen, Texas area has turned rather negative due to the increasingly soft
and negative economic conditions, the resulting various customer project delays,
and the suddenly depressed real estate market in the nearby Dallas Telecom
Corridor. The collapse in stock market valuations and the loss of investor
confidence has also greatly affected the overall economic outlook, especially
with regard to corporate spending and corporate investment, and has led to an
adverse outlook and atmosphere.
11
The first increased cost observed has been the cost of legal advice to implement
the procedures and policies required by the new regulations. The Company
experienced an increase of 100% in the latest year for regulatory legal expense.
The Company has seen its auditors quarterly review expenses increase by 100%.
The Company has been advised by its auditors that they will not perform the
future audits of the Company for the same fee as in previous years and have
advised the Company that an increase of 30% to 50% should be expected. The Board
considers these increases to be material.
The cost of Directors and Officers liability insurance has increased by 44% over
the past three years. The Board was informed that the insurance brokers of the
Company have estimated that the Company can expect an increase in Directors and
Officers liability insurance premium of 30% to 50% for the next fiscal year. The
Board considers this increase to be material.
The Company has reviewed all of its costs and expenses to locate areas of
potential reduction. The Board noted that the significant increases expected are
in the categories related to public reporting and regulatory compliance. The
Company has experienced increased premiums for Directors and Officers liability
insurance, as well as increased expenses for legal and auditing services. The
Board does not believe that it will be possible to reduce these costs and
expenses in the next year. The nature of the business of the Company limits its
ability to reduce its costs and expenses in other areas but the Board
acknowledges management's attempts to control these costs and expenses.
On February 13, 2003, the Company's Board of Directors approved the formation of
a Special Committee of Independent Directors to explore a "going private"
transaction by means of a Reverse Stock Split. The Special Committee of
Independent Directors is comprised of three members of the Board of Directors:
namely: James D. Kemp, Chairman; Erik M. Bodow; and Frank B. Ryan. Messrs. Kemp,
Bodow and Ryan are considered to be independent directors, since none of these
Directors received any compensation from the Company, other than compensation
connected with or arising out of his service as a director; none has a "material
relationship" with the Company; none is an "affiliated person" of the Company;
and, neither Mr. Kemp nor Mr. Ryan is a shareholder of the Company, while Mr.
Bodow holds a nominal 1000 shares of the Company's common stock.
On February 28, 2003, the Special Committee, which consists solely of
independent members of the Board, engaged Charenton Advisors as its financial
adviser to determine the price which would be paid in cash for the fractional
shares in the Reverse Stock Split, and to provide its opinion with respect to
the overall fairness of the transaction.
The principal reason for "going private" is to relieve the Company of the
increased costs, burdens and detriments of remaining a public company. In
deciding to undertake the "going private" transaction at this time, the Board of
Directors and Mr. Kneafsey, in his individual capacity, considered a number of
factors, including:
o the cost savings that the Company could reasonably expect to realize
as a result of the deregistration of its common stock, the costs of
corporate governance regulations, and the expenses relating to
servicing shareholders of the Company's common stock;
o the outlook for significant increases in the cost of directors' and
officers' insurance and independent audit costs;
o significant savings in terms of management's time, as management
would no longer be required to prepare the periodic reports required
of publicly traded companies or to be responsible for shareholder
relations and communications;
12
o the belief that the Company's shareholders are not currently
realizing many of the principal benefits of public ownership, and
have not benefited in any significant way from the OTC Bulletin
Board trading of it's common stock, principally as a result of the
relatively thin trading market for Siena's stock; and
o the fact that the sooner the Proposal can be implemented, the sooner
Siena will cease to incur the increasing costs and burdens of being
a public company.
o The $1.41 per share cash consideration represents a 34% premium over
the $1.05 per share closing price for Siena's common stock on
January 31, 2003, the last day of trading prior to Siena's
announcement that it had established a Special Committee of its
Board of Directors to explore a "going private' transaction by means
of a Reverse Stock Split, and a 85% premium over the twelve-month
low of $.76 per share.
After taking into account all of the benefits and disadvantages of the Company's
registration under the Exchange Act at the present time, the Board has concluded
that the continued monetary and human resource expense of such registration is
unjustified given the Company's inability to effectively take advantage of many
of the benefits of public registration. The Board believes that it is in the
Company's best interests to eliminate the administrative and financial burdens
associated with being and remaining a public company. To achieve the savings
from termination, the Board instructed management to implement the Reverse Stock
Split and termination of registration of the shares as soon as practicable.
The principal reason for "going private" is to relieve the Company of the
increased costs, burdens and detriments of remaining a public company. "Going
private" mitigates the risks associated with being a public company. "Going
private" eliminates the accounting, legal, and other costs associated with the
obligation to file annual, quarterly, and current reports with the SEC. "Going
private" also eliminates the obligation for compliance with the new requirements
of the Sarbanes-Oxley Act.
Being relieved of these costs and risks would also allow Siena the additional
time necessary to conduct more prudent sales of its properties.
The Board reasonably believes that many shareholders will welcome a "going
private" transaction, because it will provide them with liquidity by allowing
them to liquidate their investment for cash. Since Siena's shares are relatively
thinly traded, it may be difficult for a significant shareholder to cash out
without affecting the market price.
The Board recognized the concerns of a large number of the Company's
shareholders owning limited amounts of Siena's shares, whose liquidity is
reduced because typical transaction costs for public sale of their shares in
most cases represents a large percentage of the value of their holdings at
current prices. "Going private" will allow such shareholders to liquidate their
holdings at a fair value without these transaction costs by receiving cash for
their shares.
The Siena "going private" proposal is being made at this time because the sooner
the proposal can be implemented, the sooner Siena will cease to incur the
expenses and burdens of being a public company (which are only expected to
increase significantly) and the sooner shareholders who are to receive cash in
this transaction will receive and be able to reinvest or otherwise make use of
such cash payments.
13
Alternatives Considered by the Board of Directors
The Board of Directors considered alternative transactions to reduce the number
of shareholders and ultimately determined that the Reverse Stock Split was the
preferred method. The Board of Directors considered the following alternative
strategies:
Issuer Tender Offer. The Board of Directors considered, in concept, an
issuer tender offer by which the Company would offer to repurchase shares
of the Company's outstanding common stock. The results of an issuer tender
offer would be unpredictable, however, due to its voluntary nature. The
Board was uncertain as to whether this alternative would result in shares
being tendered by a sufficient number of record holders so as to permit
the Company to reduce the number of shareholders below 300, and to
terminate its SEC reporting requirements. The Board was also uncertain as
to whether many holders of a small number of shares would make the effort
to tender their shares. In addition, the Board considered that the
estimated transaction costs of completing a tender offer would be higher
than the costs of the Reverse Stock Split, and these costs could be
significant in relation to the value of the shares purchased since there
could be no certainty that a significant number of shares would be
tendered. Since an issuer tender offer would not necessarily meet the
Company's objective of reducing the number of shareholders below 300, the
Board did not address or consider potential purchase prices to be offered
in an issuer tender offer.
Purchase of shares in the open market. The Board of Directors rejected
this alternative because it concluded it was unlikely that Siena could
acquire shares from a sufficient number of holders to accomplish the
Board's objectives.
Sell the Company's Assets to an Outside Third Party. The Board determined
that this is not a realistic option at this time. Given the rather
depressed state of the Dallas Telecom Corridor real estate market, the
Board believe that finding a suitable buyer or buyers for the company's
properties would be difficult, and would take significant time. In all
likelihood, this approach would also destroy the potential usage of the
company's tax-loss carryfowards. And, while attempting to sell the Company
or its assets, all of the above-mentioned increased legal and financial
costs would be incurred, which would lower the company's eventual selling
proceeds even further. In considering this as an alternative to the
Reverse Stock Split, the Board recognized that obtaining shareholders'
approval for the outright sale of the Company would have been highly
unlikely given the number of shares beneficially owned by directors and
officers.
Liquidation. The Board also considered an orderly liquidation of the
Company and distribution of the net proceeds. However, due to the downturn
in the U.S. economy, the effects of September 11th and the overabundance
of properties in the commercial real estate market, the Board determined
that a liquidation of the Company was not appropriate at the present time.
Furthermore, given these current economic conditions, especially in the
commercial real estate sector in the area of the Company's properties, and
the need to sell all of the Company's properties within a relatively short
period of time in the context of a full liquidation, the Company's
management estimated that it is likely that the prices that would be
14
received for the real estate assets would be lower in a fire-sale or
liquidation type of sale. In all likelihood, this approach would also
destroy the potential usage of the company's tax-loss carryfowards. In
considering this as an alternative to the Reverse Stock Split, the Board
also recognized that obtaining shareholders' approval for the liquidation
of the Company would have been highly unlikely given the number of shares
beneficially owned by directors and officers.
Maintaining the Status Quo. The Board considered the alternative of taking
no action. However, due to the Company's significant and increasing costs
of compliance under the Exchange Act, especially in relation to the
Company's overall expenses and cash flow, the Board believes that taking
no action at this time is not in the best interests of the Company. The
Company estimates that at least $75,000 to $150,000 of additional annual
expenses may continue to be incurred if the Company continues to be a
reporting Company under the Exchange Act. This estimate is based
substantially on past experience, and may not necessarily be indicative of
actual future expenses in view of the additional requirements of the
Sarbanes-Oxley Act of 2002 and related SEC rules. The Company is not able
to estimate at this time the costs of full compliance with all of the
recently proposed and issued rules related to the Sarbanes-Oxley Act of
2002, but expects significant increases.
The Board of Directors has determined that the Reverse Stock Split is the most
expeditious and economical method of changing the Company's status from that of
a reporting company to that of a non-reporting company. The Company has not
sought, and has not received, any meaningful proposals for the merger or
consolidation of the Company, or for the sale or other transfer of all or any
substantial portion of the Company's assets, or for the securities of the
Company that would enable the holder thereof to exercise control of the Company.
The Board did not solicit proposals involving the merger or sale of the Company
because the Board did not believe that a merger or sale of the Company would be
in the best interests of the Company or its shareholders in view of current
conditions in the commercial real estate market affecting the Company's
properties as described under "Liquidation" above, and the Company had received
no meaningful expressions of interest to acquire the Company. In view of current
conditions in the commercial real estate market, the possibility that a third
party would offer a fair value to the Company's shareholders was, in the view of
the Board, remote.
The Board and Mr. Kneafsey, in his individual capacity, further believe that
"going private" will enhance the Company's competitive position. Most of the
Company's direct competitors are privately held companies. The Company believes
that it suffers a significant competitive disadvantage because it is required to
disclose to the public certain information that privately held competitors are
not required to disclose. This disclosure provides those competitors with
considerably more information about the Company than the Company is able to
obtain about such competitors.
Fairness of the Proposed Reverse Stock Split
The Board of Directors and Mr. Kneafsey, in his individual capacity, believe
that the Reverse Stock Split is in the best interests of the Company and is both
procedurally and substantively fair to both the affiliated and unaffiliated
shareholders of the Company. In determining the fairness of the Reverse Stock
Split to both the affiliated and unaffiliated shareholders of the Company, the
Board considered a number of factors prior to the approval of the proposed
transaction.
15
The Board and Mr. Kneafsey, in his individual capacity, even though it was not
required to do so, established a Special Committee of the Board of Directors,
which consists solely of independent members of the Board of Directors. The
Special Committee, even though it was not required to do so, engaged Charenton
Advisors to determine the fair value of the fractional shares to be paid in cash
in the Reverse Stock Split.
The Board and Mr. Kneafsey, in his individual capacity reasonably believes that
many shareholders will welcome the Reverse Stock Split transaction, because it
will provide them with liquidity by allowing them to liquidate their investment
for cash. Since Siena's shares are relatively thinly-traded, it may be difficult
for a significant shareholder to sell without affecting the market price.
The Board also recognized the concerns of a large number of the Company's
shareholders who own a limited amount of Siena's shares, and whose liquidity is
reduced because typical transaction costs for public sale of their shares in
most cases represents a large percentage of the value of their holdings at
current prices. The Reverse Stock Split will allow such shareholders to
liquidate their holdings at a fair value without these transaction costs by
receiving cash for their shares.
Item 1014(d) of Regulation M-A requires the Company to state whether or not a
majority of directors who are not employees of the subject Company has retained
an unaffiliated representative to act solely on behalf of unaffiliated security
holders for purposes of negotiating the terms of the Rule 13e-3 transaction
and/or preparing a report concerning the fairness of the transaction.
Given the relative simplicity of the proposed transaction and the patent
fairness of its structure and process, the Special Committee of the Company's
Board of Directors did not retain an unaffiliated representative to act solely
on behalf of unaffiliated security holders for purposes of negotiating the terms
of the Rule 13e-3 transaction. However, recognizing its responsibilities, the
Special Committee did retain Charenton Advisors to prepare an exhaustive opinion
as to the overall fairness of the transaction, including, especially, its
fairness to unaffiliated security holders. The prior limited professional
relationship between the Company and a Charenton affiliate has been disclosed.
Given these facts, the Company does not believe that an absence of procedural
safeguards with regard to the proposed Rule 13e-3 exists.
The Board by unanimous vote on June 6, 2003, with no member of the Board of
Directors dissenting or abstaining from such approval, adopted a resolution
declaring the terms and conditions of the Reverse Stock Split to be advisable,
and directing that a proposed amendment to the Certificate of Incorporation of
the Company effecting the Reverse Stock Split and reducing the Company's
authorized shares be submitted to all shareholders of the Company for
consideration.
In determining the fairness of the Reverse Stock Split to both the affiliated
and unaffiliated shareholders of the Company, and determining to approve the
Reverse Stock Split and recommend that shareholders approve it, the Board of
Directors and Mr. Kneafsey, in his individual capacity, considered the following
material factors:
o Since shareholders are not currently realizing many of the principal
benefits of public ownership, the Board determined that the
increasing costs of public reporting were not warranted as Siena's
status as a public company places significant financial burdens and
legal risks on the Company.
o The fairness opinion and analysis of Charenton Advisors as of May
15, 2003, which reviewed several approaches to valuation. The Board
relied on Charenton Advisors' analysis in making its determination
that the $1.28 per share plus a Contractual Right is fair, and
adopted Charenton Advisors' analysis of such factors as its own.
16
o The $1.41 per share cash consideration represents a 34% premium over
the $1.05 per share closing price for Siena's common stock on
January 31, 2003, the last day of trading prior to Siena's
announcement that it had established a Special Committee of its
Board of Directors to explore a "going private' transaction by means
of a Reverse Stock Split, and a 85% premium over the twelve-month
low of $.76 per share.
o The Board's view that a liquidation of the Company at this time
would likely result in an ultimate distribution to shareholders of
less than the $1.28 per share of Existing Common stock valuation
used in the Reverse Stock Split. Due to the downturn in the U.S.
economy, the effects of September 11th and the overabundance of
properties in the commercial real estate market, the Board
determined that a liquidation of the Company was not appropriate at
the present time. Furthermore, given these current economic
conditions, especially in the commercial real estate sector in the
area of the Company's properties, and the need to sell all of the
Company's properties within a relatively short period of time in the
context of a full liquidation, the Company's management estimated
that it is likely that the prices that would be received for the
real estate assets would be lower in a fire-sale or liquidation type
of sale. In all likelihood, this approach would also destroy the
potential usage of the company's tax-loss carryfowards. In
considering this as an alternative to the Reverse Stock Split, the
Board also recognized that obtaining shareholders' approval for the
liquidation of the Company would have been highly unlikely given the
number of shares beneficially owned by directors and officers. See
"SPECIAL FACTORS - Alternatives Considered by the Board of Directors
- Liquidation."
o Information regarding the Company's financial condition, including
the costs associated with the reporting requirements under the
Exchange Act, and the increasing costs being incurred as a result of
recent governance regulations, which are highly significant to the
Company. This information also supported the decision to proceed
with the Reverse Stock Split at a one for 500,000 ratio and $1.28
valuation by showing the Company had sufficient funds to pay cash in
lieu of fractional shares in the Reverse Stock Split.
The Board also considered a number of potential disadvantages to the Reverse
Stock Split. Following the Reverse Stock Split, shareholders who are cashed-out
will no longer have any ownership or voting rights in the Company, and will not
be able to participate in any future growth or profits that the Company may
experience. If the Reverse Stock Split is effected, the Company will become a
private company, and there will be no opportunity for a public market for the
company's securities to develop unless the Company re-registers under the
Exchange Act in the future, which is not anticipated at this time. Mr. Kneafsey,
in his individual capacity, has adopted the analysis of fairness of the Board of
Directors as decscribed above.
