-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BWCfZ2/hhX6PrLNu5t8yE/LvdbJm8pW/eo3n/lz+2D15FfX0Fc97HNwagsnUudgu TJqBAiibyN5WTH/xZTSSqA== 0000891554-99-001430.txt : 19990719 0000891554-99-001430.hdr.sgml : 19990719 ACCESSION NUMBER: 0000891554-99-001430 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19990716 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: TSI INC /MN/ CENTRAL INDEX KEY: 0000100063 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 410843524 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: SEC FILE NUMBER: 005-34806 FILM NUMBER: 99665915 BUSINESS ADDRESS: STREET 1: 500 CARDIGAN ROAD CITY: SHOREVIEW STATE: MN ZIP: 55126 BUSINESS PHONE: 6514830900 MAIL ADDRESS: STREET 1: 500 CARDIGAN ROAD STREET 2: D CITY: ST PAUL STATE: MN ZIP: 55126-3996 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: TSI INC /MN/ CENTRAL INDEX KEY: 0000100063 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 410843524 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 500 CARDIGAN ROAD CITY: SHOREVIEW STATE: MN ZIP: 55126 BUSINESS PHONE: 6514830900 MAIL ADDRESS: STREET 1: 500 CARDIGAN ROAD STREET 2: D CITY: ST PAUL STATE: MN ZIP: 55126-3996 SC 14D9 1 SCHEDULE 14D9 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ----------------------- SCHEDULE 14D-9 ----------------------- Solicitation/Recommendation Pursuant to Section 14(d)(4) of the Securities Exchange Act of 1934 TSI Incorporated (Name of Subject Company) TSI Incorporated (Name of Person(s) Filing Statement) Common Stock, $0.10 par value (Title of Class of Securities) 872876107 (CUSIP Number of Class of Securities) Laura J. Cochrane, Esq. Secretary and Corporate Counsel 500 Cardigan Road P.O. Box 64394 St. Paul, MN 55164-0394 (651) 483-0900 (Name, address and telephone number of person authorized to receive notice and communications on behalf of the person(s) filing statement) Copy to: Richard N. Flint, Esq. Gray, Plant, Mooty, Mooty & Bennett, P.A. 3400 City Center 33 South Sixth Street Minneapolis, MN 55402-3796 (612) 343-2800 Item 1. Security and Subject Company The title of the class of equity securities to which this Statement relates is Common Stock, $0.10 par value ("Shares"), of TSI Incorporated, a Minnesota corporation (the "Company"). The address of the principal executive offices of the Company is 500 Cardigan Road, Shoreview, Minnesota 55126. Item 2. Tender Offer of the Bidder This Statement relates to the tender offer (the "Fauth Offer") of John J. Fauth ("Fauth"), JJF Acquisition, Inc., a Minnesota corporation (the "Bidder"), and JJF Group, Inc., a Minnesota corporation formed and solely owned by Fauth, disclosed in a Tender Offer Statement on Schedule 14D-1 dated July 12, 1999, as amended or supplemented (the "Schedule 14D-1"), to purchase a minimum of at least 50.1% of the Shares on a fully diluted basis for cash at $14.00 net per share. JJF Group, Inc. is the parent corporation of JJF Acquisition, Inc. The Schedule 14D-1 states that the principal executive offices of the Bidder and JJF Group, Inc. and the business address of Fauth are located at 3100 Metropolitan Centre, 333 South Seventh Street, Minneapolis, Minnesota 55402. Item 3. Identity and Background (a) The name and business address of the Company, which is the person filing this Statement, are set forth in Item 1 above. (b) Certain contracts between the Company and certain of its executive officers are described under the section captioned "EMPLOYMENT CONTRACTS" on pages 15 and 16 of the Company's Proxy Statement dated July 2, 1999 (the "Proxy Statement") for its Annual Meeting of Stockholders to be held July 22, 1999 (the "Annual Meeting") and such section is incorporated by reference into this Statement. A copy of such section of the Proxy Statement is filed as Exhibit (c)(1) to this Statement. Except as set forth above in this Item 3, to the best knowledge of the Company, there are no contracts, agreements, arrangement or understandings or any actual or potential conflicts of interest between the Company or its affiliates and (i) the Company, its executive officers, directors or affiliates or (ii) the Bidder, JJF Group, Inc., Fauth or their respective executive officers, directors or affiliates. Item 4. The Solicitation or Recommendation (a) The Bidder has offered to purchase all outstanding Shares at a purchase price of $14 per share, net to the seller in cash, without interest thereon, in each case upon the terms and subject to the conditions set forth in the Offer to Purchase dated July 12, 1999 of the Bidder ("Offer to Purchase") and related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the Fauth Offer), copies of which were filed as exhibits to the Schedule 14D-1. The Fauth Offer and withdrawal rights expire at 12:00 midnight, Eastern Time, on Wednesday, August 11, 1999, unless the Fauth Offer 2 is extended to a later date and time (the "Expiration Date"). Shares that are tendered pursuant to the Fauth Offer may be withdrawn at any time prior to the Expiration Date. The Fauth Offer is subject to fulfillment of certain conditions, including the following: 1. Minimum Tender Condition. There being validly tendered and not withdrawn prior to the Expiration Date that number of Shares, which when added to the number of Shares owned by the Bidder and its affiliates, represents a majority of the total number of outstanding Shares on a fully diluted basis on the date of purchase. According to the Schedule 14D-1, approximately 5,012,506 Shares must be tendered to satisfy this requirement. 2. Control Share Condition. The Bidder having determined in its sole discretion that the Minnesota Control Share Acquisition Act is inapplicable to the Fauth Offer or that it otherwise will not have the effect of denying voting rights to the Shares acquired by the Bidder in the Fauth Offer. 3. Business Combination Condition. The Bidder being satisfied in its sole discretion that a committee of disinterested directors of the Company has approved the Fauth Offer in accordance with Section 302A.673 of the Minnesota Statutes. 4. Election Condition. The election at the 1999 Annual Meeting of the Company's stockholders (the "Annual Meeting") of Fauth's three director nominees. 5. Defensive Action Condition. The adoption of an amendment to the Company's Articles of Incorporation at the Annual Meeting prohibiting the Company's Board from adopting any defensive action with a primary purpose of preventing a change of control of the Company unless such action is approved by the unanimous vote of the Board. 6. Meeting Date Condition. The adoption of an amendment to the Company's bylaws at the Annual Meeting providing that the annual meeting of stockholders for the year 2000 shall be held not later than July 20, 2000, and the Board shall give notice of the meeting on or before June 20, 2000. 7. Bylaw Repeal Condition. The adoption of an amendment to the Company's bylaws at the Annual Meeting providing that any bylaws adopted by the Board between May 29, 1999, and the date of adoption of the bylaw amendment are repealed. 8. Bylaw Amendment Protection Condition. The adoption of an amendment to the Company's bylaws at the Annual Meeting prohibiting the Company's Board from amending or repealing any bylaws adopted by the Company's stockholders. 3 9. Anti-Poison Pill/Dilution Condition. The adoption of an amendment to the Company's Articles of Incorporation at the Annual Meeting prohibiting the adoption of a shareholder rights plan (also known as a "poison pill") or the issuance of the Company's securities that could increase the number of outstanding Shares to more than 11,500,000 Shares without unanimous Board approval during the period from the Annual Meeting until December 31, 2000. 10. Financing Condition. The Bidder being satisfied in its sole discretion that it has obtained sufficient financing to consummate the Fauth Offer. At this time, the Bidder does not have a binding commitment to finance the Fauth Offer. According to the Schedule 14D-1, the Bidder's parent corporation is expected to contribute $30 million in cash to the Bidder which it will borrow from Churchill Industries, Inc., an industrial holding company that is wholly owned by Fauth. The loan is expected to be unsecured and guaranteed by Fauth, to bear interest at the rate of 3.25% over the London Interbank Offer Rate and to have a five-year term. The Schedule 14D-1 also states that BNY Capital Markets, Inc. has provided the Bidder with a "highly confident letter" dated July 9, 1999, indicating that it was highly confident that it could obtain commitments from lenders for a senior secured credit facility in an amount to fund a portion of the payment obligations under the Fauth Offer. The July 9, 1999 letter of BNY Capital Markets, Inc. expressly states that it is not making a binding commitment to provide financing to the Bidder. In addition, any financing provided by or through BNY Capital Markets, Inc. is subject to satisfaction (or waiver) of numerous conditions, including but not limited to, the following: o no material adverse change in the financial condition, results of operations, business or prospects of the Company, the Bidder or Churchill Industries, Inc. and their subsidiaries since March 31, 1999, as determined in the sole discretion of BNY Capital Markets, Inc.; o no material adverse change in the market for high yield securities or capital markets in general, in the opinion of BNY Capital Markets, Inc.; o consolidated pro forma capitalization of the Company following the second-step merger proposed by Fauth, assuming consummation of the Fauth Offer and related permanent financings being acceptable to BNY Capital Markets, Inc.; o audited and unaudited historical financial statements (including unaudited pro forma financial statements) of the Company and its subsidiaries conforming to the requirements of the Securities and Exchange Commission being acceptable to BNY Capital Markets, Inc.; o BNY Capital Markets, Inc. not having discovered or otherwise becoming aware of any information not previously disclosed to it that it believes is inconsistent in a material and adverse manner with BNY Capital Markets, Inc.'s understanding 4 concerning the business, operations, property, condition (financial or otherwise) or prospects of the Company, the Bidder or Churchill Industries, Inc.; o terms, structure and arrangements regarding the financing and other financing for the Fauth Offer being acceptable to BNY Capital Markets, Inc.; o execution and delivery of definitive documentation relating to the financing acceptable to BNY Capital Markets, Inc.; o receipt of all appropriate regulatory approvals; and o no change or proposed change in laws that could be expected to adversely affect the economic consequences of the Fauth Offer. The Bidder states in the Schedule 14D-1 that it expects to finance the additional amounts needed to consummate the Fauth Offer through additional equity contributions to it or additional borrowings by the Bidder although no specific arrangements have been made to obtain such additional financing. The Bidder will pay all charges and expenses of R.J. Steichen & Co., as Dealer Manager, Firstar Bank