17
Opinion of Charenton Advisors
On February 28, 2003, the Special Committee of the Board of Directors of the
Company retained Charenton Advisors, a division of Charenton Realty, Inc.
("Charenton"), to render an opinion, from a financial viewpoint, on a range of
proposed purchase prices for fractional shares of the Company to be acquired in
the proposed going private transaction ("Opinion"). In requesting Charenton's
fairness opinion, the Special Committee did not give any special instructions to
Charenton or impose any limitations upon the scope of the investigations that
Charenton deemed necessary to enable it to deliver its Opinion.
The Special Committee received an Opinion, dated May 15, 2003, from an outside
expert, Charenton, relating to the fairness of the consideration to be offered
to both the affiliated and unaffiliated shareholders of the Company. The Opinion
stated that the purchase price in the range of $1.27 to $1.34 per share for
fractional shares of the Company's Existing Common Stock and the aliquot share
of the residual proceeds received from the Termination of the Management
Agreement and liquidation of Siena Housing Management Corp. following the sale
of the assisted care facility estimated to be worth zero to $0.15 per share was
fair from a financial point of view to the shareholders of the Company.
Charenton concluded that the value of the termination of the Management
Agreement and liquidation of Siena Housing Management Corp. following the sale
of the assisted care facility, if any, should be paid to both the affiliated and
unaffiliated shareholders of the Company. Charenton concluded that the value of
that ongoing business was zero because of potential liabilities resulting from
increasing professional liability insurance premiums. Charenton was therefore
able to conclude fairness whether the net proceeds from the termination of the
Management Agreement and liquidation of Siena Housing Management Corp. following
the sale of the assisted care facility were worth zero to $0.15 per share.
Charenton was selected by the Special Committee because Charenton had previously
provided financial services to the Company in 1998 concerning the private
placement of $2.2 million of shares of the Company. The Special Committee
considered Charenton to be qualified to render an Opinion with regard to the
fairness of the proposed reverse stock split by virtue of Charenton's background
experience and unique knowledge of the Company, its assets and its history. The
Company has not had any material relationship in the past four years with
Charenton other than the engagement to render the Opinion with regard to the
proposed reverse stock split and no other relationship is contemplated. The
Special Committee determined the amount of consideration to be paid and
requested Charenton's Opinion as to whether the proposed Reverse Stock Split and
resulting purchase of fractional shares would be fair to both the affiliated and
unaffiliated shareholders of the Company. Charenton was first engaged to render
the Opinion February 28, 2003, and has been compensated for such Opinion in the
amount of $50,000 plus reasonable out-of-pocket expenses.
Charenton's Opinion accompanies this Proxy Statement. Charenton's Opinion
described interviews with the Management of the Company, the real estate
consultant-broker, legal counsel and tax advisor as well as a review of Audited
financial statements of the Company for the years ended June 30, 1999 - June 30,
2002, Forms 10-Q and 8-K of the Company during the fiscal years 1999-2003,
unaudited consolidating balance sheet and income statement dated March 31, 2003,
a real estate valuation letter from Colliers International dated December 17,
2002, which was updated and confirmed in a telephone conversation on March 24,
2003, a letter and memorandum from the Chairman of the Board to the Board
concerning changes in the regulatory climate and impact of the same upon the
Company, a memorandum from the law firm of O'CONNELL & CO. to management
concerning the effect of the Sarbanes-Oxley law, Company-prepared spreadsheets
illustrating trading in Company shares by insiders and third parties, the effect
on the Company of a sale of the assisted care facility by Treemont of Texas,
Inc., and the disaggregated presentation of quantity, accounting basis, and
valuation of the Company's real estate. Colliers International, O'CONNELL & CO.,
And Mark Cason JD CPA have all been advisors to the Company for more that five
years and have unique knowledge of the Company, its assets and its history.
Colliers International, O'CONNELL & CO., and Mark Cason JD CPA did not receive
any additional compensation related to the Opinion.
18
In summary, Charenton's conclusion was that the transaction was fair to both the
affiliated and unaffiliated shareholders of the Company. In reaching this
conclusion, Charenton performed a variety of financial analyses based upon the
data reviewed. Charenton gave little weight to the going concern value of the
Company in view of the nature of the assets and operations of the Company.
Charenton prepared a liquidation analysis adjusting the book value of certain
assets to reflect values that might be realized in an orderly liquidation
proceeding and assigned a weight of 50% to the liquidation method for the reason
that the Company is presently in an orderly liquidation mode with Management
having made a practice of liquidating assets when opportunities occurred and
having indicated that the Company will continue to do so as conditions warrant.
Charenton analyzed the Company as if it had been an investment company
substantiated in part by the reasoned manner in which the Company has sought to
liquefy its portfolio of real estate and by its stated intention to employ its
tax attributes to acquire a portfolio of operating assets to replace that real
estate. Charenton applied a 5.5% discount to the Company's reported net asset
value after adjusting for the exercise of options, the 5.5% discount being the
reported average discount accorded to closed-end mutual funds for the years 2001
and 2002. Charenton assigned a modest 15% weight to the net asset value discount
for the reason the Company has historically traded at a discount to its net
asset value. Charenton analyzed the premiums paid in going private transactions
relative to preannouncement trading prices and assigned a 35% weight to the
premium paid methodology (using going private transactions) for the reason that
the Company, like most small public companies, was forced by the increased cost
of doing business to consider alternatives to remaining publicly held, and it
chose to go private.
In addition to its fundamental valuation analyses described above, Charenton
considered the overall context and rationale for the reorganization and the
alternative actions reviewed by Management and the Board of Directors. Charenton
considered the likelihood that, in the absence of the Transaction, the cost of
operating as a public company would force the Company to operate in a cash
negative manner for the foreseeable future.
Charenton used publicly reported trading data and Management's records to
determine that the Company's chief executive officer, its president, and one
director together accounted for about 70% of the volume that was reported to
have traded over the past two years. On the 146 days in which the shares traded
between June 1, 2001, and April 7, 2003, only 15 days had volume of more than
10,001 shares while 81 days had volume of less than 1,001 shares.
Charenton gave consideration to the fact that the proposed Reverse Stock Split
will enable the shareholders to liquefy their holdings without the burden of
transactional costs and without affecting the market price. A copy of the
Opinion is attached as Appendix B and should be read in its entirety by the
shareholders of the Company.
The Special Committee and the Board of Directors and Mr. Kneafsey, in his
individual capacity, all considered and gave substantial weight to Charenton's
Opinion in concluding that the proposed Reverse Stock Split was fair to both the
affiliated and unaffiliated shareholders of the Company.
19
Fairness Opinion of Charenton Advisors
May 15, 2003
Board Of Directors
Siena Holdings, Inc.
5068 West Plano Parkway
Suite 300
Plano, TX 75093
Re: Fairness Opinion Relative To A Proposed Going Private Transaction
Gentlemen:
The Board of Directors of Siena Holdings, Inc. ("Siena" or the "Company") has
retained Charenton Advisors, a division of Charenton Realty, Inc. ("Charenton"),
in its capacity as a financial valuation and consulting firm, to render its
opinion, from a financial viewpoint, as to a range of fair values of the
fractional shares of the Company to be acquired in a proposed going private
transaction presently contemplated to be structured as a reverse split (the
"Transaction"). This opinion is based upon financial information through March
31, 2003.
Charenton and its principals have no present or contemplated future interest in
Siena or the conclusion of the proposed Transaction. Charenton and its
principals in the past have provided advisory and other services to the Company
and its predecessor, which services are more fully described in Exhibit A
hereto. Neither Charenton nor its principals have any bias or conflict that
could cause a question as to their independence or objectivity. Compensation
paid to Charenton for this opinion is in no way contingent upon the consummation
of the proposed Transaction.
APPROACH TO ASSIGNMENT
The approach to this assignment was to consider the following factors:
A review of the businesses, assets, liabilities, and tax attributes that are
owned or incurred by Siena;
A review of recent going private transactions for comparable companies to Siena
in size;
A review of recent going private transactions for comparable companies to Siena
in business;
A review of the investment characteristics of the common stock of Siena;
A review of the terms of certain aborted divestitures of a business and real
property owned by Siena; and,
An evaluation of other factors as were considered necessary to render this
opinion.
DUE DILIGENCE REVIEW PROCESS
In performing this assignment, Charenton reviewed the documents cited in Exhibit
B pertaining to Siena and the proposed Transaction. Additionally, Charenton
conducted numerous interviews of Siena's management, real estate
consultant-broker, legal counsel, and tax advisor, all of whom have functioned
as a team for over five years.
THE PROPOSED TRANSACTION
As presently contemplated, the Transaction will be structured as a 1:500,000
share reverse split of the common stock of the Company, following which
fractional shares of the Company's stock will be retired for (a) cash at a price
to be set by the Special Committee of the Board of Directors of the Company plus
(b) a
20
Contractual Right (as such term is later defined) to receive a proportionate
share of the residual proceeds, if any, from the possible sale of the underlying
business of Siena Housing Management, Inc. According to the records of the
Company, only its two largest shareholders from before the Transaction will be
shareholders after the Transaction. The ownership of Mr. Kneafsey will increase
from 53% to 86% and the interest of Credit Suisse First Boston will decrease
from 16% to 14%. The remaining shares will be fractionalized and retired in the
manner described.
MAJOR CONSIDERATIONS
Siena is a publicly traded company that through LLG Lands, Inc., owns, improves,
and sells real estate in Allen, Texas, and through Siena Housing Management,
Inc., administers and operates an assisted care facility in Houston, Texas. The
only corporate-level assets of Siena are working capital (principally cash) of
$5.5 million and investments in subsidiaries. Additionally, Siena has tax loss
carryforwards of $119.1 million at the parent level and $149.9 in various
subsidiaries. Numerous factors were considered in the overall review of the
proposed transaction. The review process included considerations regarding
Siena, its subsidiaries, market factors, and the proposed Transaction. The major
considerations are as follows:
Siena Holdings, Inc.
The availability of tax loss carryforwards to shelter taxes arising from future
asset sales and acquisitions;
The inability of Siena to monetize its tax loss carryforwards through a sale due
to limitations on usability following a change of control;
The inability of Siena to utilize its tax loss carryforwards beyond sheltering
internally generated profits;
The inability of Siena to borrow money at favorable rates in the absence of
credit support;
The two previous chapter 11 reorganizations of Siena;
The absolute and increasing cost of conducting its affairs as a public company;
and
The prospect that Siena will generate insufficient cash flow to cover its
expenses.
LLG Lands, Inc.
The fundamentally attractive nature of its real estate portfolio;
The depressed market for commercial real estate in Allen, Texas;
The expiration of an option to purchase the Company's real estate by a major
national real estate developer with strong roots in the suburban-Dallas market;
and
The prospect of having to incur the costs of rezoning the properties and
maintaining a Texas presence while waiting for the market to turn.
Siena Housing Management, Inc.
The possibility that a presently interested buyer could acquire the assisted
care facility and generate for Siena residual sale proceeds of almost $1.0
million;
The complete lack of ownership control by Siena over the operations or direction
of the assisted care facility;
The increasing cost of operating an assisted care facility (for example, the
cost of liability insurance); and
The cost of insuring against future tort claims.
Market Factors
The lack of liquidity in the market for Siena shares;
That two shareholders own 67% of the shares;
That one of those shareholders, Siena's Chief Executive Officer, historically
has been the major buyer for the shares; and
That the market has never cleared a major block of shares in the absence of that
major buyer.
21
The Proposed Transaction
The range of prices to be paid for the fractional shares to be cashed out in the
Transaction;
The terms of the Contractual Right (as defined later herein) to receive the
residual distribution, if any, from the sale of the assisted care facility; and
The fair treatment of the retained investment of the two shareholders that were
not cashed out in the Transaction.
RELIANCE ON THIRD PARTIES
In performing its analysis, Charenton has relied on a range of estimates of the
value of the Company's real estate assets that were provided by John C. ("Buzz")
Franklin, a real estate consultant and broker with Colliers International, to
Siena and subsequently confirmed to Charenton by Mr. Franklin (the "Real Estate
Valuation"). While Charenton is in no position independently to verify the Real
Estate Valuation, Charenton is satisfied that:
Mr. Franklin has successfully represented Siena for over 10 years;
In a small real estate market such as Allen, Texas, the potential risks
associated with introducing a second real estate broker to the Company's real
estate portfolio outweigh the potential benefits of obtaining a second Real
Estate Valuation;
There is a higher degree of integrity in a range of values, such as provided by
Mr. Franklin, than in a single composite value; and
News items and broken deals for parcels of the Company's real estate corroborate
Mr. Franklins's assessment that the real estate market in Allen, Texas, is
presently depressed.
In performing its analysis Charenton also relied on the advice provided to Siena
by its tax advisor, Mark Cason, as to the consequences of a change of control on
the Company's tax loss carryforwards and on the Company's management as to the
nature of the Company's contractual relationship with Treemont of Texas, Inc.,
the owner of the assisted care facility in Houston, Texas (hereafter
"Treemont").
OVERVIEW OF FAIRNESS ANALYSIS
The preparation of an opinion as to a range of fair values is a complex process
involving subjective judgments and should not be interpreted based upon partial
analyses. In connection with rendering its opinion,
Charenton has performed a variety of financial analyses, based on data and
opinion provided by the Company and others, which are summarized below.
Charenton believes that its analyses must be considered as a whole and that
considering only selected factors could create an incomplete view of the
analyses and the process underlying the opinion.
Issuance Of Contractual Right To Receive The Residual Proceeds From The
Termination Of The Management Agreement Caused By The Sale Of The Assisted Care
Facility
As publicly reported, Treemont has been negotiating and has recently reached an
agreement to sell the operations of the assisted care facility, of which it is
the owner. If that sale occurs, then the Management Agreement between Siena and
Treemont (the "Management Agreement") will be terminated and Siena will be
entitled to receive a portion of the sale proceeds pursuant to a negotiated
formula. However, if such a sale is not consummated, then Treemont and the
Company have discussed the possibility of shutting down the nursing home portion
of the business. In any event, Siena has considered purchasing "tail" insurance
to prolong coverage of potential liabilities arising from the nursing home
business, and in that connection Siena has received an indication of a quote of
$800,000 from its insurance broker.
22
Siena is in no position to assess the likelihood that the sale of the assisted
care facility will be consummated. Accordingly, in the interest of providing the
full benefit of the sale to Siena's shareholders, Siena will issue to its
shareholders as part of the Transaction the Contractual Right (as defined
immediately below) to receive their aliquot shares of the residual proceeds from
the termination of the Management Agreement and the resulting liquidation of
Siena Housing Management Corp. following the sale of the assisted care facility
(the "Contractual Right"), provided that the termination of the Management
Agreement following the sale of the assisted care facility occurs on or before
December 31, 2003. The residual proceeds will be determined by the application
of a sharing arrangement between Treemont and Siena, following which Siena will
deduct from its share of the residual proceeds certain costs, the most
significant of which is anticipated to be the cost of purchasing the aforesaid
"tail" insurance. It is presently estimated that the maximum distribution, if
any, pursuant to the Contractual Right will be just under $1.0 million.
Liquidation Method Of Valuation
Charenton prepared a liquidation analysis to arrive at a range of values that
might be available to the common shareholders of the Company assuming: (1) a
sale of the Company's assets on an orderly basis, (2) the payment of outstanding
liabilities and other claims, and (3) the distribution of any net proceeds
therefrom to the holders of its common stock. It should be noted that
Charenton's liquidation analysis did not include a valuation of the potential
net value to Siena resulting from its share of the proceeds from the sale of the
assisted care facility; if the sale is consummated, then all of those residual
proceeds will be distributed to Siena's shareholders.
Charenton's starting point for the liquidation analysis was the Company's March
31, 2003, balance sheet, which was the most current available financial
statement. Charenton then adjusted the book value of certain assets to reflect
values that might be realized in an orderly liquidation proceeding and set up
reserves for the anticipated cost of liquidating the Company. In making these
adjustments, Charenton considered the estimates of management and third party
experts as to certain asset values and expenses. Certain assumptions and
conclusions respectively underlying and resulting from the liquidation analysis
are summarized as follows:
Real Estate: The real estate portfolio was valued on the basis of certain low
case and high case square foot valuation measures that varied according to
zoning, in the manner suggested by Colliers International, the Company's
longstanding real estate consultant and broker, producing a range of values from
$5.5 million to $6.3 million.