of Minnesota, N.A., which is serving as Depository, and Beacon Hill Partners, Inc., which is serving as Information Agent, incurred in connection with the Fauth Offer. At its meeting of July 15, 1999, after considering numerous factors, the Board of Directors of the Company unanimously rejected the Fauth Offer. The Board of Directors considered the Fauth Offer to be highly contingent and without adequate assurances that financing would be available to carry it out. In addition, the Board of Directors concluded that acceptance of the Fauth Offer and the Fauth proxy proposals would make it extremely difficult for the Company to seek out alternative transactions at a greater value. The Board of Directors strongly and unanimously recommends that the Fauth Offer be rejected by the Company's stockholders. (b) The Company's Board of Directors has been aware of Fauth's interest in the Company for some time. On November 25, 1998, two Board members met with Fauth. These members reported on their meeting with Fauth at the December 10, 1998, Board meeting and Fauth's interest was discussed. Mr. James Doubles, Chairman, President and Chief Executive Officer of the Company, met with Fauth, and Fauth reaffirmed his interest in the Company, including his interest in taking the Company private. Mr. Doubles reported these discussions to the Board at the March 26, 1999, Board meeting. At that time the Board also discussed Fauth's March 11, 1999, letter in which he proposed taking the Company private, the Company's five-year projections for revenue, earnings and earnings per share, data on the Company's stock history for a two-year period, and information submitted by management outlining various valuation methods and providing preliminary estimates of the Company's stock value. After 5 discussion, the Company's Board determined it needed further study of the matter, and management was directed to bring advisors to the April Board meeting who could give an educational presentation and provide insights on means of enhancing stockholder value. At the April 23, 1999, Board meeting, a principal of William Blair & Company ("William Blair"), an investment banking firm, made a presentation on possible ways to enhance stockholder value. He also discussed market statistics of various companies, including measurement and control instrumentation companies. Following that presentation, the Board unanimously agreed to reject Fauth's overture. The Board agreed that remaining as an independent public company was in the long-term best interest of the Company's stockholders. Mr. Doubles communicated this to Fauth by letter dated April 27, 1999. On May 13, 1999, two attorneys representing Fauth met with the Company's counsel. They advised the Company's counsel that Fauth did not intend to accept the Board's decision to remain an independent public company and that Fauth intended to pursue the matter aggressively. This meeting was followed, on May 21, 1999, by Fauth's demand for a stockholder list and other corporate information. On June 1, 1999, the Company provided Fauth with the information that he was entitled to under Minnesota law. Fauth's interest in the Company was again discussed at the May 27, 1999, Board meeting, at which time it was concluded that William Blair would be retained to advise the Board. The Board also scheduled a meeting in mid-June to address the revised strategic and operational plans of the Company for the next three to five years in light of the May 26, 1999, acquisition of Environmental Systems Corporation. The initial strategic plan had been discussed previously at the January Board meeting. By letter dated June 14, 1999, Fauth made a proposal to acquire the Company for $12.50 per share, subject to various contingencies. The Board carefully considered this proposal at the already scheduled June 16, 1999, Board meeting. At this meeting, William Blair, which was already scheduled to make a comprehensive presentation regarding the Company and its options, also provided the Board with a preliminary analysis of Fauth's June 14, 1999, proposal. The Board considered, among other things, o the Company's historical financial results; o the Company's current financial condition, including the recent acquisition of Environmental Systems Corporation; o the Company's strategic and operational plans which evaluate and set forth plans for the Company's current technologies and markets; o the status of the Company's research and development and new project prospects; 6 o possible acquisitions; o the capability of the Company's management and other employees; o stock market information, including an analysis of selected publicly traded companies comparable to the Company, an analysis of selected comparable acquisition transactions, historical trading prices and relationships to a number of market indices, a discounted cash flow analysis of the Company's future earnings and general stock price premiums for sale of control of public companies; o impact on employees, customers, community, suppliers, and others that have a relationship with the Company; and o Fauth's background and the companies he had previously acquired. Following this analysis, the Board voted unanimously to reject Fauth's June 14, 1999 proposal, and Mr. Doubles confirmed this by letter dated June 18, 1999. On June 16, 1999, before the Company could respond to his June 14, 1999 proposal, Fauth and his affiliates initiated a proxy contest. Fauth and his affiliates are seeking to replace three current members of the Board, including the Chairman, President and Chief Executive Officer, James E. Doubles, with himself and two of his subordinates. Fauth and his affiliates are also asking the Company's stockholders to approve a number of changes to the Company's Articles of Incorporation and bylaws. Approval of each of these proposals is a condition to consummation of the Fauth Offer. The Company believes that these proposals will, in the aggregate, impede the Company's ability to deal with the problem of hostile takeovers because they reduce the Board's opportunity to evaluate takeover proposals, to study alternatives and to determine the best course of action for the Company and its stockholders. In certain cases, the proposals of Fauth and his affiliates give a single director veto power with regard to the Company's response to a hostile takeover or certain other corporate actions. On July 9, 1999, Fauth and his affiliates announced the Fauth Offer. On July 11, 1999, the Board of Directors met with its financial advisors and concluded it could not evaluate the Fauth Offer at that time because the details had net yet been made available. On July 15, 1999, the Company's Board met with representatives of William Blair and the Company's counsel to consider the Fauth Offer. At this special meeting, the Company's Board of Directors unanimously determined to reject the Fauth Offer, based upon the Board's determination that the offer is not in the best interest of the Company and its stockholders. The Board considered the Fauth Offer to be highly contingent and without adequate assurances that financing would be available to carry it out. In addition, the Board concluded that acceptance of the Fauth Offer and the Fauth proxy proposals would make it extremely difficult for the Company to seek out alternative transactions at a greater value. 7 Accordingly, based upon its deliberations over the past six months, as summarized above, the Board of Directors unanimously recommends that the Company's stockholders reject the offer and not tender their shares. In reaching its determinations and recommendations described above, the Board of Directors considered a number of factors, including the following: 1. The numerous contingencies contained in the Fauth Offer, including many that are within Fauth's exclusive control. Other contingencies would require the shareholders at the Annual Meeting to waive anti-takeover provisions which have been in effect for Minnesota public corporations since the mid-1980's. The Board believes that these and other actions to be presented by Fauth at the Annual Meeting would strip the Board of its ability to control the acquisition process and obtain the maximum price for the Company's stockholders. In the last month alone, as a result of your Board's firm rejection of the $12.50 proposal, Mr. Fauth has raised his tender offer to $14.00 per share. 2. The extremely vague and incomplete financing package set forth in the tender offer. 3. The Company's business, assets, financial condition and future prospects, strategic direction of the Company's business, current conditions in the instrumentation industry, and the historical and current market prices for the Company's Shares. 4. The Company's carefully structured long-term plan of independent growth through internal expansion and selective, strategic, negotiated acquisitions. 5. The financial advice of the Company's independent financial advisor, William Blair & Company. This financial advice included extensive stock market information, discussion of possible future prices for the Company's Shares if the Company's plans are achieved, and discussion of other companies which have expressed an interest in the Company. 6. The opinion of the Company's management that the terms of the Fauth Offer are inadequate based on its knowledge of the Company's business, its views as to the long-term financial plan and future prospects of the Company, the Company's long-term research and development efforts, and the Company's recent acquisitions, including Environmental Systems Corporation. 7. Fauth's background and the companies he had previously acquired. 8. The Board of Directors belief that the highly leveraged acquisition of the Company by Fauth, as contemplated by the Fauth Offer, would have a significantly adverse effect on the Company's relationships with its employees, customers, suppliers and other constituencies. 8 The Company's Board also authorized William Blair to continue its efforts to explore strategic alternatives, including seeking offers of greater value and undertaking further discussions with Fauth and his representatives. The forms of a letter to stockholders and press release communicating the recommendation of the Board of Directors of the Company to reject the Fauth Offer are filed as Exhibits (a)(1) and (a)(2) to this Statement. Item 5. Persons Retained, Employed or to Be Compensated The Company has retained William Blair to act as its financial advisor to render financial advisory and investment banking services in connection with the following: o to assist the Company in analyzing its strategic options to enhance stockholder value, including, without limitation, evaluating possible acquisitions of other companies, a possible corporate restructuring or recapitalization, and a possible business combination (through a tender offer, merger, sale or exchange of stock, sale of all or a substantial part of its assets or otherwise) of the Company with another party (collectively, the "Possible Transaction"); and o the attempt of Fauth and his affiliates to acquire the Company. At the July 11, 1999, Board meeting, the