Assisted Care: The assisted care operation was valued on the basis of discounted
cash flow from Treemont, Inc., net of direct and associated corporate expenses,
producing de minimus values.
Parent Corporation: The parent corporation was valued on the basis of its net
working capital, plus options exercise proceeds, minus discounted operating
expenses, minus non-current liabilities, producing a value of $3.8 million.
Timing: It was assumed that the real estate portfolio would be liquidated in 12
months, that the duration of cash flow from assisted care in the low case and
high case, respectively, would be 12 and 24 months, that the corporate parent
would be liquidated over 24 months, and that all future occurring items were
present valued at 15% per annum.
Illiquidity Discount: An illiquidity discount of 15% was applied to the result,
producing a range of liquidation values from $8.0 million to $8.7 million, or
$1.20 to $1.30 per share.
23
Net Asset Value Method Of Valuation
In view of Siena's highly liquid balance sheet and the portfolio nature of its
primary illiquid asset, real estate, Charenton analyzed Siena as if it had been
an investment company; structurally, a closed-end fund. This is substantiated in
part by the reasoned manner in which Siena has sought to liquefy its portfolio
of real estate and by its stated intention to employ its tax attributes to
acquire a portfolio of operating assets to replace that real estate.
Accordingly, Charenton applied a 5.5% discount to the Company's reported net
asset value after adjusting for the exercise of options, the 5.5% discount being
the reported average discount accorded to closed-end mutual funds for the years
2001 and 2002(1). This produced a value of $8.9 million, or $1.33 per share.
Premium Paid Method Of Valuation - Going Private Transactions
Charenton analyzed premiums paid in going private transactions relative to
pre-announcement trading prices. This analysis examines the differences between
the offer price and the target's market price at three distinct points in time.
This analysis is based upon information obtained from SEC filings, public
company disclosures, press releases, industry and popular press reports,
databases, and other sources. Charenton assembled a 44-company universe of going
private transactions that were announced between the fourth quarter of 2001 and
the first quarter of 2003, where the value of the securities to be acquired (the
"Retired Equity Value") was under $20.0 million. Charenton then filtered the
initial large sample into two smaller samples:
A 20-company control sample(2) that involved all transactions that had Retired
Equity Value of between $1.5 million and $20.0 million; and
An 8-company working sample(3) that met the following characteristics: (a)
Retired Equity Value of between $1.5 million and $20.0 million and (b) principal
business of or related to real estate (5 companies involved in real estate
ownership, construction, home building, and building supplies), assisted care
facilities (1 company), and portfolios of diversified operations (1 company) or
financial instruments (1 company). Coincidentally, half of this sample had tax
loss carryforwards of over $5.0 million.
The 8-company working sample yielded mean premiums of the final deal price over
the closing prices 1 day, 1 week, and 4 weeks prior to the initial announcement
of, respectively, 29%, 32%, and 35%. This compared favorably with the central
cluster of 14 companies (the "bell" in a bell curve)(4) within the 20-company
sample, which produced premiums of 30%, 32%, and 31% over the closing prices 1
day, 1 week, and 4 weeks prior to the initial announcements. Accordingly, under
this valuation methodology a range of premiums of 29% to 33% over the $1.05
closing price 1 day prior to the announcement would appear to be justified,
producing a range of values from $9.0 million to $9.3 million, or $1.35 to $1.40
per share.
----------
(1) Wachovia Securities: Closed-end Funds Performance; Total Return For The
Periods Ended December 31, 2002.
(2) Genesee Corp., Century Builders Group, Inc., The Judge Group, Inc., Oriole
Homes Corp., Marlton Technologies, Inc., Chesapeake Financial Services,
Inc., Interstate National Dealer Services, Inc., National Home Centers,
Inc., Deltona Corporation, Interfoods of America, Inc., Ugly Duckling
Corp., The Rottlund Co., Inc., Paris Corp., Westminster Capital, Inc.,
Disc Graphics, Inc., Sandata Technologies, Inc., Successories, Inc.,
PartsBase, Inc., Clary Corp., and Balanced Care Corp.
(3) Deltona Corporation, Genesee Corp., National Home Centers, Inc., Century
Builders Group, Inc., Balanced Care Corp., Westminster Capital, Inc.,
Oriole Homes Corp., and The Rottlund Co., Inc.
(4) The transaction prices paid in respect of these 14 companies represented
premiums of between 10% and 60% over the trading prices 4 weeks prior to
announcement.
24
Other Valuation Methodologies
Going Concern Valuation: The nature of Siena's assets and operations do not lend
themselves to a going concern valuation; Siena's real estate is held for sale
and its participation in the assisted care industry is through a contractual
arrangement that is financial in nature. The inapplicability of this methodology
is readily apparent from the two traditional going concern analyses: (a)
discounted cash flow, and (b) market multiple. A discounted cash flow approach
provides insight into the intrinsic value of a business based on the projected
earnings and capital requirements and the net present value of the subsequent
unlevered free cash flows to be generated by the assets of such business. Siena
has neither operations, earnings, nor capital requirements and the unlevered
free cash flows from its assets were analyzed by the more appropriate
liquidation methodology. Similarly, the market multiple approach also requires
non-existent data: valuation multiples of comparable companies in the
marketplace and in transactions. The major asset of Siena being its now-dormant
real estate, the more appropriate valuation methodology would be a real estate
appraisal such as performed by the Company's real estate consultant and broker,
Colliers International, and used in the liquidation analysis. While it is
conceivable that a buyer might purchase the shares of Siena in order to acquire
its real estate, uncertainties arising from the Company's two previous
bankruptcies and vague long-tail legacy liabilities (viz., potential retirement
obligations and tort claims) make an asset purchase of the real estate more
likely than a real estate impelled acquisition of the corporate entity.
Summary Of Analyses
Set forth below is an application of Charenton's best estimate of appropriate
weights to be assigned to each valuation method:
Charenton assigned a weight of 50% to the liquidation method for the reason that
Siena is presently in an orderly liquidation mode, management having made a
practice of liquidating assets when opportunities occurred and having indicated
that the Company will continue to do so as conditions warrant; Charenton
assigned a 35% weight to the premium paid methodology (using going private
transactions) for the reason that Siena, like most small public companies, was
forced by the increased cost of doing business to consider alternatives to
remaining publicly held, and it chose instead to go private, and Charenton
assigned a modest 15% weight to the net asset value discount for the reason
Siena has historically traded at a discount to its net asset value.
Without giving effect to the value, if any, of the Contractual Right to be
distributed to the Company's shareholders, the range of weighted share
valuations produced by the foregoing analyses is $1.27 to $1.34 per share. The
Contractual Right would add another zero to $0.15 per share to the distribution
in lieu of fractional shares. This range of values represents premiums of 23% to
45% over the last reported closing price of $1.03 per share (23% to 30%, if cash
alone is considered).
The summary set forth above does not purport to be a complete description of the
analyses performed by Charenton. The analyses performed by Charenton are not
necessarily indicative of actual values, which may differ significantly from
those suggested by such analyses. Charenton did not appraise any individual
assets or liabilities of the Company. Throughout the due diligence process,
Charenton relied upon all information provided by the Company and third party
sources without independent verification.
Analysis Of Alternate Actions
In addition to its fundamental valuation analyses described above, Charenton
considered the overall context and rationale for the reorganization and the
alternative actions reviewed by the Company's management and board of directors.
Charenton considered the likelihood that, in the absence of the Transaction, the
cost of operating as a public company would force Siena to operate in a cash
negative manner for the foreseeable future.
25
Analysis Of Liquidity
Siena's shares are highly illiquid. Using publicly reported trading data and
management's records, and not attempting to correct for duplicative trades, the
Company's chief executive officer, its president, and one director together
accounted for about 70% of the volume that was reported to have traded over the
past two years. On the 146 days in which the shares traded between June 1, 2001,
and April 7, 2003, only 15 days had volume of more than 10,001 shares while 81
days had volume of less than 1,001 shares. The proposed Transaction will enable
all the shareholders to liquefy their holdings without the burden of
transactional costs and without affecting the share price.
Impact On Remaining Shareholder
If the proposed Transaction is consummated, the Company's second largest
shareholder will continue to own approximately the same percentage interest that
it had owned before the Transaction. Moreover, if the shareholder's fractional
shares are be cashed out in the range of values described above, then it will
receive between $578,000 and $610,000 in cash and $157,000 in net proceeds, if
collected, from the termination of the Management Agreement following the sale
of the assisted care facility. As part of the Transaction, the Company's chief
executive has committed to provide credit support to the Company in the manner
described in Exhibit C hereto, if necessary to facilitate the transition of a
company with numerous public shareholders to a company with only two
shareholders.
FAIRNESS OPINION
Based upon the foregoing analyses and such other matters as were considered
relevant, it is the opinion of Charenton that a package of (a) cash in the range
of $1.27 to $1.34 per share, and (b) the aliquot share of the residual proceeds
received from the termination of the Management Agreement following the sale of
the assisted care facility, estimated to be worth zero to $0.15 per share, is a
fair price from a financial point of view to be paid to the cashed-out
shareholders of Siena.
Thank you for this opportunity to be of service to the shareholders of Siena
Holdings, Inc..
Sincerely yours,
/s/ Charenton Advisors
CHARENTON ADVISORS
A Division Of
CHARENTON REALTY, INC.
26
EXHIBIT A - SIENA HOLDINGS - ADDITIONAL DISCLOSURE
Mark M. Feldman, the chief executive officer of Charenton, has worked on a
number of restructuring cases with W. Joseph Dryer, the president of Siena, for
over 10 years, including that of the Company's predecessor, Lomas Financial
Corporation ("Lomas"). In the Lomas case, Mr. Feldman served as the
court-appointed chief restructuring officer and also as a director of Lomas for
the period 1993-1996, during which time Mr. Dryer served as the court-appointed
chief control officer. Mr. Feldman had received 820 shares of Siena in
satisfaction of a pension claim that he had asserted in the bankruptcy
proceedings of Lomas. While the value of these shares was de minimus, Mr.
Feldman transferred his economic interest in them to his adult daughter prior to
this engagement.
Charenton provided to the Board of Siena an opinion as to the fairness of a
private placement of $2.2 million of shares in Siena in 1998.
EXHIBIT B - SIENA HOLDINGS -- DOCUMENT REVIEW LIST
1. Audited financial statements of Siena for the years ended June 30, 1999 -
June 30, 2002.
2. Forms 10-Q and 8-K of Siena during the fiscal years 1999-2003.
3. Unaudited consolidating balance sheet and income statement dated March 31,
2003.
4. Real estate valuation letter from Colliers International dated December
17, 2002, which was updated and confirmed in a telephone conversation on
March 24, 2003.
5. Letter and memorandum from the CEO, Jack Kneafsey, to the Board concerning
changes in regulatory climate and impact of the same upon Siena.
6. Memorandum from Kevin O'Connell, outside legal counsel to the Company, to
management concerning inter alia the effect of the Sarbanes-Oxley Act upon
the Company.
7. Company-prepared spreadsheets illustrating:
o Trading in Company shares by insiders and third parties,
o Effect on Company of a sale of the assisted care facility by
Treemont of Texas, Inc., and
o Disaggregated presentation of quantity, accounting basis, and
valuation of the Company's real estate
8. Additional pertinent information deemed necessary to render this opinion.
EXHIBIT C - SIENA HOLDINGS -SHAREHOLDER CREDIT SUPPORT
The Company's largest shareholder and chief executive officer, Jack
Kneafsey, has proposed to make available to the Company in the form of a
secured loan or a secured guaranty, up to $1.0 million of cash or credit,
as the case may be, to facilitate the transition of Siena from a public
company to a private company.
27
Certain Effects of Reverse Stock Split Proposal
Effects of the Reverse Stock Split on the Company . The Board and Mr. Kneafsey,
in his individual capacity, considered the following effects that the Reverse
Stock Split will have on the Company:
o Reduction in the Number of Shareholders of Record and the Number of
Outstanding Shares. We believe that the Reverse Stock Split will
reduce our number of shareholders of record from approximately 700
to approximately 2. We estimate that approximately 2,500,000 shares
will be exchanged for cash in lieu of fractional shares in the
Reverse Stock Split. The number of outstanding shares of common
stock will decrease from approximately 6,000,000 to approximately 7.
Accordingly, the liquidity of the shares of our common stock will
substantially decrease.
o Change in Book Value. Each shareholder will receive one share of New
Common Stock in exchange for every 500,000 shares of Existing Common
Stock that they currently own. Since no new certificates
representing fractional shares will be issued, shareholders who
would otherwise receive fractional shares as a result of the Reverse
Stock Split will instead receive for each share of Existing Common
Stock cash in the amount of $1.41 per share.
The number of shares of common stock expected to be cashed out as a
result of the Reverse Stock Split is estimated to be approximately
2,500,000. The total expenditures for the Company, including
expenses, of effecting the Reverse Stock Split is expected to be
approximately $ 3,775,000. We expect that the book value per share
of common stock will be changed from approximately $1.56 per share
as of March 31, 2003, on a historical basis to approximately
$925,000 per share on a pro forma basis. However, it is important to
note that book value is an accounting methodology based on the
historical cost of our assets, and therefore does not reflect our
current value.
o Available Cash . Our cash will be reduced by approximately
$3,775,000 on a pro forma basis as of March 31, 2003.
o Termination of Registration . Our common stock is currently
registered under the 1934 Act and traded on the OTC Bulletin Board,
which is a regulated quotation service that displays real time
quotes, last sales price and volume limitation in over-the-counter
equity securities. We are permitted to terminate our registration if
there are fewer than 300 record holders of outstanding shares of our
common stock. Upon the completion of the Reverse Sock Split, we will
have approximately 2 stockholders of record. We intend to apply for
termination of registration of our common stock under the 1934 Act
and to remove our common stock from trading on the OTC Bulletin
Board as promptly as possible after the effective date of the
Reverse Stock Split.
Termination of registration under the 1934 Act will substantially reduce the
information required to be furnished by us to our shareholders and to the
Securities and Exchange Commission. In addition, the reverse stock split will
make many of the provisions of the 1934 Act, such as the short-swing profit
provisions of Section 16, the requirement of furnishing a proxy or information
statement in connection with stockholder meetings under Section 14(a) and 14(c),
some of the requirements relating to tender offers under Section 14(d) and the
requirements of Rule 13e-3 regarding "going private" transactions, no longer
applicable to us.
28
o Financial Effects of the Reverse Stock Split. We estimate that
approximately $3,525,000 will be required to pay for the fractional
shares of our common stock exchanged for cash in the Reverse Stock
Split. Additionally, we estimate that professional fees and other
expenses related to the transaction, will total approximately
$240,000 for the following:
SEC filing fees $ 100
Legal fees 140,000
Accounting fees 10,000
EDGAR filing preparation fees 8,000
Valuation fees 50,000
Printing and Mailing costs 10,000
Transfer Agent Fees 10,000
Other 11,900
-----------------------------------------------
Total $240,000
The payment to shareholders receiving cash in the Reverse Stock
Split and the payment of expenses will reduce the Company's capital
and liquidity by approximately $3,775,000, but will not have any
material adverse effect on the Company's operations or cash flow.
As discussed above in "Special Factors--Purposes of and Reasons for the Reverse
Stock Split," we anticipate saving approximately $75,000 to $150,000 annually in
direct costs and an indeterminable amount in indirect savings resulting from the
reduction in the time that must be devoted by our employees to preparing public
reports and filings and responding to stockholder inquiries. We will be the
beneficiary of the projected savings as a result of termination of registration
of our common stock under the 1934 Act. It is anticipated that the Company will
retain its tax-loss carryforwards. If we generate taxable income in future
periods (but prior to the expiration of the tax-loss carry-forwards), our
shareholders in such future periods may derive a benefit because we may utilize
these loss carry-forwards to reduce or eliminate our federal income tax
liability in such periods. If substantial changes occur in our ownership,
moreover, there may be annual limitations on the utilization of such
carry-forwards.
o Rights, Preferences and Limitations . There are no differences
between the respective rights, preferences and limitations of our
common stock currently outstanding and the common stock to be
outstanding after the Reverse Stock Split becomes effective. There
will be no difference with respect to dividend, voting, liquidation
or other rights associated with our common stock before and after
the Reverse Stock Split.
Effects of the Reverse Stock Split on our Shareholders . Our Board and Mr.