Board further instructed William Blair to continue its work on possible ways to enhance stockholder value, including conducting a search to seek out a potential merger partner. In pursuing the foregoing, William Blair is authorized, among other things, to make a market check to determine the value of the Company if it were put up for sale. The Company is paying a retainer fee of $25,000 per quarter for a minimum of four quarters payable in cash for William Blair's services. In the event William Blair renders an opinion as to the fairness, from a financial point of view, of a Possible Transaction or advises the Board that it is unable to render such an opinion for a Possible Transaction the Company will pay William Blair a specified cash opinion fee, payable promptly after the rendering of such opinion or the communication of such advice. If the attempt of Fauth and his affiliates to acquire the Company is withdrawn or terminated prior to consummation of a Possible Transaction and Fauth and his affiliates make no significant further effort toward acquisition of the Company for a specified period of time, the Company will pay William Blair an additional specified fee for its efforts in assisting the Company in any proxy contest or similar efforts. In the event the Company consummates an acquisition involving total consideration in excess of $25 million in which William Blair renders financial advisory and investment banking services, the Company will pay William Blair a specified fee for 9 such advice. Also, in the event a possible transaction is consumated, the Company will pay William Blair a specified fee. The Company has also agreed to reimburse William Blair for its expenses (including legal fees and expenses of counsel) and to indemnify it against certain liabilities, including liabilities and expenses which may arise under federal securities laws. The Company has retained Corporate Investor Communications, Inc. ("CIC") to solicit proxies pursuant to the Proxy Statement and to provide related advisory services. The Company has agreed to pay CIC a fee of $35,000, together with reimbursement of out-of-pocket expenses, for its services. Neither the Company nor any person acting on its behalf currently intends to employ, retain or compensate any other person to make solicitations or recommendations to stockholders in connection with the Fauth Offer. Item 6. Recent Transactions and Intent with Respect to Securities (a) To the best of the Company's knowledge, no transactions in the Shares have been effected during the past 60 days by the Company or any executive officer, director, affiliate or subsidiary of the Company, except for the following: o On July 13, 1999, Kenneth J. Roering, a director of the Company, acquired 3,000 Shares at $8.00 per share for a total of $24,000 upon the exercise of stock options; o On July 15, 1999, Lawrence J. Whalen, a director of the Company, acquired 3,000 Shares at $8.00 per share for a total of $24,000 upon the exercise of stock options; o On July 15, 1999, Donald M. Sullivan, a director of the Company, acquired 3,000 Shares at $8.00 per share for a total of $24,000 upon the exercise of stock options; o During the period May 28, 1998 through May 27, 1999, a total of 68,189 Shares were purchased under the Employee Stock Purchase Plan of 1994 (the "1994 Plan") at a price per share of $7.04 (85% of fair market value of $10.875). The number of employees participating during the period under the 1994 Plan is 163. o During the period commencing June 22, 1999, and ending June 21, 2000, a total of 120,000 Shares have been elected for purchase under the 1994 Plan at initial price per share of $9.56 per share (85% of fair market value of $11.25). The number of employees participating during this period under the 1994 Plan is 289, including James E. Doubles and Robert F. Gallagher, executive officers of the Company. 10 (b) To the best of the Company's knowledge, none of its executive officers, directors, affiliates or subsidiaries presently intends to tender into the Fauth Offer any Shares which are held of record or beneficially owned by such persons. Item 7. Certain Negotiations and Transactions by the Subject Company (a) The Company, directly or through William Blair, is engaged in preliminary exploratory discussions with a number of companies concerning a possible business combination. The Company also is discussing the sale of one of its subsidiaries. William Blair also is assisting the Company as described in Item 5 above in exploring options for enhancing stockholder value. Except for the foregoing activities, no negotiation is underway or is being undertaken by the Company in response to the Fauth Offer which relates to or would result in (1) an extraordinary transaction, such as a merger or reorganization, involving the Company or any of its subsidiaries; (2) a purchase, sale or transfer of a material amount of assets by the Company or any of its subsidiaries; (3) a tender offer for or other acquisition of securities by or of the Company; or (4) any material change in the present capitalization or dividend policy of the Company. (b) Except as described above in Items 4, 5 and 7, there is no transaction, Board resolution, agreement in principle or signed contract in response to the Fauth Offer. Item 8. Additional Information to be Furnished Not Applicable. Item 9. Material to be Filed as Exhibits Exhibit (a)(1) Letter to stockholders dated July 16, 1999. Exhibit (a)(2) Form of press release dated July 16, 1999. Exhibit (c)(1) Copy of the section entitled "EMPLOYMENT CONTRACTS" on pages 15-16 of the Proxy Statement of the Company dated July 2, 1999. 