Kneafsey, in his individual capacity, reviewed the effects of the reverse stock
split on our stockholders. In doing so, our Board considered the effects on our
affiliated shareholders (those who are directors and officers) and our
unaffiliated shareholders, both those who will remain shareholders and those who
will be cashed out in the Reverse Stock Split.
o Affiliated Stockholders . As a result of the Reverse Stock Split, we
expect that the percentage of beneficial ownership of our common
stock held by our directors and officers as a group will increase
from approximately 55% to approximately 86% after the Reverse Stock
Split, and approximately all of our voting common stock
29
will be controlled by our affiliates. These shareholders will
increase their ownership percentage without any additional
investment. As a result of their additional ownership, these
shareholders will be able, under Delaware law, to approve a merger
or sale of the company, among other things, by majority written
consent without needing to seek or obtain the consent of
unaffiliated stockholders. It is anticipated that our directors and
officers will remain in the same positions in the company that they
had prior to the Reverse Stock Split.
After the Reverse Stock Split, our common stock will not be
registered under the 1934 Act. Our directors, officers and other
affiliates will no longer be subject to many of the reporting
requirements, such as reporting of related party transactions and
compensation, and restrictions of the 1934 Act, including the
reporting and short-swing profit provisions of Section 16.
Mr. Kneafsey's interest in our shareholders' book value and net
losses before and after the Reverse Stock Split is as follows:
Before Reserve Stock Split After Reverse Stock Split
Shareholders' Book Value $ 5,407,900 $ 5,568,500
Net Losses $(1,127,481) $(1,837,820)
o Unaffiliated Shareholders . Our Board reviewed the following effects
of the Reverse Stock Split on our unaffiliated shareholders, both
those who will remain shareholders after the Reverse Stock Split and
those who would receive only cash and be eliminated entirely as
shareholders.
o Remaining Shareholders . Terminating the registration of our
common stock will affect the market for our common stock and
the ability of remaining shareholders to buy and sell shares.
Even as a public reporting Company, however, we have a limited
trading market for our common stock, especially for sales of
large blocks of shares. Our board noted that our shareholders
derive little relative benefit from our status as a public
reporting company. After the Reverse Stock Split, our common
stock will no longer be quoted on the OTC Bulletin Board. In
addition, we will no longer be required to file public reports
of our financial condition and other aspects of our business
with the Securities and Exchange Commission. As a result,
shareholders will have less legally mandated access to
information about our business and results of operations than
they had prior to the Reverse Stock Split. Finally, the
remaining unaffiliated shareholders will have no control over
the Company because the affiliated shareholders will increase
their ownership percentages and substantially all of our
voting securities will be beneficially owned by our affiliated
shareholders and related entities.
o Shareholders Being Cashed Out. Shareholders being cashed out
will receive $1.41 per share for each share of Existing Common
Stock that they currently own, and will no longer be
shareholders of the company. Such shareholders will no longer
be entitled to vote as a shareholder or share in our assets,
earnings or profits with respect to such cashed out shares.
30
o Stock Options . The exercise price of each outstanding stock option
will automatically increase by a factor of 500,000:1. Under the 1997
Stock Option Plan, options may be granted covering up to 634,750
shares of common stock. The plan granted the officers options to
purchase an aggregate of 434,750 shares of common stock, and granted
the directors options to purchase a total of 200,000 shares of
common stock. The options have an exercise price of $0.92 per common
share, and vest in five equal installments beginning on the date of
grant. As of March 31, 2003, the stock options are 100% vested.
o Preferred Stock . The Company, as of March 31, 2003, June 30, 2002,
and June 30, 2001, had 1,000,000 shares of $1.00 par value preferred
stock authorized, with 0 shares issued and outstanding.
Contractual Right
Previously, the Company proposed that since no new certificates representing
fractional shares would be issued, each shareholder owning less than 500,000
shares of Existing Common Stock, or who would otherwise receive fractional
shares as a result of the Reverse Stock Split, would receive in exchange for
each share of Existing Common Stock cash in the amount of $1.28 plus a
Contractual Right (the Contractual Right) to receive the residual proceeds from
the Termination of the Management Agreement and the resulting liquidation of
Siena Housing Management Corp. caused by the sale of the assisted care facility
provided that this termination of the Management Agreement following the sale of
the assisted care facility occurs on or before December 31, 2003.
The Company originally expected that this transaction, if it were to close,
would close in the fourth quarter of 2003. However, as recently reported, on
August 29, 2003, this Management Agreement was, in fact, terminated earlier than
anticipated due to the closing of the sale of the assisted care facility
Treemont.
In the interest of providing the full residual benefit of this transaction to
Siena's shareholders, shareholders who would otherwise receive fractional shares
as a result of the Reverse Stock Split will now receive for each share of
Existing Common Stock cash in the amount of $1.41 per share, which represents
the sum total of the originally proposed $1.28 per share plus the fully-diluted,
pro-rata share of the residual proceeds from the assisted care facility
transaction of $.13 per share.
31
Federal Income Tax Consequences
THE FOLLOWING DISCUSSION SUMMARIZING ALL MATERIAL FEDERAL TAX CONSEQUENCES
IS BASED ON CURRENT LAW. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX EFFECTS OF THE
REVERSE STOCK SPLIT IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
Summarized below are the material federal income tax consequences to Siena and
its shareholders resulting from the Reverse Stock Split proposal. This summary
is based on existing U.S. federal income tax law, which may change, even
retroactively. This summary is not binding on the Internal Revenue Service.
There can be no assurance and none is given that the IRS or the courts will not
adopt a position that is contrary to the statements contained in this summary.
This summary does not discuss all aspects of federal income taxation, which may
be important to you in light of your individual circumstances, and many
shareholders may be subject to additional tax rules. In addition, this summary
does not discuss any state, local, foreign, or other tax considerations. You
should consult your tax advisor as to the particular federal, state, local,
foreign, and other tax consequences in light of your specific circumstances.
This summary also assumes that each Siena shareholder is one of the following: a
citizen or resident of the United States; a corporation or other entity taxable
as a corporation created or organized under U.S. law (federal or state); an
estate the income of which is subject to U.S. federal income taxation regardless
of its sources; a trust if a U.S. court is able to exercise primary supervision
over administration of the trust and one or more U.S. persons have authority to
control all substantial decisions of the trust; or any other person whose
worldwide income and gain is otherwise subject to U.S. federal income taxation.
In general, the receipt by a shareholder of cash in lieu of fractional shares of
new common stock pursuant to the reverse stock split should, under the tax laws
of the United Sates as are currently in effect, be treated as a redemption of
stock and should therefore be considered to be a taxable transaction for federal
income tax purposes. The tax treatment of a redemption of stock is governed by
Section 302 of the Code and, depending on a shareholder's situation, will be
taxed as either: (i) a sale or exchange of the redeemed shares, in which case
the shareholder will recognize gain or loss equal to the difference between the
cash payment and the shareholder's tax basis for the redeemed shares; or (ii) a
cash distribution which is treated: (a) first, as a taxable dividend to the
extent of the Company's 2003 earnings and its accumulated earnings and profits;
(b) then, as a tax-free return of capital to the extent of the shareholder's tax
basis in the redeemed shares; and (c) finally, as gain from the sale or exchange
of the redeemed shares. Whether gains or losses from the sale of capital assets
are short-term or long-term capital gains or losses depends on the period the
capital asset was held.
It is anticipated that, the proposed Reverse Stock Split and related Amendment
to the Certificate of Incorporation will not have any federal income tax
consequences for the Company.
32
PROPOSAL NO. 1 REVERSE STOCK SPLIT
General
The Board of Directors has unanimously adopted a resolution approving, and
recommending to shareholders for approval an amendment to the Company's
Certificate of Incorporation to effect the proposed one for 500,000 Reverse
Stock Split of its issued and outstanding common stock. The form of amendment is
attached hereto as Appendix A.
If the shareholders approve the Reverse Stock Split, the Company intends to file
the amendment to the Company's Certificate of Incorporation with the Secretary
of State of Delaware (the "Secretary of State"). The Reverse Stock Split will
become effective on the date the amendment is filed with the Secretary of State,
or such later date as is specified in the filing. The Company expects the
amendment to become effective as soon as practicable following the Special
Meeting. If approved, the Reverse Stock Split will be implemented even if
shareholders do not approve Proposal No. 2 Reduction in Authorized Common Stock.
The Company had 6,000,000 shares of common stock outstanding as of the Record
Date. If the Reverse Stock Split is approved and implemented, each share of
Existing Common Stock will automatically be reclassified into .000002 of a fully
paid and non-assessable share of New Common Stock without any further action on
the part of the shareholders. Assuming no change in the number of outstanding
shares from the Record Date, if the Reverse Stock Split is approved, the
currently outstanding shares of Existing Common Stock will be converted into
approximately shares of New Common Stock. The Company estimates that
approximately $ 3,525,000 will be paid in cash in lieu of fractional shares.
Each shareholder will receive one share of New Common Stock in exchange for
every 500,000 shares of Existing Common Stock that they currently own. Since no
new certificates representing fractional shares will be issued, shareholders who
would otherwise receive fractional shares as a result of the Reverse Stock Split
will instead receive for each share of Existing Common Stock cash in the amount
of $1.41 per share.
Exchange of Certificates and Payment of Fractional Shares
If the shareholders approve the Reverse Stock Split and the Amendment to the
Certificate of Incorporation, the Company will file the Amendment with the
Secretary of State. The Reverse Stock Split will become effective on the date
the Certificate of Amendment is issued by the Secretary of State (the "Effective
Date"), or such later date as is specified in the filing.
As soon as practicable after the Effective Date, each holder of an outstanding
certificate theretofore representing Existing Common Stock will receive from as
the Company's transfer agent (the "Exchange Agent") instructions for the
surrender of such certificate to the Exchange Agent. The instructions will
include a Letter of Transmittal to be completed and returned to the Exchange
Agent with such certificate. As soon as practicable after the surrender to the
Exchange Agent of any certificate which represented shares of Existing Common
Stock, together with a duly executed Letter of Transmittal and any other
documents the Exchange Agent may specify, the Exchange Agent shall deliver to
the person in whose name such certificates have been issued, (i) certificates
registered in the name of such person representing the number of full shares of
New Common Stock into which the shares of Existing Common Stock represented by
the surrendered certificate shall have been reclassified, and/or (ii) cash for
fractional shares.
33
For the purpose of determining ownership of Existing Common Stock at the
Effective Date, shares will be considered to be held by the person in whose name
those shares are registered. No service charges, brokerage commissions or
transfer taxes shall be payable by any holder of any certificate which prior to
the approval of the Reverse Stock Split represented any shares of Existing
Common Stock, except that if any certificates for New Common Stock are to be
issued in a name other than that in which the certificates for shares of
Existing Common Stock surrendered are registered, it shall be a condition of
such issuance that (i) the person requesting such issuance pay to the Company
any transfer taxes payable by reason thereof (or prior transfer of such
surrendered certificate, if any) or establish to the satisfaction of the Company
that such taxes have been paid or are not payable, and (ii) such surrendered
certificate shall be properly endorsed and otherwise be in proper form for
transfer.
No certificates or scrip representing fractional shares of New Common Stock
shall be issued in connection with the Reverse Stock Split. Each shareholder
will receive one share of New Common Stock in exchange for every 500,000 shares
of Existing Common Stock that they currently own. Since no new certificates
representing fractional shares will be issued, shareholders who would otherwise
receive fractional shares as a result of the Reverse Stock Split will instead
receive for each share of Existing Common Stock cash in the amount of $1.41 per
share. Surrendering shareholders will not receive interest on their cash
payments.
Vote Required
Approval of the Reverse Stock Split will require approval by a majority of the
shares of Existing Common Stock that were outstanding on the Record Date.
Accordingly, the Reverse Stock Split will be approved if at least 3,000,001
shares of Existing Common Stock, or one vote more than 50% of the 6,000,000
outstanding shares of Existing Common Stock are voted in favor of the Reverse
Stock Split.
Voting Procedures And Revocability Of Proxies
The only shareholders entitled to vote at the Special Meeting are the holders of
record at the close of business on the Record Date. On the Record Date there
were 6,000,000 outstanding shares of Existing Common Stock. Each outstanding
share of Existing Common Stock is entitled to one vote on each matter to come
before the Special Meeting.
The accompanying proxy card is designed to permit each shareholder of record on
the Record Date to vote on the proposals described in this Proxy Statement. The
proxy card provides space for a shareholder to vote for or against any proposal
to be considered at the Special Meeting or abstain from voting on any proposal
if the shareholder chooses to do so. The Reverse Stock Split and the Amendment
to the Company's Certificate of Incorporation require the affirmative vote of
holders of a majority of the outstanding shares of Existing Common Stock as of
the Record Date.
The holders of a majority of the outstanding shares of Existing Common Stock
present, in person or by proxy, and entitled to vote at the Special Meeting will
constitute a quorum for the transaction of business at the Special Meeting. If a
quorum should not be present, the Special Meeting may be adjourned from time to
time until a quorum is obtained. Abstentions and broker nonvotes are considered
for purposes of determining the presence or absence of a quorum for the
transaction of business. Abstentions and broker nonvotes will have the effect of
a vote against the Reverse Stock Split and the related Amendment to the
Company's Certificate of Incorporation. Shareholders are urged to sign the
accompanying form of proxy and return it promptly.
When a signed proxy card is returned with choices specified with respect to
voting matters, the shares represented are voted by proxies designated on the
proxy card in accordance with the shareholder's instructions.
34
If a signed proxy card is returned and the shareholder has made no
specifications with respect to voting matters, the shares will be voted in favor
of all the proposals described in this Proxy Statement and, at the discretion of
the designated proxies, on any other matter that may properly come before the
Special Meeting or any adjournment. The Company does not know of any business
that will be presented for consideration at the Special Meeting other than the
Reverse Stock Split and related Amendment to the Company's Certificate of
Incorporation. However, if any other business should come before the Special
Meeting, it is the intention of the designated proxies to vote on any such
business in accordance with the recommendation of management.
Any shareholder of the Company has the unconditional right to revoke his or her
proxy at any time prior to the voting thereof by (i) notifying the Secretary of
the Company in writing at the Company's principal executive office, (ii)
executing and delivering a subsequent proxy or (iii) personally appearing at the
Special Meeting and voting in person. However, no revocation shall be effective
unless and until notice of such revocation has been received by the Company at
or prior to the Special Meeting.
APPRAISAL RIGHTS
Shareholders do not have appraisal rights under Delaware law or under the
Company's Certificate of Incorporation or Bylaws in connection with the Reverse
Stock Split.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE REVERSE STOCK SPLIT.
35
PROPOSAL NO. 2 REDUCTION IN AUTHORIZED COMMON STOCK
General
If the Reverse Stock Split Proposal is approved by shareholders at the Special
Meeting, the Board of Directors has authorized and recommends for your approval
a proposal to reduce the total number of shares of common stock which the
Company shall have authority to issue from 15,000,000 to 30 shares.
The purpose of the proposed reduction in the number of shares of common stock
that the Company is authorized to issue is to reduce the amount of Delaware
franchise tax that the Company now pays and to keep the number of authorized but
unissued shares proportionally similar to the number of issued shares following
the Reverse Stock Split. The Company estimates that the reduction in the number
of authorized shares will reduce the Company's annual Delaware franchise tax by
$5,400.
With the exception of the number of authorized shares, the terms of the common
stock before and after the proposed amendment will remain the same.
If the Reverse Stock Split Proposal and the Reduction in Authorized Common Stock
are both approved, the reduction will take place on the date of filing with the
Secretary of State of Delaware of a Certificate of Amendment unless the Company
specifies otherwise. In order to effect the proposed reduction in the number of
authorized shares of capital stock, a majority of the shareholders entitled to
vote at the Special Meeting must approve this Amendment to the Company's
Certificate of Incorporation. The proposed Amendment is attached to this Proxy
Statement as Appendix A.
Vote Required
Approval of the Reduction in Authorized Common Stock will require approval by a
majority of the shares of Existing Common Stock that were outstanding on the
Record Date. Accordingly, the Reduction in Authorized Common Stock will be
approved if at least 3,000,001 shares of Existing Common Stock, or one vote more
than 50% of the 6,000,000 outstanding shares of Existing Common Stock, are voted
in favor of the Reduction in Authorized Common Stock. This proposal is
contingent upon shareholder approval of Proposal No. 1 Reverse Stock Split.
Voting Procedures and Revocability of Proxies
The voting procedures and revocability of proxies are the same as those
discussed above under "PROPOSAL ONE Reverse Stock Split - -Voting Procedures and
Revocability of Proxies."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE REDUCTION IN AUTHORIZED COMMON STOCK AND THE RELATED AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION.
36
INFORMATION ABOUT SIENA HOLDINGS, INC.
General
Siena Holdings, Inc. was incorporated in Delaware in 1960, as Lomas Financial
Corporation. The Company is primarily engaged in two businesses through its
wholly-owned subsidiaries: assisted care facility management through Siena
Housing Management Corp. and real estate development through LLG Lands, Inc. The
Company's principal executive offices are located at 5068 West Plano Parkway,
Suite 300 in Plano, Texas 75093.
Additional information regarding the Company is available in our Annual Report
to Shareholders on Form 10-K for the fiscal year ended June 30, 2002 and our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
Description of Common Stock
The Company's authorized common stock currently consists of 15,000,000 shares of
common stock, .10 par value. After the Reverse Stock Split, the par value of the
common stock will remain the same, and after the Reduction in Authorized Common
Stock authorized shares will be reduced to 30 shares. As of the Record Date,
6,000,000 shares of the Company's common stock were issued and outstanding. The
number of shares of common stock outstanding after the Reverse Stock Split will
be 7. Holders of the Company's common stock are entitled, and will continue to
be entitled after the Reverse Stock Split to one vote per share on all matters
requiring a vote of shareholders, including the election of directors.
Current Directors and Executive Officers
The following table sets forth the name, age and business information for the
executive officers and directors of the Company. Except as indicated below, the
address and telephone number for each person named in the table is in care of
Siena Holdings, Inc., 5068 West Plano Parkway, Suite 300, Texas 75093,
Telephone: 972-381-4255.
Current Directors
John P. Kneafsey has served as Chief Executive Officer, a director and
Chairman of the Board of Directors of Siena Holdings, Inc. since October
1996. Mr. Kneafsey has served as President of Pathfinder Advisory
Services, Inc. since 1997. Prior to that, Mr. Kneafsey served as Senior
Vice President-Investments with Prudential Securities, Inc. from 1980 to
1997. Age 56.
Erik M. Bodow has served as a director of Siena Holdings, Inc. since March
1997. Mr. Bodow currently serves as Chief Administrative Officer of GEM
Capital Management, Inc. since 1998. Mr Bodow served as Senior Vice
President of Sagner/Marks from 1992 to 1998. Mr. Bodow has also served as
Vice President of First National Bank of Chicago from 1985 to 1992. Age
60.
37
James D. Kemp has served as a director of Siena Holdings, Inc. since March
1997. Mr. Kemp has, since 1997, been the Principal of Antaean Solutions,
LLC. Mr. Kemp served as President and Chief Executive Officer of The Trust
Company, N.A. from 1996 to 1997. Mr. Kemp served as President and Chief
Executive Officer of Kemp Consulting, Inc. from 1992 to 1997. Mr. Kemp has
also served as President of Ameritrust Texas, N.A. from 1980 to 1992. Age
56.
Matthew S. Metcalfe has served as a director of Siena Holdings, Inc. since
March 1997. Mr. Metcalfe currently serves as Chairman and President of
Airland Corporation. Mr. Metcalfe is Director Emeritus of Amsouth
Bancorporation. Mr. Metcalfe serves as Member of the State of Alabama Oil
and Gas Board. Mr. Metcalfe also serves as Chairman of the Mobile Airport
Authority. Age 72.
Frank B. Ryan has served as a director of Siena Holdings, Inc.since March
1997. Mr. Ryan served as Vice President and Faculty Member at Rice
University from 1990 to 1996. Mr Ryan served as a director of Danielson
Holding Corporation from 1990 to 2002. Mr. Ryan served as a director of
Texas Micro, Inc. from 1995 to 2000. Mr. Ryan has also served as a
director of America West Airlines, Inc. from 1995 to 1999. Age 66.
Executive Officers
John P. Kneafsey has served as Chief Executive Officer of Siena Holdings,
Inc. since 1997. See information under "Directors" above.
W. Joseph Dryer has served as President and Chief Accounting Officer of
Siena Holdings, Inc. since October 1996. Mr. Dryer served as Senior Vice
President since 1995. Mr. Dryer served as President and Director of
Russian River Energy Co. from 1992 to 1994. Mr. Dryer serves as President
and Director of Geothermal Resources International, Inc. since 1994. Mr.
Dryer also serves as President of Worldcorp, Inc. since May 2000. Age 48.
Ownership of Voting Securities of the Company
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 31, 2003 by each person
known to the Company to beneficially own more than 5% of our outstanding common
stock, by each director and by all officers and directors as a group. Under SEC
rules, a person is deemed to be a "beneficial owner" of a security if that
person has or shares "voting power" which includes the power to vote or to
direct the voting of such security, or "investment power," which includes the
power to dispose or to direct the disposition of such security. A separate table
sets forth certain information about securities issuable under Siena Holdings,
Inc.'s equity compensation plans as of March 31, 2002.
Unless otherwise indicated, each person is the record owner of and has sole
voting and investment power over his or her shares. Except as indicated below,
the address and telephone number for each person named in the table is in care
of Siena Holdings, Inc. 5068 West Plano Parkway, Suite 300, Plano, Texas 75093,
Telephone: 972-381-4255.
38
Name of Percent
Beneficial Owner Shares Of Class
---------------------- --------- --------
John P. Kneafsey(1) 3,165,699 52.76%
Credit Suisse, First(2) 955,248 15.90%
Boston Corporation
W. Joseph Dryer(3) 85,100 1.40%
Erik M. Bodow(4) 1,000 --
Matthew S. Metcalfe(5) 32,675 0.54%
All Officers and Directors as a Group 3,284,474 54.74%
----------
(1) Mr. Kneafsey is the Chairman and Chief Executive Officer of the Company.
(2) The address of Credit Suisse, First Boston is 11 Madison Avenue, New York,
NY 10010.
(3) Mr. Dryer is the President and Chief Accounting Officer of the Company.
(4) Mr. Bodow is a Director of the Company.
(5) Mr. Metcalfe is a Director of the Company.
The Officers and Directors of the Company, and Mr. Kneafsey, in his individual
capacity, have stated that they intend to vote "For" the approval of the Reverse
Stock Split, and the approval of the amendment to the Company's Certificate of
Incorporation to reduce the Company's authorized shares. The Board and Mr.
Kneafsey, in his individual capacity, believe that the Reverse Stock Split is
fair to both the affiliated and unaffiliated shareholders, and is in the best
interests of the Company.
THE 6,000,000 SHARES OF THE EXISTING COMMON STOCK ARE RESTRICTED IF THE EFFECT
OF A TRANSFER WOULD RESULT IN AN OWNERSHIP INCREASE TO 4.5 PERCENT OR ABOVE OF
THE TOTAL OUTSTANDING SHARES OR FROM 4.5 PERCENT TO A GREATER PERCENTAGE OF THE
TOTAL OUSTANDING SHARES, WITHOUT PRIOR APPROVAL BY THE BOARD OF DIRECTORS AS
DESCRIBED IN THE RESTATED CERTIFICATE OF INCORPORATION.
There have not been any transactions in the securities of Siena Holdings, Inc.
by any Officer or Director or affiliate of the Company for the past sixty days.
39
Set forth in the table below is certain information about securities issuable
under Siena Holdings, Inc.'s equity compensation plans as of June 30, 2002.
Number of securities
Number of Weighted remaining available
securities to be - average for future issuance
Plan Category issued upon exercise price under equity
exercise of of compensation plans
outstanding outstanding (excluding securities
options options reflected in column
(a)
----------------------------- ---------------- -------------- ---------------------
(a) (b) (c)
Equity compensation plans
approved by security holders 200,000 $0.92 0
Equity compensation plans not
approved by security holders 434,750 $0.92 0
-------------------------------------------------------------------------------------------------
Total 634,750 $0.92 0
Under the 1997 Stock Option Plan, options may be granted covering up to 634,750
shares of common stock. The plan granted the officers options to purchase an
aggregate of 434,750 shares of common stock, and granted the directors options
to purchase a total of 200,000 shares of common stock.
The options have an exercise price of $0.92 per common share, and vest in five
equal installments beginning on the date of grant. As of March 31, 2003, the
stock options are 100% vested.
Price Range of Common Stock
Siena Holdings' common stock, with a trading symbol of SIEN, is traded in the
over the counter market. During the last three fiscal years, the high and low
prices have been:
Year Ended Year Ended Year Ended
June 30, 2003 June 30, 2002 June 30, 2001
---------------------------------------------------------------------------------
High Low High Low High Low
------------------------------------------------------------------------------------------------------------
First Quarter 1.80 1.22 1.41 1.16 1.59 1.03
------------------------------------------------------------------------------------------------------------
Second Quarter 1.55 0.76 1.46 1.18 1.63 1.19
------------------------------------------------------------------------------------------------------------
Third Quarter 1.25 1.05 1.60 1.22 1.50 1.19
------------------------------------------------------------------------------------------------------------
Fourth Quarter* 1.30 1.03 1.48 1.22 1.50 1.07
------------------------------------------------------------------------------------------------------------
* NOTE: Through April 30, 2003
The Company has never paid cash dividends on its Common Stock.
The Company, as of March 31, 2003, June 30, 2002, and June 30, 2001, had
1,000,000 shares of $1.00 par value preferred stock authorized, with 0 share
issued and outstanding.
40
PERSONS MAKING THE SOLICITATION
The enclosed proxy is solicited on behalf of the Board of Directors of the
Company. The cost of soliciting proxies in the accompanying form will be borne
by the Company. In addition to the use of mail, officers and directors of the
Company may solicit proxies by telephone or telegraph. Upon request, the Company
will reimburse brokers, dealers, banks and trustees or their nominees, for
reasonable expenses incurred by them in forwarding proxy material to beneficial
owners of shares of Existing Common Stock.
PROPOSALS OF SHAREHOLDERS
In the event the Reverse Stock Split is not effected, any proposal which a
shareholder wishes to have presented at the next meeting of shareholders of the
Company and included in the Company's Proxy Statement to be used in connection
with such meeting must be received at the main office of the Company, 5068 W.
Plano Parkway, Suite 300, Plano, Texas 75093, on or before September 1, 2003, in
order to be included in the Company's Proxy Statement and form of proxy for such
meeting. If such proposal complies with all requirements of Rule 14a-8 of the
Exchange Act, as amended, it will be included in the Proxy Statement and set
forth on the form of proxy issued for the Annual Meeting of Shareholders. It is
urged that any such proposals be sent by certified mail, return receipt. No such
proposals were received before the release date of this Proxy Statement.
OTHER MATTERS
As of the date of this Proxy Statement, the only business which the management
expects to be presented at the meeting is that set forth above. If any other
matters are properly brought before the meeting, or any adjournments thereof, it
is the intention of the persons named in the accompanying form of Proxy to vote
the Proxy on such matters in accordance with their best judgment.
The cost of soliciting proxies will be borne by the Company. In addition to the
use of the mails, proxies may be solicited personally or by telephone or
telegraph by officers, directors and certain employees of the Company who will
not be specially compensated for such solicitation.
FINANCIAL INFORMATION AND INCORPORATION BY REFERENCE
The following documents accompanying this Proxy Statement are incorporated by
reference herein:
o The Company's Annual Report on Form 10-K for fiscal year ended June
30, 2002, including audited financial information;
o The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003, including the interim financial information;
o The Company's Filing on Form 8-K dated February 12, 2003;
o The Company's Filing on Form 8-K dated February 12, 2003;
o The Company's Filing on Form 8-K dated February 14, 2003;
o The Company's Filing on Form 8-K dated March 23, 2003;
o The Company's Filing on Form 8-K dated May 9, 2003, and
o The Company's Filing on Form 8-K dated September 3, 2003.
41
Copies of these reports are also available at the SEC's website
(http://www.sec.gov). The Company's SEC file number is 001-06868.
FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements. Additional written or
oral forward-looking statements may be made by the Company from time to time in
filings with the SEC or otherwise. The words "believe," "expect," "anticipate,"
"estimate," "project," and similar expressions identify forward-looking
statements, which speak only as of the date the statement was made.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Further events and actual
results could differ materially than those set forth in, contemplated by, or
underlying the forward-looking statements. Statements in this Proxy Statement
describe factors that could contribute to or cause such differences.
We caution you not to place undo reliance on any forward-looking statements made
by, or on behalf of, the Company in this Proxy Statement or in any of our
filings with the SEC or otherwise. Additional information with respect to
factors that may cause the results to differ materially from those contemplated
by forward-looking statements is included in our current and subsequent filings
with the SEC. See "Available Information."
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act of
1934, as amended, and in accordance therewith files reports, proxy statements
and other information with the SEC. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC
20549. Copies of such materials can also be obtained at prescribed rates by
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, DC 20549. In addition, such reports, proxy
statements and other information are available from the Edgar filings obtained
through the SEC's Internet Website (http://www.sec.gov).
By order of the Board of Directors
/s/ W. Joseph Dryer, President
September 30, 2003
42
PROXY CARD
SIENA HOLDINGS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 10, 2003
The undersigned hereby appoint John P. Kneafsey and W. Joseph Dryer, proxies of
the undersigned, with power of substitution and resubstitution, to vote all of
the shares of common stock of Siena Holdings, Inc. (the "Company") that the
undersigned may be entitled to vote at the Special Meeting of shareholders to be
held at the Hotel DuPont, Wilmington, Delaware on November 10, 2003 at 10:00
a.m. as follows:
PROPOSAL ONE: To adopt a Reverse Stock Split of the Company's Existing
Common Stock that would result in the shareholders receiving
one share of New Common Stock in exchange for every 500,000
shares of our Existing Common Stock that they currently own.
Since no new certificates representing fractional shares will
be issued, each shareholder owning less than 500,000 shares of
Existing Common Stock, or who would otherwise receive
fractional shares as a result of the Reverse Stock Split, will
receive in exchange for each share of Existing Common Stock
cash in the amount of $1.41 per share. The Reverse Stock Split
and related cash purchase by the Company of fractional shares
resulting from the Reverse Stock Split is proposed to take the
Company private.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE REVERSE STOCK SPLIT.
|_| FOR |_| AGAINST |_| ABSTAIN
43
PROXY CARD
SIENA HOLDINGS, INC.
PROPOSAL TWO: To adopt an Amendment to the Company's Certificate of
Incorporation to reduce the Company's authorized common stock
from 15,000,000 authorized shares to 30 authorized shares,
which is in proportion to the Reverse Stock Split.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE REDUCTION IN AUTHORIZED COMMON STOCK AND THE RELATED
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
|_| FOR |_| AGAINST |_| ABSTAIN
The proxy is authorized to transact such other business as may properly come
before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE PROPOSALS. THE PROXY MAY VOTE IN HIS DISCRETION AS TO OTHER MATTERS WHICH
MAY PROPERLY COME BEFORE THE MEETING.
NOTE: Signatures should correspond exactly with the name or names appearing on
the stock certificate(s). If shares are registered in more than one name, all
holders must sign. A corporation should sign in its full corporate name by a
duly authorized officer, stating his or her title. Trustees, guardians,
executors and administrators should sign in their official capacity, giving full
title as such. If a partnership, please sign in the partnership name by an
authorized person.
--------------------------------------------
Name(s) of Shareholder(s)
, 2003
-------------------------------------------- ---------------------------
Signature(s) of Shareholder(s) Dated
Please mark, sign, date and return this proxy promptly, using the enclosed
envelope.
No postage necessary.
Please Return Proxy As Soon As Possible
44
Appendix A
Form of Amendment to
Certificate of Incorporation
to Effect Reverse Stock Split
Article The Certificate of Incorporation is hereby amended to read in its
entirety as follows:
: Effective at 6:00 p.m. Wilmington, Delaware time on the date of
filing (the "Effective Time") of the Certificate of Amendment reflecting this
amendment with the Delaware Secretary of State, every Five Hundred Thousand
(500,000) outstanding shares of common stock of the Corporation will be combined
into and automatically become one (1) outstanding share of common stock of the
Corporation, and the total number of authorized shares of common stock of the
Corporation shall be reduced automatically to Thirty (30). The par value of the
Common Stock shall not be changed hereby and shall remain $.10 per share, as set
forth in the Certificate of Incorporation as in effect prior to the filing of
this Certificate of Amendment. The Corporation shall not issue fractional shares
on account of the foregoing Reverse Stock Split; all shares that are held by a
shareholder as of the effective date hereof shall be aggregated and each
fractional share resulting from the Reverse Stock Split after giving effect to
such aggregation shall be canceled. In lieu of any interest in a fractional
share to which a shareholder would otherwise be entitled as a result of such
Reverse Stock Split, each shareholder owning less than 500,000 shares of
Existing Common Stock or who would otherwise receive fractional shares as a
result of the Reverse Stock Split will receive in exchange for each share of
Existing Common Stock cash in the amount of $1.41 per share.