11 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: July 16, 1999 TSI Incorporated By /s/ James E. Doubles ------------------------------------- James E. Doubles, President and Chief Executive Officer 12 EX-99.(A)(1) 2 LETTER TO STOCKHOLDERS TSI Incorporated 500 Cardigan Road P.O. Box 64394 St. Paul, MN 55164-0394 [LOGO]========================================================================== July 16, 1999 Dear Fellow Stockholder: On July 15, 1999, your Board of Directors met with representatives of our investment banking firm William Blair & Company and our counsel to consider John J. Fauth's revised $14.00 offer to purchase your shares. At this meeting your Board was unanimous in its decision to reject Fauth's offer. The Board believes it is not in the best interest of TSI or its stockholders, it is highly contingent and there are no assurances that financing would be available to carry it out. DO NOT TENDER YOUR SHARES TO FAUTH! WE HAVE INSTRUCTED OUR INVESTMENT BANKERS TO SEEK ALTERNATIVES, INCLUDING OTHER OFFERS. Let me explain some of our reasoning as to why we determined that Fauth's offer should be rejected. o TSI's Board believes it can obtain a more attractive offer. We have instructed our investment banker to explore strategic alternatives, including seeking offers of greater value and undertaking further discussions with Fauth and his representatives. o Among other things, the offer is contingent upon stockholders at the Annual Meeting approving Fauth's proposals, which would waive several hostile takeover provisions. The Board believes that the removal of these provisions would strip the Board of its ability to control the acquisition process in order to obtain the maximum price for TSI's stockholders. As a result of your Board's firm rejection of the $12.50 proposal and earlier proposal at an even lower price, Mr. Fauth has raised his price to $14.00 per share and commenced a tender offer. These provisions work to benefit stockholders! o We believe Fauth's financing package is incomplete and highly contingent. Even if he can obtain the financing, your Board believes that a highly leveraged acquisition of TSI by Fauth would have significant adverse effects on the Company's relationships with its employees, customers, suppliers and other constituencies. o TSI's Board continues working on its goal of maximizing stockholder value. We just came off a record first quarter posting increases in sales and earnings of 28% and 108%, respectively. Further proof that TSI's growth strategy of internal development and acquisitions is working. In our opinion, TSI has excellent short and long-term prospects! VOTE THE WHITE PROXY CARD TO ALLOW YOUR BOARD TO CONTINUE WORKING TO MAXIMIZE STOCKHOLDER VALUE Consider that after your Board rejected his $12.50 per share proposal, which he termed "attractive," Fauth purchased 357,000 shares in a private transaction at a price of $13.50 per share. This represented an 8% premium over what he was offering to pay to all stockholders. It has been your Board's firm rejection of his prior inadequate offers that has demonstrated what we believe all our stockholders already know - TSI stock has been severely undervalued in the recent past! If Fauth's current tender offer at $14.00 per share is successful, our efforts to further increase stockholder value will be limited. Your Board believe its' efforts will be a much better avenue to maximize stockholder value. YOUR BOARD'S GOAL IS TO SEE TSI FULLY VALUED Support your current Board by signing, dating and mailing the WHITE PROXY CARD. Discard Fauth's green proxy card and DO NOT TENDER YOUR SHARES. Time is running short and it is very important that you vote today, regardless of the number of shares you own. Thank you for your continued trust and support. On behalf of your Board of Directors, /s/ James E. Doubles James E. Doubles Chairman, President and Chief Executive Officer - -------------------------------------------------------------------------------- IMPORTANT Regardless of the number of shares of TSI Incorporated you own, your vote is important. Please vote FOR management's nominees by signing, dating and mailing the enclosed WHITE PROXY CARD. Do not tender your shares to Fauth and do not vote the green card. If you have done either, you can change your mind. To change your proxy vote, simply sign and return a later dated WHITE PROXY CARD. You may withdraw any tender you instructed previously by sending written notice to the Depositary of the offer. Call our proxy solicitor at the toll-free number below to ensure that your withdrawal is submitted timely and in correct form. If you own your shares in the name of a brokerage firm, your shares will not be voted unless you give your broker specific instructions. So please sign, date and mail the enclosed WHITE PROXY CARD in the postage paid envelope provided. If you prefer, you may fax your card to our proxy solicitor at the number below. Corporate Investor Communications, Inc. Toll free: (877) 460-9337 Fax: (201) 804-8693 - -------------------------------------------------------------------------------- MAKE THE RIGHT CHOICE VOTE THE WHITE PROXY CARD AND DO NOT TENDER YOUR SHARES EXCERPTS FROM TSI INCORPORATED SCHEDULE 14D-9 This document contains excerpts from TSI Incorporated Schedule 14D-9; Solicitation/Recommendation pursuant to Section 14(d)(4) of the Securities Act of 1934 regarding the $14.00 per share tender offer of John J. Fauth, JJF Acquisition, Inc. and JJF Group, Inc., all located at 3100 