As of the Effective Time, the total number of shares, which the Corporation
shall have the authority to issue, is Thirty (30). The par value of such shares
is ten cents ($.10). All such shares are of one class and all are shares of
common stock.
Appendix B
Charenton Advisors
A Division Of
Charenton Realty, Inc.
Box 533
Scarsdale, New York 10583
May 15, 2003
Board Of Directors
Siena Holdings, Inc.
5068 West Plano Parkway
Suite 300
Plano, TX 75093
Re: Fairness Opinion Relative To A Proposed Going Private Transaction
Gentlemen:
The Board of Directors of Siena Holdings, Inc. ("Siena" or the "Company") has
retained Charenton Advisors, a division of Charenton Realty, Inc. ("Charenton"),
in its capacity as a financial valuation and consulting firm, to render its
opinion, from a financial viewpoint, as to a range of fair values of the
fractional shares of the Company to be acquired in a proposed going private
transaction presently contemplated to be structured as a reverse split (the
"Transaction"). This opinion is based upon financial information through March
31, 2003.
Charenton and its principals have no present or contemplated future interest in
Siena or the conclusion of the proposed Transaction. Charenton and its
principals in the past have provided advisory and other services to the Company
and its predecessor, which services are more fully described in Exhibit A
hereto. Neither Charenton nor its principals have any bias or conflict that
could cause a question as to their independence or objectivity. Compensation
paid to Charenton for this opinion is in no way contingent upon the consummation
of the proposed Transaction.
APPROACH TO ASSIGNMENT
The approach to this assignment was to consider the following factors:
o A review of the businesses, assets, liabilities, and tax attributes that
are owned or incurred by Siena;
o A review of recent going private transactions for comparable companies to
Siena in size;
o A review of recent going private transactions for comparable companies to
Siena in business;
o A review of the investment characteristics of the common stock of Siena;
o A review of the terms of certain aborted divestitures of a business and
real property owned by Siena; and,
o An evaluation of other factors as were considered necessary to render this
opinion.
DUE DILIGENCE REVIEW PROCESS
In performing this assignment, Charenton reviewed the documents cited in Exhibit
B pertaining to Siena and the proposed Transaction. Additionally, Charenton
conducted numerous interviews of Siena's management, real estate
consultant-broker, legal counsel, and tax advisor, all of whom have functioned
as a team for over five years.
THE PROPOSED TRANSACTION
As presently contemplated, the Transaction will be structured as a 1:500,000
share reverse split of the common stock of the Company, following which
fractional shares of the Company's stock will be retired for (a) cash at a price
to be set by the Special Committee of the Board of Directors of the Company plus
(b) a Contractual Right (as such term is later defined) to receive a
proportionate share of the residual proceeds, if any, from the possible sale of
the underlying business of Siena Housing Management, Inc. According to the
records of the Company, only its two largest shareholders from before the
Transaction will be shareholders after the Transaction. The ownership of Mr.
Kneafsey will increase from 53% to 86% and the interest of Credit Suisse First
Boston will decrease from 16% to 14%. The remaining shares will be
fractionalized and retired in the manner described.
MAJOR CONSIDERATIONS
Siena is a publicly traded company that through LLG Lands, Inc., owns, improves,
and sells real estate in Allen, Texas, and through Siena Housing Management,
Inc., administers and operates an assisted care facility in Houston, Texas. The
only corporate-level assets of Siena are working capital (principally cash) of
$5.5 million and investments in subsidiaries. Additionally, Siena has tax loss
carryforwards of $119.1 million at the parent level and $149.9 in various
subsidiaries. Numerous factors were considered in the overall review of the
proposed transaction. The review process included considerations regarding
Siena, its subsidiaries, market factors, and the proposed Transaction. The major
considerations are as follows:
Siena Holdings, Inc.
o The availability of tax loss carryforwards to shelter taxes arising
from future asset sales and acquisitions;
o The inability of Siena to monetize its tax loss carryforwards
through a sale due to limitations on usability following a change of
control;
o The inability of Siena to utilize its tax loss carryforwards beyond
sheltering internally generated profits;
o The inability of Siena to borrow money at favorable rates in the
absence of credit support;
o The two previous chapter 11 reorganizations of Siena;
o The absolute and increasing cost of conducting its affairs as a
public company; and
o The prospect that Siena will generate insufficient cash flow to
cover its expenses.
LLG Lands, Inc.
o The fundamentally attractive nature of its real estate portfolio;
o The depressed market for commercial real estate in Allen, Texas;
o The expiration of an option to purchase the Company's real estate by
a major national real estate developer with strong roots in the
suburban-Dallas market; and
o The prospect of having to incur the costs of rezoning the properties
and maintaining a Texas presence while waiting for the market to
turn.
Siena Housing Management, Inc.
o The possibility that a presently interested buyer could acquire the
assisted care facility and generate for Siena residual sale proceeds
of almost $1.0 million;
o The complete lack of ownership control by Siena over the operations
or direction of the assisted care facility;
o The increasing cost of operating an assisted care facility (for
example, the cost of liability insurance); and
o The cost of insuring against future tort claims.
Market Factors
o The lack of liquidity in the market for Siena shares;
o That two shareholders own 67% of the shares;
o That one of those shareholders, Siena's Chief Executive Officer,
historically has been the major buyer for the shares; and
o That the market has never cleared a major block of shares in the
absence of that major buyer.
The Proposed Transaction
o The range of prices to be paid for the fractional shares to be
cashed out in the Transaction;
o The terms of the Contractual Right (as defined later herein) to
receive the residual distribution, if any, from the sale of the
assisted care facility; and
o The fair treatment of the retained investment of the two
shareholders that were not cashed out in the Transaction.
RELIANCE ON THIRD PARTIES
In performing its analysis, Charenton has relied on a range of estimates of the
value of the Company's real estate assets that were provided by John C. ("Buzz")
Franklin, a real estate consultant and broker with Colliers International, to
Siena and subsequently confirmed to
Charenton by Mr. Franklin (the "Real Estate Valuation"). While Charenton is in
no position independently to verify the Real Estate Valuation, Charenton is
satisfied that:
o Mr. Franklin has successfully represented Siena for over 10 years;
o In a small real estate market such as Allen, Texas, the potential
risks associated with introducing a second real estate broker to the
Company's real estate portfolio outweigh the potential benefits of
obtaining a second Real Estate Valuation;
o There is a higher degree of integrity in a range of values, such as
provided by Mr. Franklin, than in a single composite value; and
o News items and broken deals for parcels of the Company's real estate
corroborate Mr. Franklins's assessment that the real estate market
in Allen, Texas, is presently depressed.
In performing its analysis Charenton also relied on the advice provided to Siena
by its tax advisor, Mark Cason, as to the consequences of a change of control on
the Company's tax loss carryforwards and on the Company's management as to the
nature of the Company's contractual relationship with Treemont of Texas, Inc.,
the owner of the assisted care facility in Houston, Texas (hereafter
"Treemont").
OVERVIEW OF FAIRNESS ANALYSIS
The preparation of an opinion as to a range of fair values is a complex process
involving subjective judgments and should not be interpreted based upon partial
analyses. In connection with rendering its opinion, Charenton has performed a
variety of financial analyses, based on data and opinion provided by the Company
and others, which are summarized below. Charenton believes that its analyses
must be considered as a whole and that considering only selected factors could
create an incomplete view of the analyses and the process underlying the
opinion.
Issuance Of Contractual Right To Receive The Residual Proceeds From The
Termination Of The Management Agreement Caused By The Sale Of The Assisted Care
Facility
As publicly reported, Treemont has been negotiating and has recently reached an
agreement to sell the operations of the assisted care facility, of which it is
the owner. If that sale occurs, then the Management Agreement between Siena and
Treemont (the "Management Agreement") will be terminated and Siena will be
entitled to receive a portion of the sale proceeds pursuant to a negotiated
formula. However, if such a sale is not consummated, then Treemont and the
Company have discussed the possibility of shutting down the nursing home portion
of the business. In any event, Siena has considered purchasing "tail" insurance
to prolong coverage of potential liabilities arising from the nursing home
business, and in that connection Siena has received an indication of a quote of
$800,000 from its insurance broker.
Siena is in no position to assess the likelihood that the sale of the assisted
care facility will be consummated. Accordingly, in the interest of providing the
full benefit of the sale to Siena's shareholders, Siena will issue to its
shareholders as part of the Transaction the Contractual Right (as defined
immediately below) to receive their aliquot shares of the residual proceeds from
the termination of the Management Agreement and the resulting liquidation of
Siena Housing Management Corp. following the sale of the assisted care facility
(the "Contractual Right"), provided that the termination of the Management
Agreement following the sale of the assisted care facility occurs on or before
December 31, 2003. The residual proceeds will be determined by the application
of a sharing arrangement between Treemont and Siena, following which Siena will
deduct from its share of the residual proceeds certain costs, the most
significant of which is anticipated to be the cost of purchasing the aforesaid
"tail" insurance. It is presently estimated that the maximum distribution, if
any, pursuant to the Contractual Right will be just under $1.0 million.
Liquidation Method Of Valuation
Charenton prepared a liquidation analysis to arrive at a range of values that
might be available to the common shareholders of the Company assuming: (1) a
sale of the Company's assets on an orderly basis, (2) the payment of outstanding
liabilities and other claims, and (3) the distribution of any net proceeds
therefrom to the holders of its common stock. It should be noted that
Charenton's liquidation analysis did not include a valuation of the potential
net value to Siena resulting from its share of the proceeds from the sale of the
assisted care facility; if the sale is consummated, then all of those residual
proceeds will be distributed to Siena's shareholders.
Charenton's starting point for the liquidation analysis was the Company's March
31, 2003, balance sheet, which was the most current available financial
statement. Charenton then adjusted the book value of certain assets to reflect
values that might be realized in an orderly liquidation proceeding and set up
reserves for the anticipated cost of liquidating the Company. In making these
adjustments, Charenton considered the estimates of management and third party
experts as to certain asset values and expenses. Certain assumptions and
conclusions respectively underlying and resulting from the liquidation analysis
are summarized as follows:
o Real Estate: The real estate portfolio was valued on the basis of
certain low case and high case square foot valuation measures that
varied according to zoning, in the manner suggested by Colliers
International, the Company's longstanding real estate consultant and
broker, producing a range of values from $5.5 million to $6.3
million.
o Assisted Care: The assisted care operation was valued on the basis
of discounted cash flow from Treemont, Inc., net of direct and
associated corporate expenses, producing de minimus values.
o Parent Corporation: The parent corporation was valued on the basis
of its net working capital, plus options exercise proceeds, minus
discounted operating expenses, minus non-current liabilities,
producing a value of $3.8 million.
o Timing: It was assumed that the real estate portfolio would be
liquidated in 12 months, that the duration of cash flow from
assisted care in the low case and high
o case, respectively, would be 12 and 24 months, that the corporate
parent would be liquidated over 24 months, and that all future
occurring items were present valued at 15% per annum.
o Illiquidity Discount: An illiquidity discount of 15% was applied to
the result, producing a range of liquidation values from $8.0
million to $8.7 million, or $1.20 to $1.30 per share.
Net Asset Value Method Of Valuation
In view of Siena's highly liquid balance sheet and the portfolio nature of its
primary illiquid asset, real estate, Charenton analyzed Siena as if it had been
an investment company; structurally, a closed-end fund. This is substantiated in
part by the reasoned manner in which Siena has sought to liquefy its portfolio
of real estate and by its stated intention to employ its tax attributes to
acquire a portfolio of operating assets to replace that real estate.
Accordingly, Charenton applied a 5.5% discount to the Company's reported net
asset value after adjusting for the exercise of options, the 5.5% discount being
the reported average discount accorded to closed-end mutual funds for the years
2001 and 2002(1). This produced a value of $8.9 million, or $1.33 per share.
Premium Paid Method Of Valuation - Going Private Transactions
Charenton analyzed premiums paid in going private transactions relative to
pre-announcement trading prices. This analysis examines the differences between
the offer price and the target's market price at three distinct points in time.
This analysis is based upon information obtained from SEC filings, public
company disclosures, press releases, industry and popular press reports,
databases, and other sources. Charenton assembled a 44-company universe of going
private transactions that were announced between the fourth quarter of 2001 and
the first quarter of 2003, where the value of the securities to be acquired (the
"Retired Equity Value") was under $20.0 million. Charenton then filtered the
initial large sample into two smaller samples:
A 20-company control sample(2) that involved all transactions that had
Retired Equity Value of between $1.5 million and $20.0 million; and
An 8-company working sample(3) that met the following characteristics: (a)
Retired Equity Value of between $1.5 million and $20.0 million and (b)
principal business of or related to real estate (5 companies involved in
real estate ownership, construction, home
----------
(1) Wachovia Securities: Closed-end Funds Performance; Total Return For The
Periods Ended December 31, 2002.
(2) Genesee Corp., Century Builders Group, Inc., The Judge Group, Inc., Oriole
Homes Corp., Marlton Technologies, Inc., Chesapeake Financial Services,
Inc., Interstate National Dealer Services, Inc., National Home Centers,
Inc., Deltona Corporation, Interfoods of America, Inc., Ugly Duckling
Corp., The Rottlund Co., Inc., Paris Corp., Westminster Capital, Inc.,
Disc Graphics, Inc., Sandata Technologies, Inc., Successories, Inc.,
PartsBase, Inc., Clary Corp., and Balanced Care Corp.
(3) Deltona Corporation, Genesee Corp., National Home Centers, Inc., Century
Builders Group, Inc., Balanced Care Corp., Westminster Capital, Inc.,
Oriole Homes Corp., and The Rottlund Co., Inc.
building, and building supplies), assisted care facilities (1 company),
and portfolios of diversified operations (1 company) or financial
instruments (1 company). Coincidentally, half of this sample had tax loss
carryforwards of over $5.0 million.
The 8-company working sample yielded mean premiums of the final deal price over
the closing prices 1 day, 1 week, and 4 weeks prior to the initial announcement
of, respectively, 29%, 32%, and 35%. This compared favorably with the central
cluster of 14 companies (the "bell" in a bell curve)(4) within the 20-company
sample, which produced premiums of 30%, 32%, and 31% over the closing prices 1
day, 1 week, and 4 weeks prior to the initial announcements. Accordingly, under
this valuation methodology a range of premiums of 29% to 33% over the $1.05
closing price 1 day prior to the announcement would appear to be justified,
producing a range of values from $9.0 million to $9.3 million, or $1.35 to $1.40
per share.
Other Valuation Methodologies
Going Concern Valuation: The nature of Siena's assets and operations do not lend
themselves to a going concern valuation; Siena's real estate is held for sale
and its participation in the assisted care industry is through a contractual
arrangement that is financial in nature. The inapplicability of this methodology
is readily apparent from the two traditional going concern analyses: (a)
discounted cash flow, and (b) market multiple. A discounted cash flow approach
provides insight into the intrinsic value of a business based on the projected
earnings and capital requirements and the net present value of the subsequent
unlevered free cash flows to be generated by the assets of such business. Siena
has neither operations, earnings, nor capital requirements and the unlevered
free cash flows from its assets were analyzed by the more appropriate
liquidation methodology. Similarly, the market multiple approach also requires
non-existent data: valuation multiples of comparable companies in the
marketplace and in transactions. The major asset of Siena being its now-dormant
real estate, the more appropriate valuation methodology would be a real estate
appraisal such as performed by the Company's real estate consultant and broker,
Colliers International, and used in the liquidation analysis. While it is
conceivable that a buyer might purchase the shares of Siena in order to acquire
its real estate, uncertainties arising from the Company's two previous
bankruptcies and vague long-tail legacy liabilities (viz., potential retirement
obligations and tort claims) make an asset purchase of the real estate more
likely than a real estate impelled acquisition of the corporate entity.
Summary Of Analyses
Set forth below is an application of Charenton's best estimate of appropriate
weights to be assigned to each valuation method:
o Charenton assigned a weight of 50% to the liquidation method for the
reason that Siena is presently in an orderly liquidation mode, management
having made a practice of liquidating assets when opportunities occurred
and having indicated that the Company will continue to do so as conditions
warrant;
----------
(4) The transaction prices paid in respect of these 14 companies represented
premiums of between 10% and 60% over the trading prices 4 weeks prior to
announcement.
o Charenton assigned a 35% weight to the premium paid methodology (using
going private transactions) for the reason that Siena, like most small
public companies, was forced by the increased cost of doing business to
consider alternatives to remaining publicly held, and it chose instead to
go private, and
o Charenton assigned a modest 15% weight to the net asset value discount for
the reason Siena has historically traded at a discount to its net asset
value.
Without giving effect to the value, if any, of the Contractual Right to be
distributed to the Company's shareholders, the range of weighted share
valuations produced by the foregoing analyses is $1.27 to $1.34 per share. The
Contractual Right would add another zero to $0.15 per share to the distribution
in lieu of fractional shares. This range of values represents premiums of 23% to
45% over the last reported closing price of $1.03 per share (23% to 30%, if cash
alone is considered).
The summary set forth above does not purport to be a complete description of the
analyses performed by Charenton. The analyses performed by Charenton are not
necessarily indicative of actual values, which may differ significantly from
those suggested by such analyses. Charenton did not appraise any individual
assets or liabilities of the Company. Throughout the due diligence process,
Charenton relied upon all information provided by the Company and third party
sources without independent verification.
Analysis Of Alternate Actions
In addition to its fundamental valuation analyses described above, Charenton
considered the overall context and rationale for the reorganization and the
alternative actions reviewed by the Company's management and board of directors.
Charenton considered the likelihood that, in the absence of the Transaction, the
cost of operating as a public company would force Siena to operate in a cash
negative manner for the foreseeable future.
Analysis Of Liquidity
Siena's shares are highly illiquid. Using publicly reported trading data and
management's records, and not attempting to correct for duplicative trades, the
Company's chief executive officer, its president, and one director together
accounted for about 70% of the volume that was reported to have traded over the
past two years. On the 146 days in which the shares traded between June 1, 2001,
and April 7, 2003, only 15 days had volume of more than 10,001 shares while 81
days had volume of less than 1,001 shares. The proposed Transaction will enable
all the shareholders to liquefy their holdings without the burden of
transactional costs and without affecting the share price.
Impact On Remaining Shareholder
If the proposed Transaction is consummated, the Company's second largest
shareholder will continue to own approximately the same percentage interest that
it had owned before the
Transaction. Moreover, if the shareholder's fractional shares are be cashed out
in the range of values described above, then it will receive between $578,000
and $610,000 in cash and $157,000 in net proceeds, if collected, from the
termination of the Management Agreement following the sale of the assisted care
facility. As part of the Transaction, the Company's chief executive has
committed to provide credit support to the Company in the manner described in
Exhibit C hereto, if necessary to facilitate the transition of a company with
numerous public shareholders to a company with only two shareholders.
FAIRNESS OPINION
Based upon the foregoing analyses and such other matters as were considered
relevant, it is the opinion of Charenton that a package of (a) cash in the range
of $1.27 to $1.34 per share, and (b) the aliquot share of the residual proceeds
received from the termination of the Management Agreement following the sale of
the assisted care facility, estimated to be worth zero to $0.15 per share, is a
fair price from a financial point of view to be paid to the cashed-out
shareholders of Siena.
Thank you for this opportunity to be of service to the shareholders of Siena
Holdings, Inc..
Sincerely yours,
/s/ Charenton Advisors
CHARENTON ADVISORS
A Division Of
CHARENTON REALTY, INC.
EXHIBIT A - SIENA HOLDINGS - ADDITIONAL DISCLOSURE
Mark M. Feldman, the chief executive officer of Charenton, has worked on a
number of restructuring cases with W. Joseph Dryer, the president of Siena, for
over 10 years, including that of the Company's predecessor, Lomas Financial
Corporation ("Lomas"). In the Lomas case, Mr. Feldman served as the
court-appointed chief restructuring officer and also as a director of Lomas for
the period 1993-1996, during which time Mr. Dryer served as the court-appointed
chief control officer. Mr. Feldman had received 820 shares of Siena in
satisfaction of a pension claim that he had asserted in the bankruptcy
proceedings of Lomas. While the value of these shares was de minimus, Mr.
Feldman transferred his economic interest in them to his adult daughter prior to
this engagement.
Charenton provided to the Board of Siena an opinion as to the fairness of a
private placement of $2.2 million of shares in Siena in 1998.
EXHIBIT B - SIENA HOLDINGS -- DOCUMENT REVIEW LIST
1. Audited financial statements of Siena for the years ended June 30, 1999 -
June 30, 2002.
2. Forms 10-Q and 8-K of Siena during the fiscal years 1999-2003.
3. Unaudited consolidating balance sheet and income statement dated March 31,
2003.
4. Real estate valuation letter from Colliers International dated December
17, 2002, which was updated and confirmed in a telephone conversation on
March 24, 2003.
5. Letter and memorandum from the CEO, Jack Kneafsey, to the Board concerning
changes in regulatory climate and impact of the same upon Siena.
6. Memorandum from Kevin O'Connell, outside legal counsel to the Company, to
management concerning inter alia the effect of the Sarbanes-Oxley Act upon
the Company.
7. Company-prepared spreadsheets illustrating:
o Trading in Company shares by insiders and third parties,
o Effect on Company of a sale of the assisted care facility by
Treemont of Texas, Inc., and
o Disaggregated presentation of quantity, accounting basis, and
valuation of the Company's real estate
8. Additional pertinent information deemed necessary to render this opinion.
EXHIBIT C - SIENA HOLDINGS -SHAREHOLDER CREDIT SUPPORT
The Company's largest shareholder and chief executive officer, Jack
Kneafsey, has proposed to make available to the Company in the form of a
secured loan or a secured guaranty, up to $1.0 million of cash or credit,
as the case may be, to facilitate the transition of Siena from a public
company to a private company.
SCHEDULE A
SIENA HOLDINGS, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
Siena Holdings
Consolidated Eliminations Corp. LLG Lands
----------------- ----------------------------------- ------------------
ASSETS
C Cash and cash equivalents 5,331,848.81 3,339,569.15 1,906,593.28
Investments in subsidiaries 0.00 (7,307,298.86) 7,307,298.86
Investments in available-for-sale securities 101,409.64 101,409.64
Receivables -
C Treemont management fee 93,589.19
Due (to) from the trust 0.00 0.00
Accrued interest income 0.00 0.00 0.00
Intercompany receivable 0.00 (382,835.11)
----------------- ---------------- ----------------- ------------------
93,589.19 (382,835.11) 0.00 0.00
----------------- ---------------- ----------------- ------------------
NC Real estate owned 4,764,459.70 4,764,459.70
NC Deferred tax assets - net 0.00 0.00
Prepaid expenses and other assets -
C Prepaid insurance 64,745.48 64,745.48
C Prepaid directors' fees 6,250.00 6,250.00
C Prepaid rent 400.00 400.00
----------------- ---------------- ----------------- ------------------
71,395.48 0.00 71,395.48 0.00
----------------- ---------------- ----------------- ------------------
10,362,702.82 (7,690,133.97) 10,718,263.49 6,772,462.62
================= ================ ================= ==================
LIABILITIES
Accounts payable and accrued expenses -
C Accts payable - trade 65,610.63 65,610.63 0.00
C Accs payable - Directors & officers 0.00 0.00
Intercompany payable 0.00 (382,835.11) 382,835.11 0.00
Unearned income (RE deposits) 0.00
NC Deferred Directors' fees and expenses 491,450.80 491,450.80
Accrued compensation (Treemont) 19,924.44 0.00
C Accrued JNL retirees medical - current 54,346.80 54,346.80
- noncurrent 352,002.91 352,002.91
C Accrued consulting expense 6,460.00 6,460.00
C Accrued REO expenses 0.00 0.00
Accrued legal 3,087.50 3,087.50
C Accrued accounting 3,600.00 3,600.00 0.00
Accrued miscellaneous 3,000.00 3,000.00
Accrued franchise taxes 7,350.00 0.00 0.00
Deferred tax liability 0.00 0.00
C Income tax (AMT) payable 0.00 0.00
----------------- ---------------- ----------------- ------------------
1,006,833.08 (382,835.11) 1,362,393.75 0.00
----------------- ---------------- ----------------- ------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 600,000.00 (4,100.00) 600,000.00 100.00
Paid in capital 10,215,545.75 (7,488,105.46) 10,215,545.75 7,488,105.46
Retained earnings (deficit) (1,384,938.62) 110,169.21 (1,384,938.62) (641,005.45)
Accumulated other comprehensive gain:
Unrealized holding gains on securities (74,737.39) 74,737.39 (74,737.39) (74,737.39)
----------------- ---------------- ----------------- ------------------
9,355,869.74 (7,307,298.86) 9,355,869.74 6,772,462.62
----------------- ---------------- ----------------- ------------------
10,362,702.82 (7,690,133.97) 10,718,263.49 6,772,462.62
================= ================ ================= ==================
C Current asset or liability 0.00 0.00 0.00 0.00
NC Non-current asset or liability
Siena Housing Siena Info. Siena
Management Siena Mgmnt Systems Properties
-------------- ------------- ------------- --------------
ASSETS
C Cash and cash equivalents 85,686.38 0.00 0.00 0.00
Investments in subsidiaries
Investments in available-for-sale securities
Receivables -
C Treemont management fee 93,589.19
Due (to) from the trust
Accrued interest income
Intercompany receivable 382,835.11
--------------- ------------- ------------- ------------
476,424.30 0.00 0.00 0.00
--------------- ------------- ------------- ------------
NC Real estate owned
NC Deferred tax assets - net
Prepaid expenses and other assets -
C Prepaid insurance
C Prepaid directors' fees
C Prepaid rent
--------------- ------------- ------------- ------------
0.00 0.00 0.00 0.00
--------------- ------------- ------------- ------------
562,110.68 0.00 0.00 0.00
=============== ============= ============= ============
LIABILITIES
Accounts payable and accrued expenses -
C Accts payable - trade 0.00
C Accs payable - Directors & officers
Intercompany payable 0.00
Unearned income (RE deposits)
NC Deferred Directors' fees and expenses
Accrued compensation (Treemont) 19,924.44
C Accrued JNL retirees medical - current
- noncurrent
C Accrued consulting expense
C Accrued REO expenses
Accrued legal
C Accrued accounting
Accrued miscellaneous
Accrued franchise taxes 7,350.00
Deferred tax liability
C Income tax (AMT) payable 0.00
--------------- ------------- ------------- ------------
27,274.44 0.00 0.00 0.00
--------------- ------------- ------------- ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 1,000.00 1,000.00 1,000.00 1,000.00
Paid in capital 0.00 0.00 0.00 0.00
Retained earnings (deficit) 533,836.24 (1,000.00) (1,000.00) (1,000.00)
Accumulated other comprehensive gain:
Unrealized holding gains on securities
--------------- ------------- ------------- ------------
534,836.24 0.00 0.00 0.00
--------------- ------------- ------------- ------------
562,110.68 0.00 0.00 0.00
=============== ============= ============= ============
C Current asset or liability 0.00 0.00 0.00 0.00
NC Non-current asset or liability
--------------------------------------------------------------------------------
Schedule B
LLG Lands Worksheet
Quantity Price Per Sq Foot Value Per Sq Foot
Category Net Acres Sq Feet Low High Low High
-------- --------- ------- --- ---- --- ----
Office Land
(Exchange and Highway 75)
Tract 1 9.5 415,867 1.75 2.00 727,767 831,734
Tract 1A 4.6 200,420 1.75 2.00 350,735 400,840
Industrial Land
(North side of Exchange between DART and
Greenville Avenue)
Tract 2A 33.8 1,473,199 1.35 1.50 1,988,819 2,209,799
Tract 3A 38.4 1,672,181 1.35 1.50 2,257,444 2,508,272
Apartment Land
(North side of Exchange between Allen Station Pkwy
and Greenville Avenue)
Tract 3B 20.1 874,293 1.25 1.35 1,092,866 1,180,296
Tract 4 16.8 733,028 1.25 1.35 916,285 989,588
Retail Land
(Northwest corner of Exchange and Greenville
Avenue)
Tract 5 14.7 640,332 1.50 2.00 960,498 1,280,664
--------- ---------
Gross Values 8,294,415 9,401,191
Less:
Commissions @ 6% 497,665 564,071
Bonus (See Below) 423,595 556,408
Rollback (Company Estimate) 1,000,000 1,000,000
--------- ---------
Net Proceeds 6,373,155 7,280,712
========= =========
Discount Rate 15% 15%
--------- ---------
Discounted Net Proceeds 5,541,874 6,331,054
--------- ---------
--------------------------------------------------------
Computation Of Bonus
Company
Minimum Maximum
--------- ---------
Gross Proceeds 8,294,415 9,401,191
Less: Book Basis 4,764,460 4,764,460
--------- ---------
Book Gain 3,529,955 4,636,732
Bonus @ 12% 12% 12%
--------- ---------
Bonus 423,595 556,408
--------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SCHEDULE C
SIENA HOUSING MGMT WORKSHEET
Low Case High Case
-------- ---------
Discount Rate 12% 12%
Likelihood of 1st 12 months cash flow 100% 100%
Likelhood of Terminal Value (2nd 12 months cash flow) 0% 50%
Monthly Cash Flow (1st 12 months) 3,562.50 3,562.50
Monthly Cash Flow (2nd 12 months) 0.00 1,781.25
========== ==========
Valuation Of Two Years Of Operation $39,470.05 $56,471.94
========== ==========
Category Per Month 1st 12 Months 2nd 12 Months
--------- ------------- -------------
Contractual Revenues
Base 20,000.00
Incentive 4,000.00
---------
24,000.00 288,000.00 288,000.00
Base Salaries
W. Joseph Dryer (allocated 50% from Siena) 7,500.00
Jack Kneafsey (allocated 50% from Siena) 7,000.00
John Wilson 2,500.00
---------
17,000.00 204,000.00 204,000.00
Other
Franchise Tax 1,250.00
Travel 1,000.00
2,250.00 27,000.00 27,000.00
---------- ---------- ----------
Subtotal 4,750.00 57,000.00 57,000.00
Incentive Compensation
John Wilson (25% of Subtotal) 1,187.50 14,250.00 14,250.00
---------- ---------- ----------
Cash Flow 3,562.50 42,750.00 42,750.00
========== ========== ==========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Schedule D
Topco Adjustments
Low Case High Case
-------- ---------
Discount Rate 15% 15%
========= =========
Discounted Present Value Assuming Even Outflow 1,332,061 1,332,061
========= =========
Category 1st 12 Months 2nd 12 Months
------------- -------------
Base Salaries (See Note)
W. Joseph Dryer (7,500/month) 90,000 90,000
Jack Kneafsey (7,000/month) 84,000 84,000
------- -------
174,000 174,000
Office Expenses
Office Expense - Plano (850.month) 10,200 10,200
Office Expense - Maryland (1,500/month) 18,000 18,000
------- -------
28,200 28,200
Administrative Expenses
Directors & Officers Insurance 195,000 292,500
Travel 8,400 1,080
Accounting 75,600 105,840
Consulting 62,400 74,880
Legal 61,250 76,563
Directors 22,800 27,360
Stockholder 44,800 62,720
Other 21,600 25,920
------- -------
491,850 666,863
------- -------
Total Expenses 694,050 869,063
======= =======
Note...Represents the 50% of such salaries not attributed to Siena Housing
Management
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Schedule E
Adjustments
Low Case High Case
Adjs Adjs
Dr Cr Dr Cr
Summary
Real Estate Owned 777,414.26 1,566,594.27
Treemont Management Fee 54,119.14 37,117.25
Reserve For FY 2004-5 Operating Expenses 1,332,061.29 1,332,061.29
Equity (608,766.17) 197,415.74
Components
LLG Land Adjustments
Real Estate Owned 5,541,873.96 4,764,459.70 6,331,053.97 4,764,459.70
Equity 777,414.26 1,566,594.27
To record land inventory at Collier's square foot valuation
and to eliminate historical accounts
Siena Housing Management Adjustments
Treemont Management Fee 39,470.05 56,471.94
Equity 54,119.14 37,117.25
Treemont Management Fee 93,589.19 93,589.19
To record anticipated cash flow from Treemont and to
eliminate historical accounts
Siena Holdings Adjustments
Equity 1,332,061.29 1,332,061.29
Reserve For FY 2004-5 Operating Expenses 1,332,061.29 1,332,061.29
(To record anticipated operating and expenses during
liquidation period)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Table I
Illustration Of A 1:500,000 Share Reverse Split
Shareholder Old Shares Eliminated Rounded New Shares Old Percentage New Percentage
----------- ---------- ---------- ------- ---------- -------------- --------------
Jack Kneafsey 3,165,699 165,699 3,000,000 6 53% 86%
CSFB 955,248 455,248 500,000 1 16% 14%
--------- --------- --------- --------- --------- ---------
Subtotal 4,120,947 620,947 3,500,000 7 69% 100%
Other 1,879,053 1,879,053 0 0 31% 0%
--------- --------- --------- --------- --------- ---------
Total 6,000,000 2,500,000 3,500,000 7 100% 100%
-----------------------------------------------------------------
TOPIC - THE PROPOSED TRANSACTION (Refer to Page-2)
Table I illustrates the process by which fractional shares are
created and then retired for cash, presenting summary shareholder
demographics before and after the reverse split.