Metropolitan Centre 333 South Seventh Street, Minneapolis, Minnesota 55402, to purchase a minimum of 50.1%, on a fully diluted basis, of the outstanding common stock, $.10 par value, of TSI Incorporated, a Minnesota corporation, with its principal office at 500 Cardigan Road, Shoreview, Minnesota 55126. On July 15, 1999, the Company's Board met with representatives of William Blair & Company and the Company's counsel to consider the Fauth Offer. At this special meeting, the Company's Board of Directors unanimously determined to reject the Fauth Offer, based upon the Board's determination that the offer is not in the best interest of the Company and its stockholders. The Board considered the Fauth Offer to be highly contingent and without adequate assurances that financing would be available to carry it out. In addition, the Board concluded that acceptance of the Fauth Offer and the Fauth proxy proposals would make it extremely difficult for the Company to seek out alternative transactions at a greater value. Accordingly, based upon its deliberations over the past six months, as summarized above, the Board of Directors unanimously recommends that the Company's stockholders reject the offer and not tender their shares. In reaching its determinations and recommendations described above, the Board of Directors considered a number of factors, including the following: 1. The numerous contingencies contained in the Fauth Offer, including many that are within Fauth's exclusive control. Other contingencies would require the shareholders at the Annual Meeting to waive anti-takeover provisions which have been in effect for Minnesota public corporations since the mid-1980's. The Board believes that these and other actions to be presented by Fauth at the Annual Meeting would strip the Board of its ability to control the acquisition process and obtain the maximum price for the Company's stockholders. In the last month alone, as a result of your Board's firm rejection of the $12.50 proposal, Mr. Fauth has raised his tender offer to $14.00 per share. 2. The extremely vague and incomplete financing package set forth in the tender offer. 3. The Company's business, assets, financial condition and future prospects, strategic direction of the Company's business, current conditions in the instrumentation industry, and the historical and current market prices for the Company's Shares. 4. The Company's carefully structured long-term plan of independent growth through internal expansion and selective, strategic, negotiated acquisitions. 5. The financial advice of the Company's independent financial advisor, William Blair & Company. This financial advice included extensive stock market information, discussion of possible future prices for the Company's Shares if the Company's plans are achieved, and discussion of other companies which have expressed an interest in the Company. 6. The opinion of the Company's management that the terms of the Fauth Offer are inadequate based on its knowledge of the Company's business, its views as to the long-term financial plan and future prospects of the Company, the Company's long-term research and development efforts, and the Company's recent acquisitions, including Environmental Systems Corporation. 7. Fauth's background and the companies he had previously acquired. 8. The Board of Directors belief that the highly leveraged acquisition of the Company by Fauth, as contemplated by the Fauth Offer, would have a significantly adverse effect on the Company's relationships with its employees, customers, suppliers and other constituencies. The Company's Board also authorized William Blair to continue its efforts to explore strategic alternatives, including seeking offers of greater value and undertaking further discussions with Fauth and his representatives. The following transactions in shares of the Company's common stock have been effected during the past 60 days by the Company or any executive officer, director, affiliate or subsidiary of the Company: o On July 13, 1999, Kenneth J. Roering, a director of the Company, acquired 3,000 Shares at $8.00 per share for a total of $24,000 upon the exercise of stock options; o On July 15, 1999, Lawrence J. Whalen, a director of the Company, acquired 3,000 Shares at $8.00 per share for a total of $24,000 upon the exercise of stock options; o On July 15, 1999, Donald M. Sullivan, a director of the Company, acquired 3,000 Shares at $8.00 per share for a total of $24,000 upon the exercise of stock options; o During the period May 28, 1998 through May 27, 1999, a total of 68,189 Shares were purchased under the Employee Stock Purchase Plan of 1994 (the "1994 Plan") at a price per share of $7.04 (85% of fair market value of $10.875). The number of employees participating during the period under the 1994 Plan is 163. o During the period commencing June 22, 1999, and ending June 21, 2000, a total of 120,000 Shares have been elected for purchase under the 1994 Plan at initial price per share of $9.56 per share (85% of fair market value of $11.25). The number of employees participating during this period under the 1994 Plan is 289, including James E. Doubles and Robert F. Gallagher, executive officers of the Company. To the best of the Company's knowledge, none of its executive officers, directors, affiliates or subsidiaries presently intends to tender into the Fauth Offer any Shares which are held of record or beneficially owned by such persons. The Company, directly or through William Blair, is engaged in preliminary exploratory discussions with a number of companies concerning