-----------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Table II
Derivation Of Distribution Of Net Proceeds For Distribution
Low Case High Case
-------- ---------
Derivation Of Net Sale Proceeds
Proceeds From Sale 11,200,000
Expenses Of Sale 1,120,000
Net Proceeds To Treemont 10,080,000
==========
----
Derivation Of Siena's Distribution No
25% Of $8 Million Sale 2,000,000
20% Of The Difference Between Net Proceeds And $8 Million 416,000
Total To Siena 2,416,000
==========
----
Derivation Of Net Proceeds For Distribution To Shareholders
Bonus To Siena Officers & Directors 289,920
Broker's Estimated Cost Of Tail Insurance 800,000
Contractual Bonus To Operating Manager 295,785
Legal Expenses 40,000
Net Proceeds For Distribution To Siena Shareholders 0 990,295
==========
Per Share (Fully Diluted) 0.00 0.15
-------------------------------------------------------------------
TOPIC - ISSUANCE OF CONTRACTUAL RIGHT (Refer to Page-4)
Table II illustrates the progression of cash from its source as
gross proceeds from the sale of the assisted care facility, through
the calculation of the Company's share of the net proceeds thereof,
to arrive at the portion of such net proceeds, which, after
expenses, are to be distributed pursuant to the contractual right.
-------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Table III
Liquidation Method Of Valuation
Historical {d} Low Valuation High Valuation
-------------- ------------- --------------
Real Estate 4,764,460 5,541,874 6,331,054
Assisted Care Cash Flow {a} 93,589 39,470 56,472
Parent Company Operating Reserve {a} 0 (1,332,061) (1,332,061)
Add: Option Proceeds {b} 0 583,970 583,970
Other 5,504,654 5,504,654 5,504,654
----------- ----------- -----------
Total Assets 10,362,703 10,337,907 11,144,089
Liabilities (1,006,833) (1,006,833) (1,006,833)
----------- ----------- -----------
Book Value 9,355,870 9,331,074 10,137,255
Less: Illiquidity Discount From Book Value {c} (1,403,380) (1,399,661) (1,520,588)
----------- ----------- -----------
Valuation 7,952,489 7,931,413 8,616,667
Number Of Shares 6,000,000 6,634,750 6,634,750
Per Share {d} 1.33 1.20 1.30
{a} Discounted present value at 15% per annum over 24 months.
{b} 634,750 shares at an exercise price of $0.92 per share.
{c} Assumed to be 15%.
{d} Historical data for the quarter ended March 31, 2003, are provided for a
point of reference.
-------------------------------------------------------------------
TOPIC - LIQUIDATION METHOD OF VALUATION (Refer to Page-5)
Table III presents an orderly liquidation analysis of the Company's
assets over 24 months on the basis of the following assumptions:
Real Estate - Valuation measures were provided by the Company's
long-standing real estate broker-consultant and current square
footage were provided by the Company's president. These are
summarized in the Schedule To Exhibit III.
Assisted Care - Cash flows for 24 months were derived on the basis
of assumptions provided by the Company's management and discounted
to the present at 15% per annum.
Parent Company - Cash outflows for 24 months were derived on the
basis of assumptions provided by the Company's management and
discounted to the present at 15% per annum.
-------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Table IV
Net Asset Method Of Valuation
March 31, 2003
--------------
Real Estate 4,764,460
Assisted Care Receivable 93,589
Add: Option Proceeds {a} 583,970
Other {Principally Net Cash} 5,504,654
-----------
Total Assets 10,362,703
Liabilities (1,006,833)
Net Asset Value 9,355,870
Less: 5.5% Discount From Net Asset Value {c} (514,573)
-----------
Valuation 8,841,297
===========
Number Of Shares 6,634,750
===========
Per Share {d} 1.33
{a} 634,750 shares at an exercise price of $0.92 per share.
{b} Wachovia Securities: Closed-end Funds Performance; Total Return For The
Periods Ended December 31, 2002
-------------------------------------------------------------------
TOPIC - NET ASSET METHOD OF VALUATION
(Refer to Page-6)
Table IV derives the net asset value (NAV) of the Company's shares
and applies a discount to such NAV. The discount so applied was the
two year average computed by Wachovia Securities on a representive
sample of closed-end mutual funds.
-------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Table V
Premium Paid Analysis
Date
Announced Transaction Type Target Company (symbol) Industry (NOL>5MM)
2/13/2003 Reverse Split Siena Holdings, Inc. Land, Assisted Living,
Cash, (NOL)
12/13/2001 Reverse Splt Deltona Corporation (DLTA) Real Estate (NOL)
12/24/2002 Reverse Splt Genesee Corp (GENBB) In Liquidation
10/4/2001 S/H Tender National Home Centers, Inc. (NHCI) Bldg Supplies (NOL)
4/5/2002 Cash Merger Century Builders Group Inc. (CNYB) Construction
5/15/2002 Cash Merger Balanced Care Corp. (BAL) Assisted living facilities (NOL)
4/18/2002 S/H Tender Westminster Capital Inc. (WI) Diversified Operations
10/7/2002 Cash Merger Oriole Homes Corp. (OHCB) Homebuilding (NOL)
1/19/2002 Self Tender The Rottlund Co. Inc. (RTLD) Construction
Eight Transaction Sample
12/13/2001 Reverse Splt Century Builders Group Inc. (CNYB) Construction
2/19/2003 Cash Merger The Judge Group, Inc. (JUDG) Internet
9/2/2002 Cash Merger {b} Oriole Homes Corp. (OHCB) Homebuilding (NOL)
12/24/2001 Ppty Merger {c} Marlton Technologies Inc. (MTY) Design
10/4/2001 S/H Tender Chesapeake Financial Shares Inc. (CPKF) Bank & Finance
4/5/2002 Cash Merger Interstate Natl Dealer Svcs (ISTN) Insurance
3/24/2003 S/H Tender National Home Centers, Inc. (NHCI) Bldg Supplies (NOL)
9/6/2002 Cash Merger Deltona Corporation (DLTA) Real Estate (NOL)
4/18/2002 S/H Tender Interfoods Of America, Inc. (IFDA) Restaurants
10/7/2002 Cash Merger Ugly Duckling Corp. (UGLY) Car Dealerships
1/10/2002 Self Tender The Rottlund Co. Inc. (RTLD) Construction
11/26/2001 S/H Tender Paris Corp. (PBFI) Business forms
1/24/2002 Self Tender Westminster Capital Inc. (WI) Diversified Operations
6/4/2002 Cash Merger Disc Graphics Inc. (DSGR) Paper products
Fourteen Transaction Sample
Closing Price Prior To Transaction
Date Value
Announced Transaction Type Target Company (symbol) 1-Day 1-Week 4-Weeks ($MM) For %
2/13/2003 Reverse Split Siena Holdings, Inc. na na na 3.18 - 3.72 42%
{a}
12/13/2001 Reverse Splt Deltona Corporation (DLTA) 60% 33% 33% 1.6 30%
12/24/2002 Reverse Splt Genesee Corp (GENBB) 1% 1% -6% 2.2 17%
10/4/2001 S/H Tender National Home Centers, Inc. (NHCI) 23% 21% 22% 3.6 37%
4/5/2002 Cash Merger Century Builders Group Inc. (CNYB) -7% 6% 10% 3.7 10%
5/15/2002 Cash Merger Balanced Care Corp. (BAL) 150% 178% 178% 4.0 47%
4/18/2002 S/H Tender Westminster Capital Inc. (WI) 40% 51% 51% 6.9 37%
10/7/2002 Cash Merger Oriole Homes Corp. (OHCB) 7% 5% 18% 14.0 61%
1/19/2002 Self Tender The Rottlund Co. Inc. (RTLD) 18% 29% 41% 17.6 31%
--------------------------
Eight Transaction Sample 29% 32% 35% 5.4 27%
--------------------------
12/13/2001 Reverse Splt Century Builders Group Inc. (CNYB) -7% 6% 10% 1.6 30%
2/19/2003 Cash Merger The Judge Group, Inc. (JUDG) 17% 11% 17% 1.9 50%
9/2/2002 Cash Merger {b} Oriole Homes Corp. (OHCB) 7% 5% 18% 2.0 6%
12/24/2001 Ppty Merger {c} Marlton Technologies Inc. (MTY) 58% 36% 20% 2.3 53%
10/4/2001 S/H Tender Chesapeake Financial Shares Inc. (CPKF) 19% 19% 20% 3.6 37%
4/5/2002 Cash Merger Interstate Natl Dealer Svcs (ISTN) 30% 30% 21% 3.7 10%
3/24/2003 S/H Tender National Home Centers, Inc. (NHCI) 23% 21% 22% 4.7 40%
9/6/2002 Cash Merger Deltona Corporation (DLTA) 60% 33% 33% 5.2 53%
4/18/2002 S/H Tender Interfoods Of America, Inc. (IFDA) 9% 50% 36% 6.9 37%
10/7/2002 Cash Merger Ugly Duckling Corp. (UGLY) 40% 36% 37% 14.0 61%
1/10/2002 Self Tender The Rottlund Co. Inc. (RTLD) 18% 29% 41% 15.3 96%
11/26/2001 S/H Tender Paris Corp. (PBFI) 34% 51% 51% 17.1 36%
1/24/2002 Self Tender Westminster Capital Inc. (WI) 40% 51% 51% 17.6 31%
6/4/2002 Cash Merger Disc Graphics Inc. (DSGR) 73% 65% 53% 19.1 25%
--------------------------
Fourteen Transaction Sample 30% 32% 31% 8.2 40%
--------------------------
At Closing Price Prior To
Date Insider Announce
Announced Transaction Type Target Company (symbol) Pctg ment 1-Day 1-Week 4-Weeks
2/13/2003 Reverse Split Siena Holdings, Inc. 66%
12/13/2001 Reverse Splt Deltona Corporation (DLTA) 73% 0.40 0.25 0.30 0.30
12/24/2002 Reverse Splt Genesee Corp (GENBB) 61% 8.60 8.54 8.54 9.13
10/4/2001 S/H Tender National Home Centers, Inc. (NHCI) 63% 1.40 1.14 1.16 1.15
4/5/2002 Cash Merger Century Builders Group Inc. (CNYB) 91% 0.90 0.97 0.85 0.82
5/15/2002 Cash Merger Balanced Care Corp. (BAL) 53% 0.25 0.10 0.09 0.09
4/18/2002 S/H Tender Westminster Capital Inc. (WI) 68% 2.80 2.00 1.85 1.85
10/7/2002 Cash Merger Oriole Homes Corp. (OHCB) 51% 4.90 4.60 4.65 4.15
1/19/2002 Self Tender The Rottlund Co. Inc. (RTLD) 73% 9.15 7.75 7.10 6.50
Eight Transaction Sample 53%
12/13/2001 Reverse Splt Century Builders Group Inc. (CNYB) 73% 0.90 0.97 0.85 0.82
2/19/2003 Cash Merger The Judge Group, Inc. (JUDG) 67% 0.82 0.70 0.74 0.70
9/2/2002 Cash Merger {b} Oriole Homes Corp. (OHCB) 43% 4.90 4.60 4.65 4.15
12/24/2001 Ppty Merger {c} Marlton Technologies Inc. (MTY) 51% 0.30 0.19 0.22 0.25
10/4/2001 S/H Tender Chesapeake Financial Shares Inc. (CPKF) 63% 27.00 22.75 22.75 22.50
4/5/2002 Cash Merger Interstate Natl Dealer Svcs (ISTN) 91% 6.00 4.63 4.60 4.97
3/24/2003 S/H Tender National Home Centers, Inc. (NHCI) 60% 1.40 1.14 1.16 1.15
9/6/2002 Cash Merger Deltona Corporation (DLTA) 47% 0.40 0.25 0.30 0.30
4/18/2002 S/H Tender Interfoods Of America, Inc. (IFDA) 68% 0.87 0.80 0.58 0.64
10/7/2002 Cash Merger Ugly Duckling Corp. (UGLY) 51% 3.53 2.53 2.60 2.58
1/10/2002 Self Tender The Rottlund Co. Inc. (RTLD) 78% 9.15 7.75 7.10 6.50
11/26/2001 S/H Tender Paris Corp. (PBFI) 64% 4.50 3.35 2.98 2.98
1/24/2002 Self Tender Westminster Capital Inc. (WI) 73% 2.80 2.00 1.85 1.85
6/4/2002 Cash Merger Disc Graphics Inc. (DSGR) 70% 1.82 1.05 1.10 1.19
Fourteen Transaction Sample 64%
{a} Includes zero to .37 million dollars of Contractual Rights to be
paid to the fractionalizing shareholders.
{b} Cash merger which eliminated small shareholdings.
{c} Assumes that debentures initially traded at 60% of face value.
--------------------------------------------------------------------
TOPIC - PREMIUM PAID ANALYSIS (Refer to Page-6)
This approach analyzes premiums paid in going private transactions
relative to pre-announcement trading prices. Presented are the data
for an 8-transaction sample of companies in rougly comparable
businesses and a 14-transaction sub-sample (i.e., the "bell" in a
bell curve) within a larger 20-transaction sample. In both instances
the primary samples were restricted to transactions of between $1.5
and $20.0 million of transaction value.
Conclusions are presented in the accompanying box.
--------------------------------------------------------------------
--------------------------------------------------------------------
Siena Holding
Premium Over Closing Price
Low Case High Case
Premium Over Closing Price 29% 33%
Closing Price 2.13.03 1.05 1.05
Cash Price Per Share 1.35 1.40
--------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Table VI
Summary Of Valuation Methods
Low Case High Case
Face Value Per Share Face Value Per Share
Summary:
Liquidation Method (50%) 7,931,413 1.20 8,616,667 1.30
Net Asset Value Method (15%) 8,841,297 1.33 8,841,297 1.33
Premium Paid Method (Going Private Transaction) (35%) 8,986,769 1.35 9,265,428 1.40
Composite:
Composite Of Methods 8,437,270 1.27 8,877,428 1.34
Add: Contractual Right To Receive Net Proceeds 0 0 990,295 0.15
--------- ---- --------- ----
Composite Valuation 8,437,270 1.27 9,867,723 1.49
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TOPIC - SUMMARY OF VALUATION METHODS
(Refer to Pages 7 and 8)
Table VI derives a weighted average of the three methodologies
employed. Charenton opined that a fair value (from a financial point
of view) for the shares fractionalized by the reverse split would
include (i) a cash payment in the range of $1.27 and $1.34 per share
and (ii) a Contractual Right (as such term was defined) to receive
an aliquot portion of the net residual proceeds arising from the
termination of the Management Agreement in conjunction with the sale
of the assisted care facility.
The ultimate value of the Contractual Right is transaction-specific
and it does not affect the inherent fairness (from a financial point
of view) of the range of $1.27 and $1.34 per share. For example, a
cash valuation of $1.34 per share where the Contractual Right proved
to be worthless is neither more fair nor less fair (from a financial
point of view) than a cash valuation of $1.27 per share where the
Contractual Right proved to be worth the anticipated maximum of
$0.15 per share.
The two lowest data points ($1.27 and zero) were added together
merely to illustrate the low end of the valuation range and the two
highest data points ($1.34 and $0.15) were added together merely to
illustrate the high end of the valuation range.
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