a possible business combination. The Company also is discussing the sale of one of its subsidiaries. William Blair also is assisting the Company as described in Item 5 above in exploring options for enhancing stockholder value. Except for the foregoing activities, no negotiation is underway or is being undertaken by the Company in response to the Fauth Offer which relates to or would result in (1) an extraordinary transaction, such as a merger or reorganization, involving the Company or any of its subsidiaries; (2) a purchase, sale or transfer of a material amount of assets by the Company or any of its subsidiaries; (3) a tender offer for or other acquisition of securities by or of the Company; or (4) any material change in the present capitalization or dividend policy of the Company. Please see the Company's Proxy Statement dated July 2, 1999, for additional information. EX-99.(A)(2) 3 FORM OF PRESS RELEASE FOR IMMEDIATE RELEASE Robert F. Gallagher, CFO (651) 490-2756 TSI BOARD REJECTS FAUTH OFFER; IS COMMITTED TO MAXIMIZING STOCKHOLDER VALUE; HAS INSTRUCTED INVESTMENT BANKERS TO SEEK HIGHER OFFERS TSI's Board of Directors announced today that, after carefully considering numerous factors, it unanimously rejected John J. Fauth's $14 per share tender offer to buy the Company. The Board will continue to work with William Blair & Company, its investment banker, on ways to maximize stockholder value, including aggressively pursuing offers of higher value. The TSI Board urges stockholders to reject Fauth's offer and not tender their shares, emphasizing that it is important for all stockholders to vote with the white proxy card for the existing Board so they can continue the process of seeking the greatest value for all our stockholders. Donald M. Sullivan, Board spokesperson and former Chairman and CEO of MTS Systems Corporation, commented, "We are not at all sure that Mr. Fauth's offer is viable since it is contingent on numerous conditions, including his obtaining financing and succeeding on all points of his proxy contest. We also believe TSI is worth more and have instructed William Blair to seek such offers. We have already held exploratory discussions with a number of parties who have expressed interest. Mr. Fauth will be invited to join in this process." Sullivan continued, "The TSI Board's goal is to maximize stockholder value. We just completed a record first quarter with a 28 percent increase in sales and 108 percent increase in earnings. We believe the Company has excellent short and long-term prospects." The Company has filed a Schedule 14D-9 Solicitation/Recommendation statement with the SEC, which details the reason for the Board's rejection. This press release contains forward-looking statements that involve a number of risks and uncertainties. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include uncertainties relating to competition and technological change, setbacks in product development programs, slower-than-anticipated customer acceptance of new products, delays or cancellation of government procurements, dependence on certain key industries, and risk associated with the Company's acquisition strategy and international operations. TSI is a diversified, worldwide leader in providing measuring instruments for two major market areas: the Safety, Comfort and Health of People; and Productivity and Quality Improvement. The Company's common stock is traded on the national over-the-counter market under the Nasdaq symbol TSII. For more information see our web site at www.tsi.com. EX-99.(C)(1) 4 EMPLOYMENT CONTRACTS Exhibit (c)(1) Excerpt incorporated by reference from Pages 15-16 of the Proxy Statement of TSI Incorporated dated July 2, 1999 EMPLOYMENT CONTRACTS TSI does not have long-term employment contracts with its executive officers. At its June 16, 1999, board meeting, your Board approved stay in place agreements for each of the three executive officers (Messrs. Doubles, Gallagher and Nystrom). The Board did not approve these arrangements as an anti-takeover device although Mr. Fauth may characterize these as such. These agreements are designed to encourage the executive officers' continued employment with TSI notwithstanding offers which may come to them during the current period of instability caused by Mr. Fauth's actions. Under the terms approved by your Board, in the event of a change of control, these executive officers will be entitled to receive as severance upon a constructive discharge of their employment without cause, a lump sum payment based upon their current compensation and fringe benefits (exclusive of stock options). With respect to Mr. Doubles, the severance would be equal to two years compensation and fringe benefits if a constructive discharge is within one year of the change in control, and one year compensation and fringe benefits if a constructive discharge is between one and two years after the change of control. With respect to Messrs. Gallagher and Nystrom, the severance would be equal to one years compensation and fringe benefits if a constructive discharge is within one year of the change of control, and six months compensation and fringe benefits if a constructive discharge is between one and two years of the change in control. TSI is currently negotiating terms of these agreements with the officers. Based upon the terms approved by the Board, a constructive discharge within one year after change of control would require payments estimated a $626,000, $184,000, $124,000 for Messrs. Doubles, Gallagher and Nystrom, respectively. -----END PRIVACY-ENHANCED MESSAGE-----